Life Insurance: Future Proofing You Not Being Here.

Hi everyone, we’re talking life insurance this week. I fully recognize that life insurance is a morbid topic, and you don’t want to think about it or talk about it.  Trust me, I don’t want to think about it, let alone talk about it either!

However, we’re building on you being a smart consumer that cares about your total wellness and financial wellbeing is part of that.  Since I’m drawing to an end on a series about benefits options and things to think about, it only seems right that an article is dedicated to an extremely important part of your financial plan and a benefit that most companies offer to their employees.

Let’s start with employer provided life insurance.  There are several ways employers offer this to a team.  You might be offered a flat amount, a multiplier of your salary (1x, 2x etc.) or one of the above AND the ability to buy more.

If your employer provides you with a life insurance benefit greater than $50,000, you’ll see the premium for any amount over $50,000 reflected on your W2 (imputed income, remember?) so your benefits are tax free. 

If you’re offered additional coverage, you’ll want to know the following terms:

Guaranteed Issue: The amount of insurance you can purchase without needing to complete an evidence of insurability form.

EOI: An EOI, or evidence of insurability form is a health questionnaire that you may need to complete when purchasing life insurance through an employer.  This questionnaire can usually be accessed electronically. Sometimes, an EOI is required for employer supplied life insurance as well, especially when the benefits are based on salary multipliers. 

AD&D: AD&D or accidental death and dismemberment is a life insurance product, tied to a group life policy but provides an additional benefit if you should die due to an accident or dismemberment.  AD&D policies usually are placed with the same amount of coverage as a life policy.  You can however, purchase AD&D separately on a voluntary basis or purchase more AD&D than life, because there usually aren’t the same guaranteed issue limitations.

Reduction Schedule: yes, you read that correctly, life benefits can decrease with age on a group policy. Know the timeline for decreases and the percentage.

Now that we’ve gone over terms, how do you decide how much coverage you need?

This is where estate planning and financial planning enter the employee benefits conversation!

To start with, your life insurance carrier offers (as a value add) a basic will. This is one of the MOST underutilized benefits I’ve ever seen.

Second, most life insurance carriers offer grief counselors to your heirs if you die. 

Third, you probably didn’t realize that you need an “estate” plan or a financial plan, but, if you have life insurance, disability insurance, kids, a house, pets, a 401k, or other financial assets you do.

Here’s a big question – how much do you buy? Employer sponsored life insurance is a great way to buy what you need or to supplement what you already have. The questions I ask my clients (and myself!) when making a life insurance purchase are:

• What would happen to your family if you’re no longer living?

 This question allows the purchaser to evaluate their standing in the family, maybe they’re the main source of income and need to replace 1- or 2-years’ worth.  Maybe they’re the stay-at-home parent and the surviving parent would need to seek out childcare.  This situation is different for everyone, but it is a good starting point.

• What kind of financial future would you like to provide for your heirs?

This question opens the door to discussions about mortgages, future education plans for children, etc.

• How much do you already have?

Employer sponsored life insurance is a supplemental policy in many cases.  Some people don’t medically qualify for individual life insurance, so they purchase the most possible from an employer, some leverage it as a starting point and some use it to top off their existing policy or designate it for a specific purpose as part of their estate plan.

I’ve mentioned estate planning and financial planning a few times now. I’m not a financial planner and I’m not a family, estate or tax attorney. I am a group benefits broker. While I have the license to sell individual life policies, I usually (and by usually, I mean 99.5%) do not sell them.  Why? Because life insurance is a vehicle. Life insurance is purchased for a purpose and needs a plan.  Whether that plan is indemnifying your heirs for lost wages and providing stability while they grieve and find a new way forward; securing a commercial loan for your business; part of a buy-sell agreement; or as a way to tax defer income in retirement, life insurance outside of an employer provided policy needs a plan in order to work well and not be a waste of money.  Life and AD&D insurance offered by and purchased through an employer should be included in a greater financial plan and considered when you’re making purchases.

With so many kinds of life insurance to consider, you should work with a specialist when you decide to purchase your own coverage in addition to what your employer offers.  Most employer plans won't give you all of the coverage you need. A properly structured plan can mitigate future tax liability, provide you an additional avenue for retirement income, secure a loan, give you long term care insurance and basically anything else you can come up with.  If you need a professional to review your plan, let me know!  I won’t be advising you, but I will happily connect you to any of my wonderful connections throughout the US (San Francisco to NYC, the Dakotas to Miami).

Until next week – be well.