(WTNH)-September is life insurance awareness month and its an important reminder to make sure you have enough coverage for you and your family. John Caserta from Caserta and De Jongh, LLC, has some information on picking out the right type of coverage and when its a good time to do so.

  • How to determine the correct amount of life insurance coverage.

    • Economic Life Value – There are a number of different versions of this calculation. Regardless of the different methods of calculating, the goal of the formula is to determine the amount needed today to invest at a certain rate and replace the income of the person who has passed away.
    • Often times, people will think about the debts that they have such as a mortgage, credit card debt, and other liabilities. But choosing a coverage amount simply to clear these debts overlooks the need to replace future income.
  • Types of Life Insurance

    • 2 Categories

      • Term Insurance

        • Characteristics

          • Temporary
          • Relatively inexpensive premium in relation to the debt
          • Great for temporary liabilities
          • Can be the most expensive way to own coverage over the long-run
          • Can typically be converted into a permanent life insurance policy so great way to lock in coverage
          • Great for young families that are just starting out where liabilities may be high (i.e. young children, mortgage, student loans, etc.)

      • Permanent Insurance

        • Characteristics

          • Lasts as long as premium payments are made
          • Many different sub-types, such as whole life, variable, universal, etc.
          • Typically has a savings component that can be used as a savings account, supplemental retirement income, or even as a line of credit
          • The premium to fund a permanent insurance policy with the same death benefit as a term insurance policy is typically much higher than the term premium
          • Great for individuals seeking coverage while also looking to build equity that can be used.
      • Term vs Permanent Insurance = Renting an apartment vs. Buying a house
  • Why millennials should consider life insurance

    • Life insurance is based on a number of factor including age and health. The younger you are the less expensive is the cost of term insurance. And for permanent insurance, the younger the person is the less premium it takes to fund a policy (and the more time they have to accumulate savings in it).
    • If there is a co-signer on loans (student loans, car loans, etc.), the co-signer would be responsible for the debt in the event of a premature death.
    • Parent PLUS loans are federal loans which are forgiven. But the cancellation of debt can trigger income tax being due on the amount forgiven for the surviving parent.
    • It’s typical to want to “wait until I need it” but the assumption is that one will be healthy enough to obtain coverage when they decide to do so. Health issues can make it cost prohibitive or even impossible to obtain coverage. I recently had a client who had a term policy expire and he wanted to obtain coverage but before he got around to it, he had a medical issue that prevented him from obtaining coverage for 6 months.
  • When to get life insurance?

    • When you’re young and healthy
    • Even children can obtain policies with a savings component that can be used for college funding or any other future life events
  • Resources

    • Lifehappens.org – non-profit organization providing information on life insurance (and disability insurance). The site includes calculations for determining how much coverage is needed.
  • Guaranteed Issue Policies

    • Can be attractive alternative for those who cannot obtain coverage because of a specific medical issue but come with limitations. Typically, death within two years of obtaining coverage is not covered. And the premium would still reflect a “sub-standard” health rating.
  • Individual policies vs. group policies through work

    • Group policies through work can be easy to obtain and inexpensive
    • Group policies can have limitations – usually limited to a multiple of income.
    • If one changes employers, that benefit is usually gone.
    • It’s typically term insurance only with no savings component