One of the most important factors in life insurance underwriting of significant health issues such as diabetes or heart disease is a person’s willingness to do what it takes to manage the health problem. If a person is compliant with their medical advice and keeps all the risk factors controlled, mortality experience improves and better life insurance rates follow.
Roche Diagnostics did a study recently that showed that 80% of adults say they would step up to the plate and do what it took to self manage a chronic illness. That would be great if it matched reality. In an article in Medical News Today , statistics show that those who actually do have chronic illness don’t do as well as others think they might at self management.
I don’t offer this to put any shame on those who are suffering from challenging health issues. I think the truth is that, like a lot of things in life, we tend to believe we can handle something we’ve never really experienced. We tend to think of these challenges in the context of making it through a day in someone else’s shoes. We don’t fully grasp that we might have to put those same shoes on every day for the rest of our lives.
Bottom line. Managing a chronic illness is hard work. If it’s not managed it will likely shorten your life expectancy. People who step up to that plate everyday have my respect and my prayers.
August 3rd, 2007
Again, referring back to yesterdays post on the Top 5 reasons people don’t buy life insurance when they know they need it, one of the questions I left unanswered was difficulty deciding how much to buy.
Well, back in the days of high interest income, it was simple. The standard answer was 10 times your annual income. The logic was that your spouse could put the death benefit into an interest bearing investment that would produce 10% or more and they could then withdraw an amount equal to the lost income every year and leave the principal amount intact for other purposes. Pretty simple and it actually made sense at one point.
Needless to say, long gone are the days of 10%+ guaranteed after tax returns on investments. There are several different calulators and methods out there. Here is a common method using income replacement alone.
Insurance Calculator
Using this type of calculator can at least give you a basic idea of pure income replacment. What it doesn’t do, that an independent agent can help you do is determine how other assets can offset part of the long term need for insurance. When you factor in other assets it can drive down the cost of insurance. It also begins to make clearer the need and logic of staggering your life insurance coverage.
August 3rd, 2007
As promised yesterday in reference to the Top 5 reasons people don’t buy life insurance they know they need, one of the reasons cited was “Have other financial priorities”. The bottom line, and I have this discussion almost every day with clients, is that budget absolutely has to be taken into consideration.
If I’ve said it once, I’ve said it hundreds of times. If it doesn’t fit in your budget, it won’t stay in force. If it doesn’t stay in force it won’t be protection for your family.
We all have financial priorities and I suspect on some level most people would like to make their life insurance one of those priorities. So, does life insurance really cost so much that it can’t be budgeted into an average families budget? The quick answer is not, it can be worked comfortably into most budgets, but let me give you an idea what happens.
It starts with an insurance agent that has their own agenda, primarily making tons of money. You really want $500,000 worth of insurance, so the agent quotes you $500,000 worth of whole life or universal life or some very expensive option. Let’s say he comes at you with an idea that is $400 per month. It’s more than your car payment. It’s more than you pay for utilities. It’s more than it would cost to have your child go to a private school. Well, the answer to that agent is that you “have other financial priorities” and can’t afford it.
The need for the insurance is still there but a greedy agent has just priced you out of the market. So, the agent, in an effort to save the sale will start lowering the face amount until he finally gets to something you can afford, say, $90 a month for $100,000 of whole life. He sticks with the original product because of the commission structure, not because it’s the best thing for you.
An independent agent with your best interests in mind would be sensitive to both your need and your budget and would probably recommend that you stick with the $500,000 and go with a 20 year term for about $70 per month.
Sorry, I got off chasing rabbits and got a bit off subject. Why do people drop their life insurance? Because they were SOLD a policy that didn’t really fit comfortably into their budget. When things get tight and you’re not dying, life insurance policies are one of the first things to go.
Bottom line. When you have financial priorities, determine how much you can comfortably budget without touching those priorities. Don’t let anyone sell you out of your price range.
August 3rd, 2007
