A common question we are asked is, “how much insurance should I have?” As wealth managers, we evaluate all types of insurance, from life, health and disability insurance to property and liability insurance. When providing life insurance guidance, we take into consideration your current age and stage of life, your health situation, and your financial situation. Most importantly, we look at whether you have a family that depends on you and what their financial situation would be if you were to pass away suddenly.
Types of Life Insurance
Life insurance policies can be broken down into two types: “Term” and “Cash Value”. Deciding which is best for you depends on a number of factors.
Term insurance is the low cost alternative. Your policy stipulates the length of time in which you’re insured, such as the next ten or twenty years, and the exact amount of coverage that will be paid out as a death benefit. Term policies are not investments; when they reach their expirations, there is no payout. However, since their cost is only for the life insurance component, the premiums are far lower, freeing up money in your budget that can be invested for the long term.
Cash Value life policies are generally more costly than term insurance. They do not have a set expiration like term policies do. A cash value policy will stay in force as long as there is enough in the cash account to pay the insurance and administrative costs of the policy. Excess cash in the account may earn interest, such as with whole life or universal life policies, or it may be invested such as with variable life policies. As the cash value grows over time, it can be used to pay future premiums, or it can be distributed by borrowing from or surrendering the policy.
Your best interest
As your life situation changes, so too should your life insurance coverage. Getting married, having children, or changes in your career or your health situation are all important opportunities to adjust your plan. Particularly as these life events happen, it’s important to sit down with a professional and evaluate your policy. They can help you update your goals and ensure that you have proper coverage going forward.
In order to make sure that your best interest is being served, check to see if the person you’re consulting with does not have a vested interest in how you define your investment strategy including life insurance policy. Getting life insurance advice from an agent that works directly for an insurance company or stands to gain a commission may influence the advice they give.
The best way to ensure there is no conflict of interest, is to consult a fee-only professional planner, such as the certified financial advisors at Blankinshiip & Foster. We uphold the fiduciary standard, which quite simply means we’re obligated to place your interests over our own.
When you meet with your financial advisor at B & F, they will help determine the best investment strategy for you now as well as how to reach your goals for the future. We’re committed to tailoring your financial plan specifically to your needs. Our advice is integrated across all the areas of your finances, and that includes providing guidance on life insurance.
Although our office is in San Diego, B & F works with clients from all over the greater Southern California area. Schedule a consultation today to learn more about how our complete financial planning services can help