Life Insurance

What’s the worst that could happen? In the insurance world, the worst means dying and leaving your loved ones without your income – or your business without a leader – when there are bills to pay, kids to put through college, or payroll to run.

Life insurance is a contract between you and an insurance company. The company agrees that when you die, they’ll pay a sum of money to your beneficiaries so that they can take care of expenses while figuring out their next steps without you.

In exchange, you promise to pay regular amounts – called premiums — to the life insurance company. You also promise to be honest and upfront about your health, occupation, and hobbies when you apply for insurance. The company will take those factors into account when deciding how much insurance they’ll be willing to pay out – the death benefit – and how much your premium payments will be.

Sound complicated? It can be. If you have health issues or other risk factors, the willingness of a company to sell you insurance and the price you pay can vary greatly. Tax advantages might make some types of insurance fit your situation better than others. You may have coverage from your employer affecting your need to buy additional life insurance.

You’ll also want to figure out the type of insurance you need. Some policies build cash value over time – so-called permanent insurance — making them great for accumulating savings. Others, like term life insurance policies, are good for income replacement. Whether you’re looking for a basic term policy or something more complex, an insurance broker can help you understand what you need and which company has the best-fitting policy.

Then there’s the marketplace. With upwards of 800 life insurance companies in the U.S., comparison shopping can be a huge task.

So how do you take the first bite of this elephant? We suggest thinking carefully about who would need money after you’re gone. If you have

• Children or family members who depend on your income – especially if you are a single parent or are planning to grow your family.
• A mortgage or other significant debt.
• Private student loans not dischargeable at death (check with your lender).
• A business or other venture that would need to hire your replacement, pay off debt, or buy out your ownership shares.

…then you probably need life insurance. Setting up income replacement for your family and capital replacement for your business will give you more than peace of mind. It gives guidance and support to those you leave behind just when they need it most.

You may want to buy life insurance if any of the following applies:

• You want to accumulate money for retirement but have maxed out your 401k and IRA contributions.
• You have enough wealth to trigger estate taxes when you die. If set up correctly, insurance proceeds can be used to pay those taxes.
• You’d like to leave a bequest to persons or charity.

How much life insurance do you need? A good rule of thumb is 8 to 10 times your annual gross salary, if you’d use the insurance to replace your income. Many factors can push coverage amounts up or down: your age, ages of family members, insurance you may get from your employer – and of course, how much you want things to continue without you. It’s a good idea to run the numbers with a professional, especially if they can provide life insurance quotes from many different companies.

A well-qualified insurance broker can also help with the application process. This includes filling out an online application including questions about your medical history, giving written permission for the company to obtain your medical records, and maybe even a brief medical exam done by a medical professional whom the company hires and sends to your home or place of work. It can get very personal! Your broker can guide you through the process.

A life insurance policy is a basic and necessary part of personal finance for nearly anyone who has financial obligations beyond themselves. Are you ready to have that discussion? The independent insurance brokers at Monarch Insurance Partners are here to answer your questions and get the ball rolling.