We know that we will die one day but we will not know exactly when and under what circumstances we are going to die. Being in the insurance business for over 20 years, I have seen some people left either little or no money behind for their family. Far too many men and women are financially unprepared for the day they meet their Marker because of procrastination, fear and ignorance about life insurance and estate planning.
I know that many people do not like to talk about insurance and estate planning. Yet insurance and estate planning are two of the most important aspects of financial planning.
Proverbs 13:22 talks about good people who will have wealth to leave to their grandchildren. One of the best ways to achieve that is to have the proper amount of life insurance and do adequate estate planning.
We all do not like to talk about death and yet 100 percent of all people born today will eventually die.
Therefore you need to plan so as to ease the burden on your family when you make the transition.
There are four areas:
- Estate planning.
- A will or a living trust.
- Life insurance.
- Financial records.
Estate planning is not just for the rich but for everybody. Estate planning helps us to determine who get to keep our assets or estate. I will give you some general guidelines about insurance and estate planning. However, since this is a very complex area and each individual situation is unique, I recommend you seek wise and professional counsel before taking specific implementation steps. It may require input from tax attorney, life insurance agent or financial planner, banker and lawyer. I simply want to get you started in the process.
Life Insurance Planning
Why insurance? The basic purpose of insurance is to transfer the risk that one is not willing to take or unable to take to the insurance company who is willing to take the risk in return for compensation or premium payment.
The objective of life insurance is first, to protect the family income and net worth growth in the event of the death of the breadwinner and second to provide protection to maintain the estate (house, car, property) in order that it might pass on to the heirs.
Buying an insurance is not a shifting of trust from God to insurance. If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever. Insurance helps to give your family the opportunity to continue to live in a proper environment. ~ 1 Timothy 5:8
How much do I Need?
There is no one-size-fits-all solution, because the greater your financial need, the more life insurance coverage you require. Most people need enough life insurance to cover five to ten times their annual salary. This method is pretty simplistic because it does require you to address any specific insurance need such as education funding. You can explore another method that is based on a person’s financial needs that involves determining the expenses you need to cover.
Some of these expenses will include funeral expenses, income replacement, education funding, pay off of any outstanding debts and taxes.
With this method, you should also minus all other assets that you have accumulated to calculate your insurance coverage.
- Should I buy a term or whole life insurance?
Term-life insurance protects you for a specific term with no cash value. With whole life plan, the policy does not expire after a set period of tie. As long as you pay the premiums, the policy remains in effect. Sometimes, you need to buy a mix of both. Whichever you choose, you have to consider cost, coverage and complexity.
- Is it wise to have all my life insurance through my employer?
No, it is not wise to have all your insurance through your employer. The reason being you may leave or get fired from your job or you may want to have additional policy to protect your insurability. If you develop an illness such as cancer, finding affordable insurance or any at all will be difficult.
- Is there any other insurance cover that I need?
- Your health is the top priority. With advancements in medical science, treatment is available for a wide range of ailments and illnesses. However, treatment cost money and healthcare cost are expected to rise substantially in the future. Have you provided for such expenses?
Buying a critical illness protection plan will give you financial support for the treatment of critical illness even in the early stages. Some of other plans also cover protection against critical illness, total and permanent disability and loss of life. There are other standalone hospitalisation income plans, such as one that provides you with daily cash for each day of confinement in a hospital due to sickness or an accident.
- You may also like to explore buying a disability insurance. This is essentially pay check protection. If you are sick or injured and cannot work, disability insurance replaces up to 70 percent of your income.
It allows you to pay most of your bills. Please also consult your insurance advisor for your detailed planning.
- What four areas do I need to look into in my planning?
- Why is it important for me to buy insurance?
- How much do I need?