Wondering About Your Life Insurance? Assess Your Coverage With These Tips

By Brett Gottlieb

Exploring the world of life insurance can often feel like piecing together a complex puzzle. As life’s circumstances unfold and priorities shift, the question of whether your current coverage aligns with your needs becomes more important than ever. By taking time to assess if you have the right insurance plan in place, you can offer your loved ones a sense of confidence and comfort in the event something should happen to you. In this article, we’ll share three key factors to help you determine whether your current life insurance coverage is right for you.

1.   Assess Your Current Life Situation

The amount of life insurance coverage you need depends on your current life situation, including your income level, expenses, debts, and the number of dependents relying on you. In general, life insurance is necessary if there will be a financial burden left by your passing, or if you would like to use it as an inheritance vehicle. For those with limited assets and debts and no dependents or heirs, life insurance is less important.

2.   Determine Your Coverage Level

Life insurance is meant to replace the earning potential lost when you pass away, which means the higher your income level, the higher insurance coverage you’ll need. Similarly, if you have higher expenses or large outstanding debts (like a mortgage), you’ll want to purchase at least enough insurance to cover these liabilities.

Next, consider any dependents who may be relying on you. Do you have a spouse or children? Does your spouse work? Do they have a plan in place and will they need financial support in your absence? Do you plan to pay for your children’s college education? These are all questions to consider when determining how much life insurance you need.

Let’s take a look at the most common rules of thumb for calculating your coverage level, keeping in mind that each person’s situation is unique and it’s always best to work with a financial professional before purchasing an insurance product.

10x Income Rule

This rule suggests you should have life insurance coverage equal to 10 times your annual income. For example, if your annual income is $75,000, you should have $750,000 in life insurance coverage. This rule of thumb jumps to 20 times your annual income if you have young children or a dependent spouse.

DIME Method

This rule suggests you should consider four factors when determining the appropriate amount of life insurance coverage: debt, income, mortgage, and education. Add up your debts (like credit cards, auto loans, and personal loans), multiply your annual income by the number of years you want to replace it, add the amount of your outstanding mortgage, and add the cost of your children’s education. This will give you a rough estimate of how much coverage you need.

Needs Analysis Method

This method involves a more comprehensive evaluation of your financial needs. It takes into account factors such as your current and future income, your debts, your children’s education, and your retirement savings. A financial advisor can help you with this analysis and determine the appropriate amount of coverage for your situation.

3.   Understand the Types of Coverage Available

After you have a general sense of the coverage level you need, it’s important to understand the types of life insurance available.

Term Life Insurance

Term life insurance is typically less expensive than other types of insurance. It provides coverage for a specified period of time, usually 10, 20, or 30 years. But the use-it-or-lose-it nature of a term policy is a big drawback. If you pass away during the specified term, your beneficiaries will receive a death benefit; but if you don’t die during the term, the policy expires and you get nothing. All the money you spent on premiums will be gone too.

Because term life insurance is one of the least expensive and simplest types available, it’s typically recommended for those who only want coverage for a specified period of time, like until your kids reach a certain age or your mortgage is paid off.

Permanent Life Insurance

Permanent life insurance is more expensive than term life insurance because it covers you for your entire life. As long as you pay the premiums, your beneficiaries will receive a death benefit when you die.

Permanent life insurance also has an investment component known as cash value. This cash value grows over time and can be used to help pay premiums or it can be borrowed against in case of an emergency. There are two main types of permanent life insurance: whole and universal.

  • Whole Life Insurance has a guaranteed death benefit and coverage that applies as long as your premiums are paid. Coverage will not decrease or be revoked, and premiums will not increase or decrease over the life of the policy. Coverage can increase based on increases in cash value or reinvestment of dividends, but it will never decrease below the guaranteed value. The growth of the cash value can be based on a fixed rate of interest or it can be variable. The cash value will grow on a tax-deferred basis, but once money is withdrawn from the policy, any earnings will be taxable as ordinary income.
  • Universal Life Insurance has a flexible premium and death benefit. The premium is usually lower than whole life, but the policy usually comes with fewer guarantees. With this type of insurance, policyholders can choose how their premium payments are invested, which can provide significant growth potential for the cash value of the policy. It is also riskier than whole life because major investment declines could cause your premium payment to go up next month in order to keep the policy in force. Generally, universal life policies are recommended for those who have a higher risk tolerance and want a greater degree of control over their insurance investments.

Assess With a Trusted Advisor

If you’re uncertain about your level of life insurance coverage, consider collaborating with a financial advisor or insurance professional to identify the most ideal policy for your situation. Taking steps to evaluate your coverage now can provide a level of confidence and ease for your loved ones’ future. Keep in mind that life insurance is an ongoing decision, which means it’s wise to periodically assess your coverage to verify it still aligns with your needs.

Here at Comprehensive Advisor, we strive to assist high-net-worth individuals, families, and business owners in gaining clarity around their long-term financial picture. Should you have any questions about your insurance or wish to have a conversation about your overall financial situation, don’t hesitate to email us at info@ComprehensiveAdvisor.com or call (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Insurance products are offered through the insurance business C.A. Financial & Insurance Services. Comprehensive Advisor, LLC is an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by C.A. Financial & Insurance Services are not subject to investment Advisor requirements. CA Ins. Lic. #6000262This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc., generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 1955941 – 9/23


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