A. There are two basic rules to life insurance:
- Don’t risk what you can’t afford to lose
- Don’t buy more than you need
4 Major Needs
Typically, there are major needs life insurance policies could meet:
- Income replacement
- Liquidity at death
- Increased certainty of inheritance
- Supplemental retirement income.
How does a life insurance policy meet one of the above 4 needs?
Income replacement
Here’s an example of how life insurance can help a retiree who needs income replacement.
Consider someone who has pensions from several past employers and elected the “single life” option on all of them, with the expectation that he would outlive his wife. Although their relative health and family history would suggest that’s not a bad expectation, it’s not certain.
When shown what his wife’s living standard would be in the event of his death, he quickly recognized that some element of protection made sense. Determining how much is simply a matter of projecting the shortfall she would face in the absence of his pensions, after accounting for the fact that the cost to run the household will be less with only one mouth to feed.
Life Insurance Solution
Consider a minimum premium universal life policy with a no-lapse guarantee. That structure will keep the premium costs as low as possible while maintaining the ability to meet the need at death. Term riders can also be effective.
We will show how life insurance addresses the other 3 needs in next blogpost.