|Written By: John Wesley, CLU, CH.F.C.
Sun Alliance Insurance Co.
|Originally Published in the January 1993
issue of The Outfitter Magazine.
When it comes to buying Life Insurance, how much is enough? What kind of plan should you buy? How long do you need it? Why are you buying it? How much can you afford? These are just some of the questions you should ask yourself when assessing your insurance needs.
Do you insure your business against fire? Of course you do, however for every fire, several mortgage holders die. Are all of you insured against premature death?
How much Life Insurance is enough? Let’s look at a typical situation of someone who wants to leave $2,000 a month of after tax income to their family. We are going to assume we can get a 9% return on our investment and that our taxpayer is in a 33% tax bracket. Taking all this into account, our client will need $400,000 of capital to produce this income without using the capital itself.
|$400,000 at 9% = $36,000|
|Tax 33% $11,880|
This is the amount to replace income; however, we haven’t even discussed Capital Gains Tax, funeral arrangements, unpaid debits, unpaid taxes, special bequests and many more.
When we get sick, we don’t go to a mechanic. When you need life insurance, go to a professional Life Underwriter. A good life agent will assess your needs, wants, desires and your budget before making any recommendations as to a product or plan. Look at your needs. Some of them are temporary and some of them are permanent. Your insurance program should reflect this and be flexible enough to adjust to the changes that you may make in the future. If you can’t afford to do everything now, then do what you can and plan to review in a year or so. It is very safe to say “Nobody has ever died with too much life insurance”, but it is also very wise not to pay more than you can handle. You don’t want to be insurance poor (paying so much for insurance you can’t enjoy life). You eat an apple one bite at a time, and when appropriate apply this to your insurance purchases. Rent the coverage (Term) and convert over time what you and your agent agree upon as a permanent base for the future. This is also a good time to mention that cheapest is not always the best. You get exactly what you pay for when you buy insurance. A professional agent will guide you through your purchase and help you plan and co-ordinate your program. Some Term insurance is cheap now, but renews at a much higher rate, or the company may not have a suitable plan to convert to. Your agent will be able to balance and weigh these decisions with you.
I’ve never forgotten that you pay for life insurance with your money, but you buy it with your health. Keep this in mind and take a longer term viewpoint than a year or two when accessing your purchase. Count on your professionals and they will help you in the decision making process.