Are your misperceptions about life insurance keeping you at risk?

Submitted by statecreative on Mon, 11/24/2014 - 17:29
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Most people agree that life insurance is crucial for their family’s financial security, but they think it’s probably too expensive, so they procrastinate. Does this sound like you? If so, you may be allowing inaccurate misperceptions to cheat you out of financial peace of mind!

According to the 2014 Insurance Barometer Study by nonprofit Life Happens and the insurance industry research group LIMRA, about 65 percent of consumers acknowledge they need life insurance, while about 27 percent feel they need even more than they have. But 95 million adult Americans have no life insurance at all, and of those who feel they need it, 86 percent haven’t bought it because they think it costs too much.

Does life insurance really cost that much?

The Barometer Study revealed that more than 80 percent of Americans actually overestimate the cost of life insurance. For example, when asked what they thought a $250,000 term life insurance policy would cost for a healthy 30-year-old, individuals under the age of 25 guessed $1,000 – almost 10 times the actual cost of $150 a year. Almost one in five people in that age group guessed the same policy would cost $3,000 or more.

Another misperception is that it’s too complicated to figure out just how much coverage to buy. But that calculation doesn’t have to be difficult.

How much life insurance is enough?

One general rule of thumb is to have enough coverage to equal five to ten times your annual salary. But don’t just follow an arbitrary formula. To make sure you get adequate coverage for your situation, you’ll need to conduct a thorough “needs analysis” – an evaluation of your family’s most vital financial obligations and goals. Here’s what your analysis should consider:

  • Your debt. You don’t want your surviving family to struggle with debt, so you’ll need to consider your mortgage, credit cards, student loans, funeral expenses, and any other debt.
  • Education expenses. If you want your children’s college education covered if something happens to you, don’t forget to include that in your calculation.
  • Family income. You’ll want to provide a sufficient income for your family to maintain their standard of living. How much is that? It depends on your age, health, retirement plan benefits, Social Security benefits, and your spouse’s earning potential.
  • Estate taxes. Life insurance can help you establish liquidity at death to pay estate taxes and maximize the amount that gets passed on to your family. You’ll need good legal advice here.
  • Existing resources. Are your current assets and retirement plan death benefits enough to cover your family’s financial needs and obligations if something happens to you? If not, consider funding the difference between your total assets and your total needs with life insurance.

The best advice? Work with a financial advisor who can help you answer the tough questions and figure out exactly what you need. You’ll want to figure out how much Social Security will provide and for how long, how to “inflation-proof” your family’s income, and how to structure your estate to reduce the impact of estate taxes, among other concerns. A good financial advisor can walk you through every consideration.

Life insurance can give you and your family stability and financial peace of mind. Don’t let misperceptions leave you in the precarious position of being one accident or illness away from financial disaster. Talk to the life insurance experts at Heffernan Insurance to see how easy and affordable that peace of mind can be.