The idea is simple—get enough life
insurance to protect your family from the potentially devastating impact of a
death.
While the concept is
straight-forward, as with many components of financial planning, deciding on
the appropriate type and coverage level of life insurance is not quite that
easy.
Beacon Financial Strategies
’
Philosophy Regarding Insurance
At
Beacon
Financial Strategies, we believe that insurance is a
necessary component of an effective financial plan.
However, in most cases, we do not believe
that insurance should be considered an investment or a "forced savings.”
As such, we generally suggest that clients
obtain adequate insurance coverage at the most cost-effective price.
How much life insurance is necessary?
The amount of life insurance needed varies for each individual or
family.
However, there are a number of
considerations when deciding on the level of coverage necessary including the
following:
-
Current assets that could be used
to cover living expenses for the surviving spouse (this would normally not
include retirement assets due to adverse tax implications on withdrawal)
-
Current
debt and income levels
-
Projected
income and expenses of the surviving spouse (including Social Security survivor
benefits)
-
Reasonable inflation and investment rates of return
estimates
What type of life insurance is most appropriate?
In general, there are two types of life insurance as follows:
Temporary
(or term) life insurance is the most straight-forward type of insurance
coverage to obtain.
Term life insurance
coverage is generally purchased for a set period of time (5, 10, 20 or even 30
year periods).
During the coverage
period, premiums and the death benefit are remain stable.
If the insured dies within the coverage
period, the beneficiaries of the policy are paid the death benefit.
If the insured survives the coverage period,
the insurance policy usually expires (or premiums rise dramatically).
Permanent
life insurance generally consists of two components, an insurance
component and an investment component (often called the cash value).
As its name implies, permanent insurance is
designed to provide life insurance coverage for the insured's entire life.
The most common types of permanent life
insurance are universal and whole life policies.
For more information
regarding various types of life insurance, please reference our article "Life Insurance
Alternatives.”
In most cases, we generally recommend term over permanent life coverage for
the following reasons:
-
We believe the "need” for life
insurance coverage diminishes with time as assets grow, debt levels decline and
children become independent.
-
Term
life insurance is generally cheaper than a permanent policy—particularly in the
early years of a policy when the life insurance coverage required is the
highest.
Are you
confident that you have adequate life insurance coverage? If you would like to
discuss your current coverage level in more detail, feel free to contact our
office.
Remember, we do not sell life
insurance or represent any insurance companies—so you can rest assured that you
will get unbiased and objective advice you can count on.