Life Insurance: A Crucial Component of Financial Planning

When it comes to insurance, many people tend to focus on health and auto policies. However, life insurance is a vital component of financial planning that should not be overlooked.

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Increasingly, life insurance is becoming a topic of discussion during client meetings, and some advisors see it as a core part of their process. Others agree that insurance can play an important role, but it’s crucial for policy purchasers to know exactly what kind of protection they’re getting and why.

Jeffrey Walters, founder of Advisia Financial Planning, emphasizes the importance of life insurance in protecting families from financial devastation. ‘I’ve seen the devastating impact on families when the primary breadwinner passes away without life insurance,’ he says. ‘In many cases, a cheap term insurance policy could have been purchased while the breadwinner was healthy, but was not, due to unawareness or inertia.’

Walters stresses the importance of educating clients about the different types of insurance available and the benefits of each. ‘Where and from whom someone learns about insurance products is often more predictive of what they end up owning than what actually fits their needs,’ he notes.

Skee Orr, co-founder of Kinetic Wealth, agrees that people who avoid the conversation entirely can end up underinsured. ‘The best outcomes begin with fiduciary financial planning that clearly defines what protection a family needs,’ he says. ‘From there, advisors can recommend working with independent brokers who can shop the market for fitting products.’

Michelle Crumm, financial planner at Belle Eve Financial, highlights the importance of disability insurance for younger clients. ‘For younger clients, they are statistically more likely to become disabled during working years than to die prematurely,’ she says. ‘A high-quality, long-term disability policy that covers a client’s own occupation can be one of the most important protections in a financial plan.’

Randy Bruns, founder of Model Wealth, emphasizes the importance of considering disability insurance in financial planning. ‘Nearly every retirement plan depends upon one enormous assumption: that you’ll remain able to work and earn an income,’ he says. ‘An accident or serious illness can change that instantly.’

John Bernstein, founder of Bernstein Financial Advisory, notes that not all families need life insurance. ‘A two-income family where either single income is enough to support the family may not need insurance at all,’ he says. ‘However, a single-income family where the spouse is a stay-at-home parent caring for children should carry enough insurance to pay off the mortgage and cover childcare costs until the surviving spouse can find adequate employment.’

Ultimately, life insurance should be purchased, not sold. Clients need to understand the different types of insurance available and the benefits of each, and advisors need to educate them on the importance of life insurance in protecting their families from financial devastation.

Key Considerations for Life Insurance

• Term life policies for healthy people under 50 are often affordable and offer protection from the worst-case scenario.
• Disability insurance is a crucial consideration for younger clients, as they are statistically more likely to become disabled during working years than to die prematurely.
• A high-quality, long-term disability policy that covers a client’s own occupation can be one of the most important protections in a financial plan.
• Not all families need life insurance, and advisors should consider the individual circumstances of each client before recommending a policy.