Do you NEED Insurance? No. Wait, what? An Insurance Agent telling you that you don’t need insurance?
Let me explain. (You will probably WANT insurance though)
What is Insurance
Insurance is a Risk Mitigation strategy. An Insurance Contract is where you pay someone else (in this case an insurance company) a premium, and they take on the risk of an event happening including the obligation to repair/replace/mitigate the results of that event.
As an example, you insure your car against loss due to an accident. If your car is damaged, the insurance company then pays to repair it. (See your contract for details – this is a hand waving example, not specifics and certainly not my guaranteeing what your contract says).
The insurance company has tables of probabilities and a math formula that calculates the odds of an event occurring multiplied by the cost of that event occurring. This is the amount at risk. Add on their administrative costs plus some profit for their shareholders, and you have the premium they will collect to enter into the contract.
Types of Insurance Policies
You can purchase general insurance policies such as Auto or Home insurance.
You can also purchase Life or Health insurance policies.
There are Disability and Critical Illness policies. Can you afford to not work anymore, or get sick with something like Cancer?
When to purchase Insurance
The short form is purchase insurance to cover an event that you can’t afford to have happen. Almost everyone is familiar with having House, Contents, and Auto insurance because we don’t want to give up our possessions if something terrible happens.
Many people don’t buy Life Insurance. But can you, or your loved ones, manage after you pass?
Also remember that you can’t purchase insurance after the fact. So it is much cheaper (in almost all cases) to buy insurance too soon than too late!
When I first joined the industry, I had a mentor telling me how they had their friends lined up to see them after the long weekend to purchase life insurance. Unfortunately, that long weekend the family went quading, and the primary bread winner was killed in a rollover.
How to get the appropriate coverage.
It is no longer a blanket approach that everyone should have $1MM of coverage. Everyone’s financial picture is different.
Similarly, there is/was a rule of thumb of you should have 10x your annual salary as coverage. But this may under insure the just out of school worker and over insure the peak career about to retire person.
Replacement Value
In general the amount of insurance needed is based upon the amount of income you want to replace.
Capital Needs
Any cash your family requires for mortgage, emergency fund, kids education, final expenses, etc.
There is a better way.
Working with me, we will conduct a Financial Needs Analysis (FNA) where we take a look at your current Assets, current Liabilities, future Liabilities, as well as your present and future Income and Expenses. We will determine your current and future needs. People in their early 30’s with kids in school and in the early stage of their mortgage will certainly have different insurance needs than a couple of empty nesters who have paid off the mortgage and are going to retire in the near future. We will build a coverage plan to assure not only the present but also the future. This could mean having a basket of contracts in a policy which will adjust over time.
As part of the analysis, we will try to find ways to adjust your cashflow so you get to keep more. After all, it doesn’t matter how much you make; It matters how much you keep. We will discuss your retirement goals, and forecast what it will take to make those goals. We will also discuss approaches so that you can work towards those goals.
Contact me to begin a FNA!