Have You Updated Your Life Insurance Yet?
I asked my wife on a date. I’d fly, we’d grab lunch, tour a museum, and then head home. Sitters for the kiddos were secured and the weather forecast couldn’t have been better. This would be her first flight with me. “Have you updated your life insurance?” she asked. I was expecting a “yes”, “no” or “maybe.” Mostly I was expecting “yes.” You can imagine my surprise at her question.
I was slightly taken aback, the smallest bit insulted at her suspicion of my piloting abilities and, as a financial planner, pleasantly pleased all at the same time. I understood her position. Having recently earned my pilot certificate she knew my current life insurance policy contained an aviation exclusion. This means that if the worst were to happen, my policy would fail to payout. Since she would be sitting in the seat next to me and would likely share the same fate, she wasn’t thinking about herself. True to form of a mother of young children and a mother in general, my wife was thinking about our little ones. If something were to happen, it would be bad enough they’d live on without both parents. Would they have to do so without the financial ability to receive the care and pursue the dreams we would have wanted for them?
Insurance - in all its forms is a protection we pay for, but hope we never have to use. However, when we need it, we are grateful for having it.
We are conditioned to receive goods or services immediately upon paying for them. This can often leave us in a mental dilemma. Why should I pay for something I may never use? But, we wonder, what would I do if something happened, and I don’t have it? Federal law requires all motorists to have car insurance, and mortgage lenders require homeowners’ insurance as a condition for lending. Protecting our loved ones in the event of an untimely death and ourselves against disability or chronic illness falls to us. How should you approach putting your protection in place?
1. Protection is protection and should be viewed as such. - This means you should ensure you have the right amount of coverage for your situation. Avoid being over insured as this leads to precious dollars allocated towards premiums as opposed to working more efficiently elsewhere in your financial plan. Avoid being under insured as this exposes you to more risk than you can absorb. If something were to happen to you while being underinsured, the likelihood of you or your loved ones meeting your financial goals is quickly reduced. Protection is protection also means it is typically not the most efficient vehicle for long-term capital appreciation. There are other investment options that are designed to accomplish that. While there are specific tax benefits that come with life insurance proceeds, those strategies should be discussed along with your estate planning needs.
- Take an honest assessment of your circumstances. - As you evaluate the risks you must make decisions on the amount of risk that is acceptable to you and your family. For married couples, I encourage spouses to have candid conversations and make these decisions together.
- Questions to consider:
- In the event of family disaster can we use our current assets to weather the storm?
- If we use our current assets, are we willing to adjust our future goals?
- If we use our current assets, can we rebuild them over time?
- Am I the primary breadwinner, and if so, would my spouse be burdened with debt?
- Does my spouse have the desire and ability to command an income that would allow them to maintain the lifestyle we’ve built together?
You probably know someone who spent time in a caretaking capacity for a loved one. The need for care as you age is extremely prevalent in the U.S. According to the U.S Department of Health and Human Services, “someone turning 65 years old today, has an almost 70% chance of needing some type of long-term care services”1 throughout the remainder of their life.
- Additional questions to consider:
- If I had a chronic illness later in life, how would I like to receive care?
- How important is having the ability to choose how I receive care and where I receive care?
- Is my spouse or other family willing and able to provide adequate care in the event of a chronic illness?
- What does the average person spend on care as they age, and can I use my current assets to pay for it?
- How important is leaving assets to my children or charities I’m passionate about?
Insurance is simply a method of protecting you and your loved ones from unexpected and unfortunate events that may come your way. When evaluating your need for insurance, evaluate if you can afford not to have it.
As for my wife’s question, I was able to let her know that I was working on it! I had just finished talking with the insurance carrier earlier that day to get the ball rolling to update my policy that would not exclude my aviation activities. Oh, and she ultimately said yes to the flight. Click here to watch the highlights. She’ll be the first to tell you she enjoyed the time together but probably will not be racking up frequent flier miles with me.
-Timothy P. Pope, CFP®
How Much Care Will You Need? (2020, 02 18). Retrieved from www.longtermcare.gov: https://acl.gov/ltc/basic-needs/how-much-care-will-you-need