Tailor-made Coverage

Here's how you can insure your life insurance is the proper fit for you

Dr. Reginald Buford and his wife, Dr. Deena Buford, have experienced the kind of career growth that many professionals do. “At the start, we had financial concerns,” says Reginald, 44, a plastic and reconstructive surgeon in Houston. “Eventually, though, we reached a level where we became more comfortable.”

At that point, the Bufords decided to seek expert advice about their financial future, so they consulted Cheryl Creuzot, president of Financial Strategies Group, an estate and financial planning company in Houston. Creuzot met with the Bufords several times, asked many questions and came up with a comprehensive financial plan. As part of that plan, she recommended that the Bufords increase their life insurance coverage to two policies worth $2.8 million ($2 million for Reginald and $800,000 for Deena), a substantial increase from their initial coverage of $200,000. “I had a small policy and Deena wasn’t covered,” says Reginald. “We decided that we both needed substantial coverage, to protect each other and our three children.”

For most people, life insurance is a subject they would prefer not to think about. Thoughts of mortality are never pleasant. “However, if you have loved ones, you probably will want to provide for them, and life insurance may play a key role,” says Solomon C. Hicks, a San Diego-based insurance agent for Prudential Insurance Co. Buying life insurance is not a simple task, but the more you learn about the subject, the greater your chance of finding peace of mind at a fair price.

Deciding how much is enough First, you’ll have to decide how much life insurance you need to buy. Instead of relying on some simple formula-six times income, for example-Creuzot employs a sophisticated process to come up with a precise number. “You need to estimate all the cash needs your survivors may have after your death,” she says. These include:

  • Immediate expenses. How much will your family need for funeral costs? Will appraisers have to be hired to evaluate your real estate, collectibles or shares in a private company? What legal fees are likely to be incurred?
  • Debt retirement. Many people wish to give their heirs a debt-free start, so they buy enough insurance to pay off old student loans, home mortgages, auto loans and credit card balances.
  • Educational funds. If you have children you’d like to send to college, provisions should be made for future expenses.
  • Emergency funds. You might plan to leave your family enough money to live on for three months, for example, in case of unforeseen expenses or emergencies.
  • Ongoing expenses. In addition to the above items, your survivors will need money for day-to-day living. If that amount is $4,000 per month, say, or $48,000 per year, you might aim for an overall investment portfolio of $809,476, assuming a 10% annual return plus a 4% inflation rate.

Once you have an idea of how much your loved ones will need in case of your death, you can then determine where that money will come from. Perhaps you have a retirement plan or an investment portfolio in place.

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