February 2011 | www.selectasset.com
Insurance: Luxury or Necessity?

“An ounce of prevention is worth a pound of cure.”

- Benjamin Franklin

Despite the fact that death is inevitable, many people do not like to talk about it and may even irrationally feel that making plans and being prepared for such an event just brings them one step closer. The fact is, however, that if someone relies on your income, making preparations in terms of life insurance is not only desirable, it's essential. Likewise, while imagining yourself seriously ill or disabled may lean toward morbidity, even more depressing would be finding yourself in such a state with inadequate health or disability insurance to cover such a large financial burden.

Life Insurance

Who needs it? YOU do, if …
  • You have dependents (children, spouse, partner, or parents for example)
If you have dependents who rely on your income, it will need to be replaced in the event of your passing. From funeral expenses to the cost of supporting a family, if you are not covered, this burden could spell financial ruin for your loved ones.  Luckily for Melissa, that was not the case:

"In 2006 when Greg was 36, he began experiencing chronic heartburn that wouldn’t go away. After gall bladder surgery failed to cure it, doctors discovered a rare form of stomach cancer. When Greg passed away two years later, Melissa found herself unprepared for the aftermath. His death was “never part of the plan.” Greg's life insurance proceeds paid off significant debts that had accumulated during Greg’s illness. They also allowed Melissa to pay off her mortgage and set up college funds for daughters Neva, 11, and Morgan, 6. “Without the insurance, I would not have been able to stay in our house and provide a stable life for the girls,” says Melissa."
  • You have a mortgage or other large debts
Even if your spouse or partner generates their own income, and is not, therefore, your dependent, it is important to remember that widows or widowers MUST continue to pay debts on which the surviving spouse is an authorized user. These debts are normally mortgages and other secured loans (cars, for example).  Unfortunately, death does not absolve debt, and without life insurance, you could be digging your loved one into a hole that will be difficult to crawl out of.
  • You own a business or are a partner in a business
Use your imagination, and go through the list of owners and important people involved in your business. In each case, make the unpleasant assumption that the person had passed away yesterday.   Would the bank be calling in loans or changing the terms?  If things do not work out with the bank as planned, how much liquidity would you need to pay off the loan?

Many business owners have loaned substantial amounts of money to their companies, as shareholder loans. Their estates have a legitimate claim to demand this money back, which means a need for liquidity in the business on the death of the shareholder.

Would a key person in the business need to be replaced?  How much would that cost, to search and then hire?  Would people have to be hired temporarily to fill the gap?

To address the aforementioned concerns “Key Man Insurance” is an option, please click here for more information on Key Man Insurance.
  • How much life insurance will you need?
This is a difficult question to answer, as there are many variables to consider when determining how much life insurance is required for you.  Some questions to consider, however, are:
  •  Do you need life insurance to cover only a specific amount of debt?
  •  Do you need life insurance to provide income into the future for your spouse or other dependents?
If this is the case, you need to consider what kind of lifestyle you want your family to have if you were to pass away.  Do you want your spouse to continue to work, and do you want to leave your family debt free?

Life insurance coverage amounts could be lower if one already has a healthy nest egg that their dependents could utilize in the event of their death.  Contrarily, if one doesn’t have substantial savings they could opt for a “Whole of Life” policy which could accumulate wealth in order to supplement existing arrangements when/if they outlive their need for life insurance.

For a quick look at how much life insurance may be appropriate in your situation, please click here to visit Select Asset Management's Insurance Calculator.

Critical Illness Insurance

Being uninsured or underinsured in terms of critical illness insurance may put you in a precarious situation.  Just as most people shudder to think about their own death, so too do they fail to properly consider what effect a critical illness will have on the financial stability of their families.

"Critical illness insurance" is a form of insurance that is payable in a lump sum should you become seriously ill.  Typically, conditions covered by this type of insurance include: cancer, heart attack, stroke, Alzheimer's, multiple sclerosis, organ transplants, kidney failure and paralysis.

According to Cancer Research UK, 1 in 3 people will develop some sort of cancer during their lifetime.  Couple that with a recent study by the American Cancer Society which found that 20% of people with health insurance still cannot afford cancer treatment and it is clear that even with advanced medicine and a health insurance policy on your side, if you are diagnosed with a life-threatening illness, there is a possibility that you would not be able to afford the treatments recommended and needed.  (Click here for more key facts concerning the importance of critical illness insurance).

Consider the true story of Jack:

"Jack was only 39 when he had a heart attack. He needed round-the-clock care for weeks after his surgery, which brought on many expenses none of his insurance would cover. But Karen didn't have to worry about where they would get the money to pay for these things. She was able to handle the unexpected expenses, continue making regular payments toward their home mortgage in full and focus on how she could help Jack when he needed her. The only thing either of them had to worry about was his recovery, because Jack had critical illness coverage."
  • Do you have the peace of mind that your loved ones will be financially secure should you no longer be able to provide?
Select’s team of experienced financial consultants is ready to discuss the options available in complete confidence and map out specific plans for you to put into immediate action.