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As the US is dealing with the the effects of the Coronavirus, we are all being asked to practice social distancing and shelter in place due to the 'stay-at-home orders'. We all have more time to do things we would normally put off or delay.

There are many things we know are important that we have put off such as: diet, exercise, and reading, just to name a few. We know these things will benefit us in the long run, and hopefully we will take this opportunity to benefit from the extra time we have. Life insurance is no different.

importance of life insuranceImportance of Life Insurance

Another item we usually don't like to think about and put off is life insurance. Once purchased, it is filed away, and only thought about when you get the bill for the premium payments. There usually isn't much thought given to the amount or type you have, only know that you have some.

Now might be a good time to consider the following questions:

  1. Do I have enough coverage?
  2. Is what I have structured properly?
  3. If I need more, can I get it now without having a medical exam?

Let's look at each of these questions separately.

How Much Insurance is Enough?

There are several methods to 'calculate' the amount of coverage you should have. I prefer an approach based on what you want to happen financially if you were not there to provide for yourself. In other words, the life insurance is there to pay for the things you would pay for if you were still working.

One way to determine that amount is to look at life insurance as 'replacing' your income. If you want to replace your income 'forever', then you should have 15 - 20 times your current income. At 20 times income, your family would be able to maintain the same level of income assuming a 5% rate of return (20 x income x 5% = income).

That amount would be on the high end, and many advisors recommend 10 x income as a good rule of thumb.

Is My Policy Structured Properly?

Depending on the type of policy you have, it might be possible to structure it so that it works harder for you. If you have term insurance, there isn't much you can do other than make sure you are making your payments.

If you have cash value life insurance, there may be ways to reduce your cost without jeopardizing your death benefit. The best way to make that determination is to have an insurance professional do a policy review. (see: How-To Guide for Life Insurance Policy Audits).

A policy review may also reveal options to increase your coverage with the same premium payments. This assumes you are still in good health. This leads to the final question.

Can I Get Life Insurance During a Crisis Without a Medical Exam?

Many companies are liberalizing their underwriting process through "Accelerated" Underwriting. Accelerated Underwriting is a fast and efficient way to secure protection without the need for medical examinations. By submitting an application (this can be done electronically), you have the potential of getting up to $3,000,000 of death benefit without having to take a medical exam. They are able to do this by reviewing information available electronically such as prescription databases, motor vehicle reports, and your personal medical records.

We are going through unprecedented times with the pandemic facing us. For those of us faced with shelter in place - we have more free time. Leveraging this free time is up to us. If you want to use some of this time to review your current life insurance we can help

Ralph Pence
Post by Ralph Pence
May 19, 2020