Most clients that I meet say that their priorities in life are providing for family, maintaining their current lifestyle, and planning for the future. While this means different things to different people, providing for family often includes affording basic necessities like food, shelter, and clothing. Maintaining current lifestyle often means continuing to pay the mortgage, saving for short-term goals, and making memories while on family vacations. Planning for the future often includes sending the kids to college and saving for retirement. Addressing these priorities requires careful consideration, financial balance, and your income. So, while many families may have the best intentions, how many consider what would happen if the most important force in addressing those priorities was gone: mom or dad?
While the economic downturn has created challenges for many families who may have tighter budgets, lower savings rates, and less in their retirement accounts, there is the hidden concern for most Americans who don’t understand how their family is protected against such a loss. Many say they would not be able to last a month without the breadwinner's salary, yet three in ten American households (35%) are uninsured, and half (50%) say they need more life insurance.1
Consider your personal experiences. Do you know family or friends who have been diagnosed with a life-altering illness? Do you know families who have prematurely and unexpectedly lost their breadwinner? How did this impact those families’ ability to provide basic necessities? Were they able to remain in their home? Were they able to send their kids to college? If the widowed spouse was a stay at home parent, how quickly were they able to get a new job and were they emotionally prepared to do so? As a result, was there an increase in the cost of childcare? Were they able to save for retirement, or their future?
Life Insurance creates financial security for families. While it will never replace the love of a mom or dad, it can replace their lost income and thus help to provide for family, maintain current lifestyle, and allow beneficiaries to plan for the future. By learning how your family is protected with life insurance, you can help to ensure that they would not have to leave their home, the kids can still go to college as you always intended, a stay-at-home parent could continue in that role, and your spouse could still save for retirement.
So, why aren’t Americans buying life insurance? The top two reasons people don’t buy life insurance are: competing financial priorities or because they think that they cannot afford it. Yet, a recent LIMRA/LIFE study found that consumers overestimate the cost of life insurance by as much as three-fold. 2 This is why it is important for consumers to talk with a financial professional who will help them organize their financial priorities, better understand their cash flow, as well as educate them on the various types of life insurance so that they can understand the cost and address their risk.
While many consumers do purchase group insurance coverage through their employer when available, they often do not understand the limitations or if that is enough coverage. One of the key limitations is that employer life insurance may not be portable, and you could lose your coverage if you leave that company, or if the company changes their benefits package. The result can have a devastating impact on families, especially if a change occurs in your health in that time which would prevent you from personally owning life insurance protection. Unlike other protection products, like auto or homeowners insurance which you can buy off of the shelf, life insurance requires underwriting based upon your health, age, and income. This makes it critical for Americans to get underwritten and secure protection while they are young and healthy.
Just how much protection is enough to create financial confidence for your family? I always recommend that clients begin by understanding their Human Life Financial Value which is defined as the present value of future income that you could expect to earn for your family’s benefit, plus other value you expect to contribute, less taxes and personal consumption through your planned retirement date. With the help of a financial professional, this can easily be calculated by taking a multiple of your income based upon your age.
September is Life Insurance Awareness Month. Take this time to understand how your family is protected.
1 Facts from LIMRA Life Insurance Awareness Month, September 2012 Newsletter
2 Facts from LIMRA Life Insurance Awareness Month, September 2012 Newsletter
Megan K. McAvoy
Financial Advisor, Park Avenue Securities
Registered Representative, a Financial Advisor of Park Avenue Securities LLC (PAS) and a Financial Representative of The Guardian Life Insurance Company of America, New York, NY, supervised from 140 Kendrick Street, C-1 East, Needham, MA 02494. Securities products/services and advisory services offered through PAS, a registered broker-dealer and investment advisor, 781-449-4402. PAS is an indirect wholly owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency Inc., an affiliate of The Bulfinch Group, Inc. The Bulfinch Group is not licensed to sell insurance. Neither Guardian nor its subsidiaries issue Long Term Care Insurance.
PAS is a member FINRA, SIPC.
FINRA, SIPC. 2011-1335