By Mike Guarino
If you were to die tomorrow, what would happen to your family? Would they be able to cover their basic living expenses? Would your kids be able to go to college? Although many people try to avoid this uncomfortable topic, the answers to these questions are vital to your family’s well-being. According to a 2017 study conducted by LIMRA, more than half of consumers say they would have immediate or near-immediate trouble covering living expenses if their primary wage-earner died. But despite this bleak statistic, only 54% of Americans having any form of life insurance at all. And of those who do have coverage, more than 30% say they are underinsured.1
While there are many important aspects to financial planning, such as setting goals, aligning your portfolio with your risk level, and planning for future life milestones, life insurance plays a critical role when the necessary time comes. The tricky part is knowing if you need life insurance and, if so, how much and what type is appropriate for your situation. This is where a life insurance review comes in. Here are three questions we will discuss during your life insurance review with us at Guarino Wealth Management.
Do You Even Need Life Insurance?
The first question to address is whether or not you even need life insurance in the first place. You’ll want to determine if you have enough money saved so that your death would not create a financial hardship for your loved ones. A single young adult with no dependents may not need life insurance if his loved ones can easily afford a funeral and burial and are willing to pay for it themselves. If you do have a family depending on you and you have several million dollars safely stored away, your death may not cause a financial hardship to them either, as there should be enough to cover funeral and final expenses as well as ongoing needs such as housing, college tuition, etc.
If you don’t have enough money saved, you should consider purchasing life insurance to protect your loved ones in case you pass away. And even if you do have enough money saved, you may still want to consider purchasing life insurance for other benefits that it can provide, such as living benefits and diversification.
What Type Of Life Insurance Do You Need?
Along with knowing how much coverage you need, you’ll also need to choose the type of life insurance that is most appropriate for your situation. The two primary types of life insurance are permanent and term.
Permanent insurance is coverage that is not limited to a specific duration of time, meaning it will last your entire life provided you pay your premiums and don’t let it lapse. There are several types of permanent insurance, including Universal Life, Indexed Universal Life, and Whole Life. The benefit of permanent insurance is that it will last longer than a term policy so that a death benefit will be paid to your beneficiary no matter when you die. In other words, you will not outlive it; it will eventually pay out. With that being said, this type of insurance is typically more expensive than term insurance. There are some situations where permanent insurance is the best option, but in general, term insurance can cover most of your insurance needs.
Term insurance offers coverage for a specified length of time, which can be anywhere from 10 to 40 years. The downside to term insurance is that it only covers you for that specified length of time, so if you pass away after the term is over, no death benefit is paid to your beneficiary. But depending on your situation, you may only need insurance for a certain time period—until your kids are grown or you have enough money saved to avoid financial hardship. One of the major benefits of term insurance, as opposed to permanent, is that it is usually the most inexpensive out-of-pocket option.
How Much Life Insurance Do You Need?
Unfortunately, there is no one-size-fits-all policy when it comes to life insurance. That is why during your life insurance review, we will conduct a needs analysis, which looks at various key factors to determine how much coverage you would personally need in order to adequately protect your family and assets.
The two biggest factors that affect how much coverage you need are your marital status and your financial dependents. For instance, if you’re single without anyone (child, spouse, or parent) depending on you financially, you’ll most likely just want enough to cover your funeral and burial costs. If applicable to you, you will also want to consider adding coverage for any final expenses and debts, because not all debts are discharged in death, such as private student loans and taxes.
If you’re married, you can use the DIME method to consider your general needs:
- Debt and final expenses
- Education costs
After calculating and totaling each of those dollar amounts, apply an income replacement multiplier to determine your needed coverage amount. This multiplier will vary based on your age and the status of your home mortgage. For example, if you’re under 50 years old and have a fairly new mortgage, you will likely use a multiplier of 20. Couples over age 50 may be able to use a multiplier of 10 or 15, depending on the number of years left on their mortgage.
Keep in mind that these are just guidelines designed to give you a general idea of the amount of insurance coverage you need. There are likely important adjustments and personalizations for your particular situation. What makes the most sense for your family?
Is It Time To Review Your Life Insurance?
Life insurance can be confusing, and it is often difficult to know if your policy is right for you. Through an insurance review, Guarino Wealth Management can help you examine your policies in depth so that you can have increased confidence that your plans are on track. If you are concerned about your life insurance policy or would like to schedule a review, call our office at (973) 625-1112 or email firstname.lastname@example.org.
Michael J. Guarino III, Wealth Advisor, CDFA®, is an innovative wealth advisor specializing in custom financial strategies for corporate executives and professionals from coast to coast.
Mike worked as a manager in information technology for 12 years at the headquarters of a Fortune 500 company before starting his own wealth management company, Guarino Wealth Management, in 2008. He knows what a day in the life of a busy corporate professional is like, and he chose to make his specialization in working with corporate executives and professionals.
Mike has a bachelor’s degree from William Paterson University and has diverse backgrounds in information technology as well as finance. He combines these two disciplines to provide specialized, comprehensive, and custom financial strategies to his clients.
Click here to schedule a complimentary 15-minute “FIT Phone Call” to find out how Mike can help you.
Guarino Wealth Management and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.
This article contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice.
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