Why Should You Get An Insurance Review – Life Changes
Have you recently gotten married?
Reviewing your insurance after big life changed will make sure you are fully protected.
- If you have recently “tied the knot,” combing and updating your auto insurance might qualify you for a discount. Also, the cost of insuring two cars on a single policy is usually less expensive than carrying two separate policies.
- If two households are coming together into one, updating your homeowner’s insurance policy is a smart move. Updating them to include more expensive items such as jewelry due to a new engagement ring or other expensive wedding gifts.
- One of the most important items to update after marriage is life insurance. Most families are dependent on their joint income and making sure that income is protected is very important.
Insurance and Probability
Your brain is more powerful than any computer on the planet.
It can store roughly 2.5 million gigabytes of information.¹ Yahoo’s colossal data warehouse can only store 2 million gigabytes.² And your brain does it with the same energy it would take to light a light bulb, not a huge power grid!³ But all that computing firepower still doesn’t help the brain understand one simple concept: probability. Which is unfortunate, because misunderstanding the odds of something happening can seriously impair your decision making, especially when it comes to money and finances. Let’s take a look at the problem of comprehending probability, how it impacts your money, and a simple strategy to counteract it.
We don’t understand probability
It’s a scientific fact that humans struggle to properly understand probabilities. A 2018 meta-analysis from the University of Rensburg found that presenting people with probabilities often results in potentially huge errors of judgment.4 For instance, a woman was wrongfully charged with the murder of her sons because a medical professional testified to the low probability of their dying naturally.
Part of the problem is presentation. The meta-analysis showed that presenting tasks as natural frequencies (i.e., 1 out of 10) instead of percentages (10% chance of something happening) actually increased peoples’ performance in understanding the probability they were presented with. Even then, the leap was only from 4% to 24%. You still have merely a 1 in 4 chance of effectively grasping a probability! So while presentation helps, it doesn’t address the deep-seated mental block people have regarding understanding odds. Humans just seem to overcomplicate, misinterpret, and misconstrue probability.
Probability and Money
But does that really matter if you’re not buying lottery tickets or spending weekends at the races? You might be surprised by how often our inability to understand chance impacts our money decisions. There are countless examples. You want to start saving and investing your money. You’ve figured out that buying when the market is low is the best way to maximize your dollar. You hold back, waiting to time the market for that dip that’s certainly right around the corner. Perhaps you decide to start a business right when the economy is cooking. The DOW’s been climbing for the last three years, so there’s no reason for it to stop now, right? Or maybe you’ve held off on buying life insurance because the odds of your suddenly passing away are one in a million. Those are all instances of risky behaviors that stem from an innate human inability to grasp probabilities.
How a professional can help
But there’s a surprising solution to the probability problem: education. Ask a mathematician to gamble on a coin toss. They’ll choose either heads (or tails) every time. Why? Because they know how probability works and don’t let a few flips throw them off. It’s a 50/50 chance every time the coin is tossed, so why try to game the system? Your personal finances are no different. You need someone on your side who knows the math, knows the economy, and can guide you through a run of bad luck without losing their head. You need a financial professional. They can help you grasp some basics and the strategies that can help protect you from the seeming randomness of finances. Stop rolling the dice. Reach out to a professional today!
How a professional can help
But there’s a surprising solution to the probability problem: education. Ask a mathematician to gamble on a coin toss. They’ll choose either heads (or tails) every time. Why? Because they know how probability works and don’t let a few flips throw them off. It’s a 50/50 chance every time the coin is tossed, so why try to game the system? Your personal finances are no different. You need someone on your side who knows the math, knows the economy, and can guide you through a run of bad luck without losing their head. You need a financial professional. They can help you grasp some basics and the strategies that can help protect you from the seeming randomness of finances. Stop rolling the dice. Reach out to a professional today!
During the course of Life Insurance Awareness Month, we’ve been focusing on understanding the ins and outs of life insurance.
We’ve discussed why life insurance is necessary, who needs it, what kinds of protection are available and even defined key terms so you can know exactly what you’re looking at!
So what’s next? Application.
Dale Carnegie once said, “Knowledge isn’t power until it is applied.”
There’s an obvious difference between knowing about life insurance and actually being insured. So how do you get started? If you’re looking at getting life insurance for yourself or a loved one, here are 3 helpful steps to consider.
1. Reflect on what’s important. Now this may seem like an obvious thing to do, but it’s absolutely critical that you think about the areas of your life that you really care about and nail those down. Ask yourself, “If something happened to my ability to earn income, who would be affected and who do I specifically want to be cared for?” Your answer(s) to this question will help determine what needs to be protected.
2. Determine your budget. After you’re done with the first step, it’s time to put your money where your mouth is. How much would you be willing to set aside to ensure those things are protected? Run a thought experiment in your mind: “Would I be willing to set aside $50 per month? $100? $200? $400?” This process will help you ‘take the temperature’ about what you’re willing to commit.
3. Seek guidance. Find a licensed and trained financial professional you trust and who offers life insurance products to give you an accurate quote or illustration based on your situation. They will be able to guide you on finding the right type and the right amount of insurance to fit your needs.
No one likes to think about what would happen in the event of a premature death, disability, or critical illness. But whether we think about it or not, the reality is the same: people we care about will be affected by the loss of an income earner. Remember, life insurance isn’t something we can buy in a store. You have to apply! Owning life insurance is more of a privilege than it is a right. So don’t merely spend time accumulating knowledge. We encourage you to apply that knowledge…and in this case, apply for life insurance!
No one likes to think about what would happen in the event of a premature death, disability, or critical illness. But whether we think about it or not, the reality is the same: people we care about will be affected by the loss of an income earner. Remember, life insurance isn’t something we can buy in a store. You have to apply! Owning life insurance is more of a privilege than it is a right. So don’t merely spend time accumulating knowledge. We encourage you to apply that knowledge…and in this case, apply for life insurance!
Playing Monopoly as a young kid might have given you some strange ideas about money.
Take the life insurance card in the Community Chest for instance. That might give the impression that life insurance is free money to burn on whatever the next roll of the dice calls for.
In grown-up reality, life insurance proceeds are often committed long before a policy holder or beneficiary receives the check they’re waiting for. Final expenses, estate taxes, loan balances, and medical bills all compete for whatever money is paid out on the policy.
If your parents don’t have a policy or if you think their coverage won’t be enough, you can plan ahead and buy a life insurance policy for them. Your parents would be the insured, but you would be the policy owner and beneficiary.
A few extra considerations when buying a life insurance policy for your parents:
- Insurable interest still applies. If your parents already have a significant amount of life insurance coverage, you may find that some insurers are reluctant to issue more coverage. Insurable interest requires that the amount of coverage doesn’t exceed the potential financial loss. (In other words, if your parents already have enough coverage, a company may not want to insure them for more.)
- Age can limit coverage amounts. Assuming that your parents are older and no longer generating income, coverage amounts will be limited. If your parents are younger and still have 20 or more years ahead of them before they retire, they can qualify for a higher amount of coverage.
- Age can limit policy types. Certain types of life insurance aren’t available when we get older, or will be limited in regard to length of coverage. Term life insurance is a good example. Your options for term life insurance will be fewer once your parents are into their sixties. The available term lengths will also be shorter. Policies with a 30-year term aren’t commonly available over the age of 50.
How Can I Use The Life Insurance For My Parents?
Depending on the amount of coverage you buy – or can buy (remember, it may be limited), you could use the policy to plan for any of the following:
- Final expenses: You can expect funeral costs to run from $10,000 to $15,000, maybe more.
- Estate taxes: Estate taxes and so-called death taxes can be an unpleasant surprise in many states. A life insurance policy can help you plan for this expense which could come at a time when you’re not flush with cash.
Can Life Insurance Pay The Mortgage Or Car Loans?
It isn’t uncommon for parents to pass away with some remaining debt. This might be in the form of a mortgage, car loans, or even credit card debt. These loan balances can be covered in whole or in part with a life insurance policy.
In fact, outstanding loan balances are a very big consideration. Often, people who inherit a house or a car may also inherit an additional mortgage payment or car payment. It might be wonderful to receive such a generous and sentimental gift, but if you’re like many families, you might not have the extra money for the payments in your budget.
Even if the policy doesn’t provide sufficient coverage to retire the debt completely, a life insurance policy can give you some breathing room until you can make other arrangements – like selling your parents’ house, for example.
You Control The Premium Payments.
If you buy a life insurance policy for your parents, you’ll know if the premiums are being paid because you’re the one paying them. You probably wouldn’t want your parents to be burdened with a life insurance premium obligation if they’re living on a fixed income.
Buying insurance for your parents is a great idea, but many people don’t consider it until it’s too late. That’s when you might wish you’d had the idea years ago. It’s one of the wisest things you can do, particularly if your parents are underinsured or have no life insurance at all.
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Goldsberry Insurance Group 