Balancing Life Insurance Needs with Your Budget Revisited

Transcript of Podcast Episode 185

Hello, this is Bill Rainaldi with Security Mutual’s “SML Planning Minute.”  In today’s episode we’re covering the life insurance needs with your budget in mind.   

 The fact is clear; there is a life insurance need.  How much you need can be calculated, we covered that back in episode 47.  The most relevant question concerns your budget.  How do you keep your life insurance needs within your budget?

 Generally, when discussing life insurance, individuals want the largest amount of death benefit for as little cost as possible.  However, we must take in to account your protection goals that still have to be within your budget.  The balancing act comes in when your life insurance goals and budget are aligned.

What we are talking about is aligning the insurance goals, short-term and long-term, with your budget to address your life insurance needs.  Initially, term insurance is less costly than permanent.  We stress the word “initially,” because at some future point in time, the renewal cost for the term may be cost prohibitive.  In those cases where there was a misalignment, you could end up being without coverage you thought was going to last.  Therefore, short-term needs and long-term needs must be addressed.

Term insurance—with a conversion feature—can also be initially appropriate as a long-term solution, provided you plan carefully.  By this we mean that you must have a budget plan for the conversion to a permanent product at some point in the future.  This is because as each year passes, the cost of insurance increases and the premium at an advanced age may be extremely costly.  A term insurance strategy may be appropriate when you’re first starting out and you need whatever life insurance coverage you can afford.  But be warned: have a plan in place to convert to a permanent product to cover your long-term needs.

Once you have obtained renewable term life insurance protection with a conversion privilege, you need to prepare for your future conversion.  This may involve saving, reallocating budget dollars, expanding your budget, etc.  Then you would need to take a look at your permanent protection options.

You also need to re-assess your ongoing insurance need and be mindful that the option to convert will someday expire.  You need to be aware of that final conversion date, because once it passes it’s gone forever.  If you need to secure new insurance coverage after the conversion option expires, you’ll have to undergo a new underwriting review.  And if you’re uninsurable at that time, you’re out of luck.  Even if you are insurable, it may still be at a less desirable premium class.  The best option may be to convert the original policy at a time when your budget can accommodate the higher premiums for permanent coverage.

So what should you be asking yourself today about your life insurance needs and your budget?

• What short-term needs are you addressing and what long-term needs will you have?
• Are you considering taking distributions at retirement from a tax-free “bucket?” Refer to episode 10.
• Do you currently own a term policy that you intend to use to meet your long term needs?
• Have you thought about your life insurance needs recently? There’s no better time than now.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®.  The content provided is intended for educational and informational purposes only.  Information is provided in good faith.  However, the company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information. 

 The information presented is designed to provide general information regarding the subject matter covered.  It is not to serve at legal, tax or other financial advice related to individual situations, because each person’s legal, tax and financial situation is different.  Specific advice needs to be tailored to your situation.  Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation

 To help reach your goals, you need a skilled professional by your side.  Contact your local Security Mutual life insurance advisor today.  As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives.  For more information, visit us at SMLNY.com/SMLPodcast.  If you’ve enjoyed this podcast, tell your friends about it.  And be sure to give us a five-star review.  And check us out on LinkedIn, YouTube and Twitter.  Thanks for listening, and we’ll talk to you next time.

 The applicability of any strategy discussed is dependent upon the particular facts and circumstances.  Results may vary, and products and services discussed may not appropriate for all situations.  Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently.  We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances.  Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York.  Product availability and features may vary by state.