Have you ever considered how life insurance fits into your financial toolbox?

Many of my clients are currently navigating the application process, with some facing challenges because of their health. This has sparked a necessary conversation about the importance of life insurance in securing your family’s financial future.

Whether you’re new to life insurance or revisiting your policy choices, this episode is crafted to provide you with the insights you need.

Anna’s Takeaways:

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Website & Links mentioned:

#056: Love is in the air, so is Life Insurance

#236 – Banking on Yourself: Mastering Wealth Building Strategies with Mark Willis, CFP

207 -Maximizing Overlooked Employee Benefits in Open Enrollment for Parents

Anna Sergunina:

Hello Money boss parents, Anna Sergunina's here and welcome back to the money boss parent Podcast. Today, I'd love to chat with you about why life insurance is important tool in our financial toolbox for families like yours and mine. It's been a while that I covered life insurance. And I feel like there's number of clients right now that I'm working with are going through phases of applying for life insurance, some are having a little bit of more difficult time getting qualified for insurance. And a lot of it has to do with your health. So it kind of prompted me to think that you know what, we need to have this conversation. Because if you haven't really planned your financial life, and really your family's finances around using this tool that I think you need to listen, this is going to be an interesting episode for you, I'm going to try to explain to you the differences of what kind of insurance you should be considering, what are the some of the highlights and the benefits? And how do you go about getting into how much you might actually need to have to make sure that your family is protected. So let's just dive in. Now, the full disclosure right up front is that I am not a salesperson for life insurance, I don't have any licenses to sell. I am a certified financial planner who looks at a client's situation comprehensively and assesses and recommends a policy based on what their needs are, that's where I am coming from. So I want you to keep that in mind. Alright, let's think about what life insurance in general was designed to cover or provide for families like yours in mind. And if we go back many years back, it is the tool that is that it helps to replace income, in case at some point in the future, you or your spouse or your significant other isn't going to be here to fulfill their financial obligations. So when you think about life insurance in general, it's really not for you, you're not buying or getting pre qualified or unqualified for these policies for you, you are thinking about what will happen to your loved ones, when you're not here. And how this insurance, which over time has become very affordable and expensive, can provide a lot of financial confidence and stability. So that's what this tool is for, is to help you have that peace of mind. Okay, as simple as that, because I know some clients I've worked with have kind of like these sort of negative connotations that insurance is bad and all of that stuff. I want to kind of put that aside and focus on what is this going to do to help you make sure that your family is protected. Now if you're a new life phase of growing your family like myself, where you have small kids, and you still have time until they are like launched out of your nest egg, and that is they are through college, or at least they're starting college, then you really need to think about this period of time that you're financially responsible of raising them is the time that you should be focusing on insurance. Okay, also happens for most of us that this time is like our prime career year. So we might be earning more our businesses might be growing, I needs might be increasing, we maybe this is the time we're buying new homes, right. So our financial obligations increasing. So all of these pieces will come into play when we're talking about the calculation of how much insurance you actually need. So as long as you kind of follow my train of thought, and my kind of a trick has been over the years for clients is not to over insure, because I personally don't want to pay for any additional insurance coverage that I am not using. And guess what one of the methods that over the years I've adopted with clients is that we can always add more layers of insurance coverage of your life changes. For example, if you're just starting out and you bought your first home and you had your first child, then you should have some minimum of insurance coverage. But guess what, maybe you're having your second child and all of a sudden feeling like you're ready to buy a more expensive home. Now your needs have increased and it's really easy to add another new policy. Now you have to remember that insurance is priced based on and there's there's a whole process called underwriting where insurance company assesses you, not just how financially stable you are, right? I mean, you got to be able to pay your premium. That's one but also, you know, you have to be sort of in a good standing you can't be like a bankrupt person because there's things that could go wrong with that, but also how healthy you are and so that determines right because they Have actuarial tables, that determines what they're going to charge you for this policy. Now, let's think about that. And maybe put yourself in the shoes of an insurance company for a minute when they're assessing who you you as a person, how healthy you are, if you're financially stable, you know, what, how much insurance do you need? And why do you need this much insurance, they're assessing all these factors to come back to you and say, Okay, we're willing to be on the hook for giving you let's say, a million dollars. In return, you're going to pay us a premium every month. As long as you know, whatever your contract term is, some insurance policies exist only for a short period of time. And we'll get into it in just a minute. Others could exist as long as your life. So depending on what it is the premium that you're going to pay monthly, or sometimes they charge a quarterly or yearly will change. So and this is all can be configured, depending on what your financial situation is how much you can really afford in your budget, I'd rather focus on what you really need, and then work backwards into what you need to what you can actually afford. Okay, so for clients that I have worked over the years, the main life insurance product that I had recommended for them to get or type has been a term policy. And one of the reasons one of the main reasons is because it is the most pure type of insurance, life insurance that exists out there. Okay, it is what I just described a couple couple of minutes ago, it's it's, it's a policy or a contract with an insurance company stating that we need to have this coverage for the next 510 1520 2530 years. In return, we're going to pay you monthly premium, once that phase is over that time is over, you do not have any more insurance coverage. And and the reason it is inexpensive, is because it has a limited amount of time. And it also has a specific dollar amount assigned to it. Now that makes it a really attractive because again, families like yours, and mine has specific needs for it right now. Okay, we're not trying to use life insurance as a tool to create wealth. And because that's also a completely different conversation. It's a completely different type of insurance that would be used for something like that. And believe it or not, there's a whole lot of discussion to be done there. But there are policies, they're called permanent policies, meaning this policy stays with you, as long as you live, it's not going to end in 20 years, it's not going to end in five years. Now, that's where it gets to be more complicated, because you have the insurance component, but at the same time, you're starting to add layers to it, such as investments, what is this insurance part policies invested in and depends on that different types come out the most, the most basic would be a whole life policy, then you start to get into the Universal Life, and so forth. Now, these are all great tools, if your goal is not just to get insurance, but also start to kind of explore ways to build more wealth. And also, you know, if you have substantial estate plan for future taxes and transfer of that wealth. Now, one of the episodes on the podcast, just recently, my guests was Mark Willis, and we had extensively talked about how he uses life insurance, to what he calls to bank on yourself. Now, that is an amazing tool where you can still have insurance coverage, and I highly suggest for you to tune in, it's episode 236. I'll link it in the show notes. But he talks about how you can actually have this permanent life insurance policy, it is not term, because this is where we kind of opened that door into the investment world where you have options of borrowing against that policy, paying back growing the value of it inside. It's like an investment account inside this policy. So it's really, really an interesting and unique is this for everybody? It really depends on what your financial goals are. But today, I want to continue talking about the basic the basic type of insurance that I think every family needs to consider. So let's let's dive in talking a little bit about how how to calculate what does your family really need? And this is an interesting exercise. Because I want you to think about now just like I said at the beginning it's really not for you. So if I was assessing myself right now on my you know, my spouse, I wouldn't be thinking about what I need right now but rather, what would my family need if I am not here and the most typical expenses right because if you want I'd here I just want you to be I'm not trying to sound morbid here. But we have to have this kind of conversation in order to realize what all the factors that go into calculation of this amount. Because I mean, okay, sure you can throw out there, ask Google, I am a 40 years old, you know, a female with two kids, you know, I make this much money, how much insurance do I need, you would probably get an answer. But if you're trying to customize these policies, make sure you're not overpaying for more that you need. Or you, you know, under paying more you have under coverage, you're trying to really get a really good calculation here. So think about what would be necessary for your family to continue the same lifestyle. So that's number one. So that kind of covers all the different limiting expenses, right roof over over their head. For most of us, we still have mortgages that we're trying to pay off, right, as we grow our families. So that's kind of like number one. So if you had a mortgage, what is it, let's, let's use a $500,000 number. So I have a $500,000 mortgage, that I'd love to go away, so that my family has a house that they can stay in, and not worry about stuff, living expenses now, because I'm not here, right? My earning power goes away, you're gonna get my salary anymore, right? So how do I replace that, and this is like one of those creative kind of like the art part of this calculation that a financial planner like myself, thinks about, right, so when I looked at client's situation, and I sort of considered all of these big kind of expenses, so mortgage was one, I'm gonna skip over the living expenses, because I want to explain you the logic. And then we also talk about for families, like the big goal was to make sure that the college is funded. So like, what would it what would it needs to be, let's say you, you're saving to send your kids to state school, four years, four years, you know, at a time, or four years for each child. So what is it for example, in California state schools are like 35, to $40,000. So for one child, let's use a $40,000 number, I need to have $120,000, some magically appear when they are ready to go to college. That way, my spouse is not really concerned and worried about how are they going to pay for it. So that's like another big chunk. So if I have a mortgage to pay off, plus, I want to add a bucket for college education, then it really pretty much leaves me with just figuring out right, creatively, what a way to replace my income. Now. In order to be strategic and not over insure yourself, I want you to think about, like, what kind of things does your family still need to cover? Right, that wouldn't wouldn't be provided by the other partner, right? So like, let's say one of you're still working, and you're getting continuing to get a paycheck. So what what would that gap be. And then usually, I try to think about like, maybe next five to 10 years to kind of give you some runway. So again, using very simple numbers, maybe that gap in your in your spending or your budget for income is like, for example $50,000. So if I needed to get five years worth of that, that's $250,000. So now you can see, I have my $500,000 for the mortgage, I have my bucket for college education 120,000. And I'm trying to fill the gap of my of my income that will be missing, right? Because again, when I was here, I was earning a salary, right, or I had a business that was paying me income that provided to fill all of these different categories, it paid for the mortgage, it paid for savings, for college, right? It also covered living expenses, but now you're kind of looking at it from from these most basic, right, and we can get really granule if you'd like if you'd like but just to give you peace of mind, this is kind of like one of those simple calculations I'd like to have. So in this example that I just gave you, we have 500,000 for the mortgage 120 for the education, let's let's just use maybe 100,000 for five years, and you have another 500,000 bucket that will provide for living expenses. So I add up all of the numbers, and that gives me about 1,000,001 two, right? So one $1,120,000 That's is what you should be looking at when you're applying for quotes, right? You're asking because you will be asked by an insurance company how much insurance coverage you're looking for. Now, one of the things that I also like to introduce you to as you kind of designing this strategy for yourself is called layering of these policies. And think about this just like I explained that your needs for having a bucket of money that's going to kind of like replace that gap of income that's no longer there is gonna go away as kids grow right, or as you pay off the mortgage you need to deplete it. You can also structure the policies that way. So I like to call this layering. So for example, if you think about next 20 years of your life, do you really think you're going to need to have the same amount of insurance coverage, AKA your, your needs aren't going to be the same. If you do need I do you think that that's going to be the case for you then sure, get an insurance policy $1,100,000 round numbers for 20 years and be done. If you're like me, that thinks that your needs are gonna go away, because kids are gonna grow up, you're gonna slowly pay off your mortgage, your living costs, were going to be different than what you're going to get is, if you policies, maybe I'll get two policies. And I'll design them in this way, where I have a five one policy for $500,000. And a second policy for maybe five or $600,000, together, I have the same amount. But the length of how these how long these policies are going to be, is going to change. And what that does, when you set up this kind of layering structure for your policies, it helps you reduce your cost or premium that you're going to pay on these policies, but good 15 to 25%. Now, I'm not quoting you directly what it's going to do, because again, there's a lot of factors that are going to come into play that impact what you're paying for, for these policies. But having done it many times for clients haven't done it for my family, I know that this kind of layering approach is awesome, because think about this insurance company. And you can have a few different insurance companies that you get these policies from right to create your own ladder. If you're astute a little bit more into finding finances, and kind of reading about investments, one of these concepts that's kind of similar is when you have ladder laddering of the bonds, you buy them in different maturity. So it's the same thing with insurance policies, you have one that is maturing in 10 years, so it's gonna last for 10 years. Next one is 15, next one, and 20. So it's sort of like the staircase of policies that they do cover you all together for a period of time. But then as time goes on, your needs decrease, and you stop paying premiums for these policies. So that's, that's one thing that I love about the flexibility of the term insurance because it gives you that much flexibility. And also peace of mind, knowing that you can always change it, you can always peel the policy off the you don't think you need any more. Or you can add another layer and give yourself a greater coverage. One of the things that I want you to also remember is, the sooner or the younger you are, the better costs are for these insurance policies. Because again, insurance companies are not silly or stupid, to give you really good rates when you are older, because they have actuarial tables, they figure out how long people live, how often they file claims, and accordingly they price these policies. Now interesting thing about premium that you're paying for these policies. And that's why I want you to get them as soon as you can, is the premium doesn't change. So if you're started a 20 year policy, when you were in your mid 30s, guess what that whatever, $50 a month that you're paying for it, it's going to be like this for the next 20 years, which is amazing. No adjustment for inflation, no increase in price, nothing. So over time, that will seem so cheap, right in your overall budget, because things change and costs more, and that coverage doesn't really change as well as the cost of it. So think about what are your needs of the families. Now one of the big questions that I also get asked by clients is like, okay, I get the point, I also have some coverage at work, or my employer provides the coverage for me, I don't need anymore. And that's great. I mean, if you are work for an awesome company that provides the option of insurance, get it, if it's free, even better, but I want you to to envision situations where what happens if you're no longer employed by that employer, your coverage goes away, or understand what your options are, because there are policies that you can take with you when you are going to a different place. But a lot of times you aren't able to do that and so your needs are going to be having a gap right until you maybe get the next employment opportunity or or or you know, whatever else are you trying to do or get your own insurance policy. So I much personally prefer to have private coverage right it's a policy their own regardless where I work regardless what it what it does. And again, it's so easy to do with the with the term insurance policies because they're so inexpensive, but do not dismiss the fact that employer employer years right have a really great option. There are limitations however, is that you have to sign up For additional coverage, if you didn't at the beginning, when you started working during special open enrollment seasons, so you got to be kind of on the lookout, when you sign up when that window is so you can sign up. But at least for right now, I kind of want you to sit down and think about, do we have enough insurance as a family, each of us individually, right? And if we don't, how can we kind of close those gaps? And where would be the next question, can we get those policies. So if you do not have an option to get those policies at work, and that's okay, I much prefer that you look into getting your own individual coverage, here are a couple of resources for you. And I'll include these in the show notes, too. Number one, or just the first thing that came to mind is a site called policy genius.com. They're well known in CERN insurance broker, they're not an insurance company, it's a broker that's kind of like set up to work with you remotely, they they have a really streamlined underwriting process. And they also have, I was looking at my resources, they also have lots of options for you to choose from. So a broker is somebody who goes out and kind of prices, a couple of different insurance companies, for you. Now, one of the things that you would do along in this process is to identify and they'll give you options is which insurance company you want to be partnering up with, because you signing this contract with them. So you want to make sure that these are, you know, top rated, help financially stable and healthy insurers, because we don't want them to go out of business, we want them to be around so that we can continue having this coverage and peace of mind for our family. So policy genius, they have a big a really good platform for looking at policies for you online. Now then another one that I love, and have clients that are explored is called ladder. So ladder insurance.com. They are best known for like flexible coverage. And so what that means is that there, they have options for you to configure policies and kind of like, identify what suits you best. So very similar to policy genius, I recommend to check out a few, right. And just to compare. Now, one of the things that could happen, and I kind of want to give you a word of caution here is that don't just Google like life insurance. And then whichever first like site that pops up, you put your information, because when what is going to happen is that you're going to be inundated with phone calls and emails and text messages. And then you're just going to get so overwhelmed that you may not do anything properly. So go to the proper resources. Now, another option that's very viable is to and a lot of clients defer to that is to say, Okay, I'm gonna use my insurance broker that gives me coverage for home Auto, and my umbrella policy is fine, that's fine, price it out with them, and see what happens. I'm not dismissing that State Farm offers great coverage nationwide, it just depends, right? It

Anna Sergunina:

depends where you already have your policies. Again, I'm interested in the cost of the policy, what's the what's the sort of structure? How many years the coverage? What's the amount? And then is this company financially stable? And can you know, can I get behind being secure and have a peace of mind that my family will be protected? So you need to do a little bit of shopping as well. But first, as we talked about, really sit down and kind of identify what your amount is, what would be comfortable? One of the most common scenarios I've run into is like, for example, if you have a single income household where one spouse works, and the second spouse doesn't, you'd be like, Well, how do I every day, kind of how do you come up with a number to assign income to the spouse that doesn't work? And there's lots of different numbers that have been thrown out there for what what would it take to replace all of the things that that spouse does? Who doesn't work outside of household, so you kind of want to think about that right? All the household duties and driving kids around and whatever their responsibilities are. So don't dismiss that just because they don't bring bring income from the outside doesn't mean that they're not valuable inside your home. So that's also something to take into consideration. Yes, you might want to give it a smaller amount as opposed to someone who also brings income from either their business or they have a salary, but at the same time, it is just as equally important because if that spouse, all of a sudden he's not there. How are you going to take care of all of these obligations right? yourself because you're going to have to go to work for most, for the most part, and continue doing all of that, and somebody's going to have to step in. So think about who you have to hire in order to cover all of those responsibilities. So my friends, I will, I'll start closing for this for this discussion today. But I hope this is enough for you to kind of start thinking and revisiting, what do we have as an insurance coverage for our family? Are we ready to talk about more than just the term policies, and that's fine, too. Today, we're just going to cover the basic needs, because I want to make sure that you have enough protection, and then also, how we're going to go about getting more coverage. Don't delay doing that. There's plenty of examples where as we get older, life happens to us. I've had a client years ago, and I will never forget this, this example, just because it happened right in front of in front of my eyes. And you know what, lo and behold, he was a younger family. They just got married, planning, you know, to do all these great, great things they wanted to financial plan. And so we talked about life insurance, and they've they've gotten some coverage, right, right around the time we've created a financial plan. But but that was it, right? And then they went away, I didn't see them for a couple years. And when they came back for an update, they're like, oh, my gosh, we have a new our first child, and we just bought a home. So all these things are really starting to happen for them. And we're like, Okay, well, let's revisit insurance coverage. Because, you know, we were in a different spot when they were initially taught, we were initially talking, once we sat down and reviewed all of these thoughts and calculations, again, in the same kind of format that I described to you today, we realized that, you know, you guys are really great candidates for beefing up your insurance coverage. So each of them were supposed to get an additional policy, I forget the specific amounts. But when we when we went back to the insurance companies and said, Okay, we're interested, it wasn't anything huge. I think maybe it was like a half $1,000,000.20 year policy. So something very inexpensive for somebody who is in their late 30s. Well, guess what? My clients, Ryan, all of a sudden developed a heart condition. And so when we came back to look at the quotes, the cost of it was ginormous. So I'm not laughing at this because this was unfortunate. Right? But because we've secured coverage previously, for them, which again, was it was at that time was going to still be around because it was for a certain period of time. It was such a relief and peace of mind. Yes, of course, it's disappointing that because life happens to you, right health changes in all of this stuff, you aren't either eligible, you're going to have to pay crazy more amount of money for it. It didn't work for for them. So I just challenge you to think about it that way. And really more about not what you need, but what are your family needs are for situations where you might not be able to provide for them. So my friends, I am closing for today, let me know what your specific questions you have. Look for quotes. Reach out if you want to talk I'm happy to kind of give you some pointers and resources maybe if you're gonna get two or three don't get more than five because it's going to be overwhelming and you're you're just gonna get lost in all of this stuff. Stuff just start somewhere. Let me know what questions you have. Thanks for tuning in. And again, if you found this episode useful, please share it with a friend. And also don't forget to leave us a review those are awesome compliments that I love getting if you finding this kind of information valuable Okay, until next time, you are the bosses of your own money.