BE FINANCIAL ED.
Life Insurance
Understand Life Insurance
Life insurance is a critical part of a family's financial strategy. It's important in building and preserving wealth. It ensures your family's ability to continue without being financially devastated. But many people do not understand life insurance by just signing up with their employer's group life insurance. There's no need for a medical checkup. Others get it free from their employer. However, the company may not provide enough coverage, and if their employment terminates, they won't have protection. They may also have difficulties buying individual life insurance if they have medical problems and need more coverage.
Are You Insurable?
Most life insurance requires medical exams, blood tests, and/or health records before a policy is issued. If you have health problems, life insurance companies may deny your application, or they may charge a higher rate. A lot of people are not insurable and may not know it. An estimated 80 million Americans have 1 or more types of heart disease. 1 out of 2 men and 1 out of 3 women have the risk of developing cancer in their lifetime. Thus, having life insurance as soon as you can while you are healthy and insurable as also qualify for better rates.
Some policies can be issued without a medical exam or with limited medical questions. These forms of "guaranteed" policies typically charge higher premiums and are only available on lower coverage amounts.
How Much Life Insurance Will Be?
The valuation method of life insurance is different from the valuation of car insurance or house insurance. According to the Life Insurance and Market Research Association (LIMRA), only 44% of U.S. households have individual life insurance, and the coverage is often not enough.
The Dime Method
The DIME method offers an easy formula to calculate your life insurance protection need. DIME stands for debt, income, mortgage, and education.
How to Calculate Your Protection Need
Example of a hypothetical case
Debt
$50,000 [Combined credit cards, loans, and other debts.]
Income
$360,000 [$3K/mo. ($36K/yr.) income replacement for 10 years.]
Mortgage
$200,000 [Mortgage balances.]
Education
$120000 [Assuming $15K/yr. for a 4-year college for 2 kids.]
TOTAL
$730,000 Protection Needed
Summary
With $730,000 of insurance protection, if anything happens to Client A, the surviving spouse will have enough to pay off $50,000 of debt, continue to have $3,000 income per month for 10 years or more, pay off the remaining $200,000 of their mortgage, keep the house, and still have $120,000 saved up for the 2kids when they are ready for college.