June is upon us, half the year is over, plans for the year should be well underway. What about financial plans? Ask yourself: Do I have a strong foundation in place should the unexpected happen? If a major emergency were to happen, it could wipe out one savings, one’s investments and one’s retirement. The best plan would be to have a strong foundation initially in place, then tackle debt management, follow this with setting up an emergency fund and then consider investments. Unfortunately, there are a lot of people who do the reverse … focus on investments and then maybe an emergency fund … debts are when they can get to it and just pay the minimum and protection is just something that might throw in just in case someone might die. A strong financial foundation, however, should be the first and foremost in a financial plan. In this way, should something happen to the major breadwinner or that stay at home parent, the entire lifestyle and household will not be turned upside down. Also, wealth will be there to supplement retirement. There are certain challenges that families will face that concern protection, including: protection of life, protection of health, disability protection. There are challenges that concern money, including reducing liabilities and getting out of debt; dealing with the monterey impact of constant changes in job, career, or business or living a secure long life with adequate income.
This can all be addressed with a proper protection foundation. When we are younger and starting families, there are certain responsibilities that the breadwinner may have. Responsibilities that can be devastating should the breadwinner be gone and adequate protection not be able to take over. Such things as paying the bills, the mortgage, health insurance, paying debts, educational expenses. The mistake that is often made is getting insurance to cover these expenses, but only for the breadwinner which has traditionally been the man. The stay home spouse does not have insurance. But consider the responsibilities of the stay home spouse that would have to be replaced at great expense should something happen to the stay home spouse and there’s no protection. Things such as cooking, taking kids to and from school, taking kids to and from sports, shopping, preparing meals, staying home while the other parent is at work all would cost thousands of dollars to replace.
Just how do you determine how much protection is needed? How do you determine what this foundation should be so the family can go on even with the devastating death that takes away major contributors to the household. How does one also plan to make sure there’s enough money in the future should both spouses continue on and live a happy life into retirement so that responsibilities have decreased and wealth should have increased and they can enjoy without worrying about running out of money? There are ways of determining how much protection is needed. One such way is the D.I.M.E. method. With this method for each spouse or each partner that supports the household, whether they’re working as a breadwinner or stay home parent … total the amount of debt, amount of income, (10 times the annual income) the mortgage payment, educational costs. For a stay home parent total what a childcare person would cost, a housekeeper that also cooks and grocery shops, and someone to transport the kids. Or consider how much retirement supplement will be needed per year. This will give you an idea of the total amount insurance needed by each spouse or partner in the household. This will also determine how much cash will need to be accumulating inside the policy. It is important to get the exact amount needed. In fact it’s imperative. One would not have a $50,000 car and get $10,000 worth of insurance nor would one have a $500,000 house and get $100,000 worth of insurance. In planning for protection, the family must consider what is needed and get the amount of insurance to cover that need.
Next, examine how insurance premiums or monthly payments are calculated and how you measure up in the calculation. There are various rate classes: preferred elite, preferred standard, preferred non-smoker, smoker and table rated. Table rated is going to be the more expensive because that includes people who have major health issues. Insurance companies consider such things as health, medication, tobacco use, driving record, criminal record, height, weight, family health history, ailments, if you have risky hobbies, risky jobs, or anything in your lifestyle that could shorten a lifespan. The more risk or decline in health, the higher the premiums will be. Where do you fit in?
Next, consider what kind of protector you need. Do you want temporary or term which only covers a certain amount of years, is cheaper but has no cash value? Do you want permanent insurance which has cash accumulation that will also allow you to plan for retirement and not outlive your money? Do you want whole life or universal life? Each has its advantages and disadvantages.
In the end you must ask yourself:
If I buy term, and invest the difference, do I have enough investment at the end of the term so I do not have a need for insurance?
- Do I need final expense insurance?
- Do I want a policy that gives tax deferred earnings, tax free withdrawals and tax free loans?
- If I have a limited budget, but want to protect my spouse/partner and children would the less expensive term be best?
- If my parents have health issues, but I want them to have some coverage what is available?
- If I want long-term growth and don’t want to lose money, should I consider an IUL?
- WHAT IS BEST FOR ME AND MY FAMILY?
The information in this article should not be interpreted as accounting, legal, investment or tax advice. That is not an offer or solicit to any insurance or investment product. It is merely me sharing some of the information. I have learned over the years in hopes that it gives you a little more enlightenment in the world of finance.