Planning for the uncontrollable

Having a strategy to deal with uncontrollable events such as death, disability, critical illness, and general personal health is an integral part of financial planning.  Mr. and Mrs. Jones want to know their family would be taken care of if something were to happen to them.

Nearly all of us insure our house and vehicle.  The house may provide your family a place to live and the vehicle a means of transportation.  Do you insure your life? Your life provides a means of earning income to support your family, the house your family lives in and the vehicle you drive.   If only one member of the family works (or is the primary provider), it is important to look at the financial outcome if that individual were to become incapacitated or pass away.  For a couple with dependent children it may be difficult for the surviving parent to replace the lost income resulting in immediate hardship.

Assessing Insurance Needs

The Joneses are in excellent health and both work, so the risk is split somewhat if either one of them were to pass away, become disabled or were to be diagnosed with a critical illness. Assessing the insurance needs for them started with us looking at time horizon, cash flows, income and expenses. We also took into consideration any current insurance policies that the couple might have in place, which in many cases is provided through an employer offered group plan. In the Joneses case, Jill already has a solid disability plan in place as well as group life insurance through her employer.  Jack had no current insurance coverage.

Our Recommendation

Although Jill had life insurance through her employer, the needs analysis indicated that the amount she had wasn’t enough in the event of her death.  We recommended that the couple apply for individual term policies; one for Jack (with Jill as the beneficiary) and one for Jill (with Jack as the beneficiary) to fulfill their needs in the event of either of their deaths.

Term insurance would enable the Joneses to have the flexibility of dealing with a variety of insurance providers.  Other benefits relating to personally owned term insurance includes the fact that the premium or in other words cost of the insurance is fixed for the term that is purchased (in this case 20 years). Further, they may be renewable for additional terms once the initial term has passed and also allows the policy to be converted to a permanent insurance product that can be used to address needs that may exist at later stages in life.

Since they also expressed a need to have protection in place in case their health changed dramatically, we also recommended that the couple apply for critical illness insurance and for Jack to apply for disability insurance.

Dying prematurely, becoming disabled, and suffering a critical illness are some things you can’t control –  but you can plan for.  If you are unsure whether your current life, disability, and critical illness insurance policies reflect your needs, we would be pleased to provide a needs analysis and additional information.