While most Americans have life insurance, 20% still worry that their coverage is inadequate. Anchor Pointe Wealth Management certified financial planner Derieck Hodges joins Wealth host Brad Smith to discuss the importance of aligning one's life insurance with financial goals.
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According to Insurance Information Institute, a majority of Americans have life insurance, but 20% worry that their current coverage is not enough to protect them in an emergency. If you don't have life insurance or aren't sure what option is best, we've got you covered. Derek Osue is the Anchor Point Wealth Management certified financial planner. Joins us now to break it all down. Good to see you. Let's start simple. What is life insurance at the very core of it all?
Yeah, Brad. Good question. So, if I step out of life and I still have a lot of financial things that are incomplete, life insurance can provide a lump sum of money to try to fill that gap. You know, we can't replace the people, but you know, the dollars that are associated sometimes with those people can be replaced with the use of life insurance.
So what are some of the biggest reasons that people might need life insurance?
Yeah, I always like to think start with love first. So, have I built my life around other people who are counting on me, children, a spouse possibly, a financial partner? And ultimately, I want to think a lot about them. So, are if I'm gone, are some of the goals that we formed together going to be incomplete without my income and without my financial commitment? And so that's where life insurance is such a powerful tool to help try to complete some of those goals even when we can't complete the race together.
So, what are some of the common options that people will have for their life insurance?
I think term insurance is something that most people have some exposure to, either through their employer or through individual term insurance. That's probably the most common thing you're going to see, and it tends to be the least expensive type of insurance to buy. And then there's what I'll call cash value or permanent insurance. So that can be whole life insurance or universal life are oftentimes names you'll hear associated with that. That builds some type of cash component inside of it. And that's going to be much more expensive than term insurance.
So, what is the checklist that everyone should be working through as they're trying to choose the right coverage?
You know, I think a common mistake I see is oftentimes we get locked into the type of insurance first. And then we may oftentimes we'll make a decision on, I'm going to buy a certain type of insurance. And I think that's a little bit backwards. I would start first with my goals, align it with my financial plan, figure out what dollar amount do I need to replace so that those financial commitments can still be fulfilled. So maybe I need to first just start with a simple list of survival expenses or final expenses. So funeral expenses now are fairly expensive, $6,000 to $8,000 on average. Then what about debts that I have? So if I'm going to leave behind a mortgage, a car loan, credit cards, I probably want to knock those out as well if I'm gone. And then I think the big one is income replacement. So, possibly, if I have young children or a spouse I'm leaving behind, I want to think about leaving behind a certain amount of my income for a number of years. And what we really are doing is backing into a lump sum of money that we need to protect. And that's where life insurance is a simple solution. And then I probably get quotes. But a mistake I see oftentimes is, hey, I hear this whole life insurance or permanent insurance is a good thing. I'll buy that, but I can't afford to buy enough coverage. So they end up buying only part of the coverage that they really need. I think that's a little bit backwards. That's a judgment call, but ultimately I think the death benefit is what we want to first focus on. And then those ancillary benefits, we can kind of parse through and figure out what what type of coverage is best for us.