One thing we have all learned over the last few months is that life can change drastically in a very short time. It may be that you have been contemplating ways to protect your assets and loved ones if something else unexpected were to happen. Life insurance was created to do just that, so it may be a good idea to review your policies. However, just like everything else during the pandemic, the industry has changed. Below we offer some advice on how to approach purchasing term life insurance.
Think of term life insurance like renting – you are paying each month without building equity in a home. The policy does not build a cash value, rather it covers you for a specific amount of time with level premiums. Typical terms run from 10 to 30 years and during that time you are covered for the stated amount of the policy if something happens. It is the most straight-forward life insurance product – set amount of time, set premiums, set benefit.
For the 18-60 age bracket, the biggest change in purchasing term life insurance is the underwriting, or risk assessment, process. It used to be that after submitting an application, a nurse would come to your home to take your blood pressure and draw blood for testing. Due to the pandemic, insurers are now instead reaching out to your doctors and reviewing your prescription history to determine your health risk. That assessment will determine both your eligibility for and the cost of your policy.
Most people who come to us looking for life insurance are doing so because they have a family to protect. At Wharton & Power Insurance, we work with our clients to determine how much coverage they need to provide for their loved ones. Our approach follows an income replacement formula. For example, what happens if you as the breadwinner dies unexpectedly? What needs to happen immediately to ensure that things stay as close to “normal” in this new normal? The first concern is replacing your lost income.
Say you make $100,000 per year. Financial planners suggest you follow a 4% ratio, meaning 4% being the max you can take out of an investment account to sustain the principal over your family’s lifetime. In this scenario, you would need a $2.5 million term life policy to replace the $100,000 per year income.
Term life insurance is one of the least expensive ways to protect your family for the unexpected. If you consider the amount of money you will make over your career, your family is looking at missing out on millions of dollars of income. At Wharton & Power Insurance, our goal is to find the right policy for your situation, and one that will sustain your family for a long period of time.