Thursday, September 3, 2020
Do you really need life insurance? And 5 more questions
about life insurance answered
One of the most common topics I'm supposed to cover for
Family Financial Savvy is insurance - which is also one of the areas i.e. - as
a former financial major and hedge fund analyst, about which I know least.
Fortunately, my friend is a partner at Daigle & Travers, one of the state's
leading independent insurance agencies. And he was kind enough to answer all
your questions about insurance.
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| life insurance |
This will be a multi-part series, starting with
the importance of life insurance for parents and families, with subsequent jobs
at home, car and other areas of property and accident insurance.
First, a few life insurance facts...
More than 37 million American families do not have insurance
coverage, putting them at great financial risk if their main earner dies
unexpectedly. This corresponds to 30% of households and 20% of households with
children under the age of 18.
However, the numbers almost double if you take into account
the adequacy of the coverage. LIMRA, a financial services research
organization, estimates that 48% of households (60 million) have a gap of more
than USD 200,000 on life insurance coverage. So how much life insurance do
parents need? What is adequate coverage? What other factors should you consider
when you take out life insurance?
The full interview with Eli Zimmer from Daigle &
Travers is published below. It has been edited for the sake of brevity and
clarity.
Do all families need life insurance?
Long-term insurance is suitable for most families. Term insurance is a life insurance policy
with a fixed term. For example, at the age of 30, you take out an insurance
policy that expires in 30 years. It is up to the policyholder to renew the
policy at the end of the legislative period. It is the cheapest insurance
cover, which is awarded per dollar, and provides cover when a devastating event
(death) affects the family.
Life insurance is appropriate for both parents, even if one
parent stays at home. Even if you're not the main earner, you're still
contributing to your family's financial security, either through a second
income or through big savings in childcare.
How often should you re-evaluate insurance coverage?
When reviewing the life insurance for parents, it is appropriate
to re-evaluate whenever a major life event takes place. This can be the case if
you add new family members (babies), make a big purchase (a new home), or if
you have a significant change in salary/lifestyle.
There is no formal sentence rule. It's a bit of science and a bit of personal
preference. Life insurance should help
replace current and future incomes while fulfilling some of the current debt
obligations (think mortgages) and future debt (think children's tuition).
For example, a 35-year-old earning USD 50,000 a year would
have USD 1,000,000 in income over the next 20 years, and that is before any
adjustment of inflation for future income increases. It is important to put this into perspective
when assessing the financial impact of a potential future tragedy.
How do you rate different options for life insurance?
The insurance cover is very straightforward. As long as you
look at insurance carriers with strong financial ratings (low credit risk), in
most cases the lowest premium should be decisive. There are very few moving parts in a
conceptual policy.
Carrier ratings should, however, be taken into
account. Insurance companies receive
ratings from five major credit rating agencies, and these ratings are publicly
available. These ratings indicate the financial strength and ability of an air
carrier to meet its current and potential future credit obligations, including
the payment of receivables on policies. In the case of long-term insurance, the
obligations may have to be paid in 20 or 30 years, and you want to ensure that
the carrier is profitable in the long term.
What do you want more families to know about life
insurance?
Life insurance for parents should not be considered an
investment. There are some types of life
insurance that are not discussed here, which are exceptions. But life insurance
should be seen as a small cost, the premium you pay to shift financial risks
from you and your family to someone else, an insurance institution. The
benefits are often not readily available, but it is considerable. And the
financial security and peace of mind it offers in the event of an outdated
tragedy can be immense.
What benefits do families receive from an independent
insurance broker?
Insurance expertise.
In terms of life insurance, navigating the details of policies,
carriers, and underwriting can have a significant impact on the outcome of the
insurance offering and the cost of a policy.
I would like to give Eli a big thank you for answering all
my readers' questions about life insurance inside. If you have more general
insurance issues, don't hesitate to send me an email, leave them in the
comments below, or join my private Facebook group - Family Finance Moms. For
more specific coverage and insurance issues, you should contact your insurance
broker.
Learn more about Eli Zimmer and Daigle & Travers
Eli Zimmer is a partner at Daigle & Travers Insurance
in Darien, CT. Eli has been a member of the Daigle team since 2006. After
growing up in Western Massachusetts, he went to Skidmore College. After
graduating, he worked for Head Sporting Goods and Paychex before moving to
insurance. During his insurance years, he was awarded for Fairfield County
under the age of 40, and in the last 5 years he has been named one of
Connecticut Magazine's top agents. Eli became a partner of Daigle & Travers
in 2012.