Ensure you're Insured

When I started in this business, I worked as the assistant to a financial advisor. He was both my boss and my mentor, and played a fundamental role in shaping my professional life. This man not only taught me about the investment business, he taught me how to deliver an excellent level of client service, the meaning of true generosity, and how to Do The Right Thing. Unfortunately, he had a bum ticker, and he sadly passed away during heart surgery at the age of 49. Because of that, he also taught me about the importance of life insurance.

The best posthumous gift that you can leave to your family and loved ones is financial security. Unless you do a proper Financial Needs Analysis, you may have no idea how much is required to achieve this security. Here’s a morbid exercise to try – make an “After Death” budget. What that means is, take your current budget (you all have a detailed spreadsheet itemizing your current monthly and yearly expenses, right?), and then re-imagine it after your death. If you have a mortgage or children or both, chances are that your family’s expenses will not be that much lower without you there. What will be lower is the family income. That’s why the primary objective of life insurance is income replacement.

When I sat down to do this exercise for myself several years ago, I was shocked at how much insurance I supposedly needed. In fact, the objection I hear most often from clients is that they do not need this much coverage.

Well, you do, and here’s why: if your family lives on $60,000 per year, and you want to maintain their standard of living for at least the 25 years it might take for your baby to grow up, move out and be financially independent, you’re looking at $1.5 million. If you and your spouse split all expenses 50/50, then you personally still need at least $750,000 of life insurance. Do the math, and then ask yourself: if I die, do I want to leave some money for my family, or do I want to leave them all the money that they will need?

The good news is that the younger you are when you apply for life insurance, the cheaper it is. As we age, our insurability declines even if we don’t have unforeseen health complications. (Why? Because of course, statistically, older people are more likely to die.) My former boss had his insurance policy in place as a young man, long before his cardiac troubles were discovered. In a worst case scenario, if you become ill or otherwise difficult to insure, the coverage you purchased as a healthy person can be renewed at a guaranteed rate at the end of the term.

Before my boss’s passing, I had not experienced the process of making a life insurance claim. First lesson I learned: in the event of your death, it is so important to have a trusted person to advise and guide your loved ones through the claims process. Insurance companies require a lot of paperwork and some hoop-jumping before they are willing to pay you. The broker who sold you your insurance policy should be competent and trustworthy, because this is the person who should be there to hold the hands of your executor or beneficiaries as they navigate this sometimes painful process.

Thinking about your own demise is not easy. Thinking about the potential demise of your spouse or loved ones is even harder. Life insurance is the price we pay for peace of mind.

The upshot of this is Do It Now. Find an insurance broker who you trust, and begin the process. Sit down with that person, make your budgets, and do your Needs Analysis. Rely on their resources and knowledge to get you the right product and coverage.