Life insurance is far from a one-size fit all solution, yet many individuals view it as they do the purchase of a new pair of gym socks. A recent conversation with a close friend left me with an uneasy feeling in regards to a belief held by many that their employer-sponsored life insurance is both enough protection, and the most appropriate solution to cover their family in the event of loss. While a generous addition to an employee’s compensation package, group life insurance policies have significant limitations which need to be better understood by the individual employee and their family to best determine whether or not they need to obtain additional coverage which more accurately reflects their unique goals. Most group coverage is a temporary form of life insurance. Individuals risk loosing this life insurance and placing their loved ones in jeopardy, should they leave the firm, or have their employment terminated. It is often suggested by advisors, that individuals should obtain life insurance in multiples of their current salary to offset lost income for years to come. While many advisors advocate young families to hold a life insurance multiple of 10X - 20X their current salary in order to properly provide for dependents, the vast majority of employer-sponsored group life policies only cover 1X, 2X, or 3X current salary. Not only does this represent a huge planning gap which could dramatically impact dependent’s quality of life; major sacrifices will need to be made assuming that lost income is not replaced. The key is to understand your coverage and how it directly impacts the lives of loved ones.
Everyday Risks
Whether it’s recognized at the time, or not, each day we take countless measures to reduce risk. From testing the temperature of the shower water prior to entering, to checking our rearview mirror before backing out of a parking space, to locking our front door, we do what we can to minimize the impact of potentially hazardous situations. Yet, while we almost instinctively prevent plunging into a boiling hot shower and reversing into oncoming traffic before 9am, a significant number of American families remain uninsured, or under-insured. Life insurance is arguably the single most effective solution to ensure loved ones are provided for when we find ourselves on the wrong end of risk. Mortgages do not disappear, and the cost of raising a child does not decrease when one spouse passes. As the saying goes, the only guarantees in the world are taxes and death. The difference however, is that taxes are due on April 15th each year. Death on the other hand may come when it is least expected. In 2010, according to The Life Insurance and Market Research Association (LIMRA), 40% households with children under 18, say they would immediately have trouble meeting everyday living expenses if a primary wage-earner died today. Having the opportunity to strategically plan for life’s greatest guaranteed risk is an item that needs to be addressed sooner than later.