Immediate help: Life insurance can help people meet their financial obligations in the event of death. Some of the immediate expenses they can help make are funeral costs, outstanding medical bills or vehicle loans. *MCT photo
Immediate help: Life insurance can help people meet their financial obligations in the event of death. Some of the immediate expenses they can help make are funeral costs, outstanding medical bills or vehicle loans. *MCT photo

The purchase of life insurance may be one of the most important decisions you ever make.

However, it is a decision that most of us will put off until something happens that hits close to home. That’s really not too surprising since we all have a built in mechanism that puts off thinking about death, but that kind of procrastination can be devastating to a family or business.

There are three basics questions that have to be asked concerning Life Insurance and they must be asked and answered in the right sequence:

Do I need life insurance? How much do I need? What kind should I buy? Do I need life insurance?

Ask yourself, will anyone suffer financially when you die? This could be your spouse or children, aging parents, a business partner or your employees.

In all cases, if your answer is ‘Yes’, then you need Life Insurance. We may be inclined to think that those we leave behind will be okay, and that may be true, but remember, you won’t get the chance to change your mind once you are gone.

We need to face reality while we can do something about it.

How much do I need?

Experts recommend that you insure yourself for anywhere from 5 to 20 times your annual income. So how do you determine if you require $100K, $250K, $500K or more in life insurance coverage? The best way to figure out what you need is to ask a life insurance professional to conduct a financial needs analysis.

You start by gathering all your personal financial information and estimating how much your family members would need in order to meet their financial obligations in the event of your death.

To calculate this figure you need to think through three types of expenses:

1. Immediate expenses – funeral costs, taxes, outstanding medical bills and other debts such as vehicle loans and credit card balances

2. Ongoing expenses – money for your family to live on for a specific period of time to help pay for everyday living expenses such as food, utilities, mortgage/rent, transportation and health care

3. Future expenses – retirement or a college savings plan

After you have determined your family’s needs, tally up all the resources that your surviving family members can draw on to support themselves such as a spouse’s income or savings. 

The difference between your family’s needs and the resources in place to meet those needs totals your need for additional life insurance.

Term or permanent?

Life insurance fills the financial gap that exists between your financial need and your financial realities.

What kind should I buy?

There are two fundamental considerations that go into answering this question – how long will you need the coverage and what can you afford to spend?

How long will you need the insurance? 

This question will help you decide if you want term or permanent insurance.

Term insurance lasts for a specific period of time – five years, 10 years or even 30 years

Pros: good for temporary needs and it is affordable.

Cons: costs increase with age and you must re-qualify when the term expires, which can become more difficult with age as your health may not allow you to qualify.

Permanent insurance is with you for life.

The premiums are projected to remain level over your lifetime and in some cases can be designed to stop at retirement while your coverage remains in force for life.

Pros: you get life-long coverage, premiums are often unchanged and it accumulates cash value.

Cons: more costly than term when initially purchased and the amount insurance purchased may not keep up with the cost of living.

Warning: Many people underestimate how long they will need life insurance.

How long you need the insurance for is often determined by why you want the insurance in the first place — Is it for business or personal reasons?

Business uses for life insurance

Fund a buy-sell agreement in a partnership business.

Allows time to replace an owner or key employee.

Insurance on key employees or partners give job security to employees and provides a succession plan to lending institutions.

Personal uses for life insurance (Estate Planning)

Life insurance provides the funds to pay off a mortgage if there is a premature death.

Life insurance provides funds needed if inheritance tax is due for property that you have inherited which is not Registered as Primary Residence.

How much money do you have in your budget for this expense? 

It is important to purchase an amount (premium) you can afford to pay.

Remember this will ensure that what matters to you remains protected.

Where do I purchase life insurance?

Life Insurance is a long-term investment and commitment. Therefore, you should research the company you are contemplating for this purchase. Here are five things you need to consider before you make your purchase (listed in order of importance):

Financial Rating – This is an excellent indicator of the strength and stability of a company.

Products – Does the company offer the products that are right for you?

Customer Service –Prompt response to the client means prompt response to beneficiary.

Claims Ethics - Does the company have a record of paying claims promptly?

Premium Cost- Are you getting the best value for your premium dollar?

A properly designed insurance programme is as essential to a sound financial plan as a strong foundation is to a home. Do it right and the future is secure.

Jonathan Robinson is the sales manager at Colonial Life Assurance Company Ltd.  For more information, e-mail JonaR@colonial.bm, call 293-LIFE (5433) or visit www.cgigroup.bm.