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How Much Coverage Do You Need?

Some financial planners say you need enough life insurance to replace five to seven years of your salary. If you have young children or significant debt, you should bump up your coverage so you have enough to replace as much as 10 years of your salary, they say. That would mean a person making $50,000 a year should have anywhere from $250,000 to $500,000 worth of coverage or more.

Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle.

Factors to consider include whether the surviving partner will have child care expenses if one partner is out of the picture. Do you have other assets on which to draw? Will your children be out of the nest soon? These, and many other factors, influence the decision on how much coverage you need.

Buying a whole-life policy doesn’t necessarily mean you are fully insured. Because of the investment component of whole life, the policies are much more expensive than term. Don’t simply buy less coverage, as it defeats the purpose of buying insurance in the first place: to cover dependents.

How Long A Term?

Agents like to talk about policies you can keep throughout your life. What they sometimes won’t tell you is that you don’t need life insurance coverage throughout your life.

The secret to buying a policy with the right term is figuring out how long you need to be insured. You start by estimating when your children will be out on their own and no longer in need of your financial support.
So if your children are 3 and 5 now, you’d probably want a policy that covers you at least until the youngest is 22, so that’s about a 20-year term. But this depends somewhat on your age as well.  Say you also want to cover your spouse for your lost income until what would be your normal retirement age, 65, and you’re only 35 now. Then you would want a 30-year policy.  Keep in mind that insurance gets very expensive as you leave your 50s. So you may pay more to cover yourself until 65, even if you lock in a level-premium, 30-year policy when you are 35. Coverage past age 70 or so may be unattainable.

Life insurance is not a substitute for a retirement plan. You want to plan so that you’ll have enough to live on when you retire, and you won’t have to keep paying insurance premiums.  There are exceptions, however. People who start families late in life, or who have complex estate-planning issues, may well have a need for life insurance beyond the customary retirement age.

One more thing: Steer clear of so-called mortgage insurance policies, which pay off the balance on your mortgage if you die. The problem is that you are paying for a steadily declining amount of coverage, as you pay down your mortgage. It’s best to include the mortgage payments in your calculations when determining how much coverage you need.

The Insurance Industry has several large national companies but having a local, trusted advisor who understands your specific needs has great value to it.
 
There are several advantages of having and knowing your local insurance agent in your area, some of which include:
  • Setting up your insurance policy in person with a local agent will help give you balance of coverage while at the same time give you pricing based upon your individual situation and status.
  • Getting advice on your territory rating that only someone who lives and works in your area would know about.
  • Learn how to save money by getting multiple policy discounts that are available for your situation.
  • Having someone who knows the risks and possible coverages you need specific to your area that should be thought of when obtaining a policy. For example, areas highly affected by flood, theft, etc.
  • Get answers when you need them when events happen – For example, your house has a tree fall on it from lightning and you need to talk to a local agent who can see what the damage looks like right away.
  • Being able to talk to the same person each time you call with a question or need to change something to your insurance policy
  • Supporting your community by supporting a local small business.

Running a small business involves a significant investment. Business insurance protects your investment by minimizing financial risks associated with unexpected events such as a death of a partner, an injured employee, a lawsuit, or a natural disaster. Unless you are an employer, business insurance is generally not required by law, however, it is common practice to purchase enough insurance to cover your assets. If your business is an LLC or a corporation, your personal assets are protected from business liabilities; however, neither business structure is a substitute for liability insurance, which covers your business from losses.
Your state government determines insurance requirements for businesses. Most states require businesses with employees to pay for workers’ compensation insurance, unemployment insurance, and state disability insurance.  Specifically, every Massachusetts employer is required to provide workers’ compensation insurance coverage for their employees. Refer to M.G.L. Chapter 152, Section 25A. An employer may be an individual, partnership, joint venture, corporation, limited liability company, association, or a fiduciary such as a trustee, receiver or executor, or other legal entity. Your state may require insurance of specific business activities. For example, if you own a car or truck and use it for business purposes, you may be required to purchase commercial auto insurance. Finally, your financial lender or investors may require you to maintain life, business interruption, fire, flood or other types of insurance to protect their investments.

Tips for Buying Business Insurance

Assess Your Risks

Insurance companies determine the level of risk they’ll accept when issuing policies. This process is called underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each underwritten policy carries a premium and a deductible. A premium is the price you pay for insurance.
Premiums vary widely among insurance companies, and depend on a number risk factors, including your business location, building type, local fire protection services, and the amount of insurance you purchase. A deductible is the amount of money you agree when making a claim. Generally, the higher deductible you agree to pay, the lower your premium will be. However, when you agree to take on a high deductible you are taking on some financial risk. So, it’s important to assess your own risks before you go shopping.
The National Federation of Independent Businesses provides information for choosing insurance to help you assess your risks and to make sure you’ve insured every aspect of your business.

Consider a Business Owners’ Policy

Insurance can be purchased separately or in a package called a business owners’ policy (BOP). Purchasing separate policies from different insurers can result in higher total premiums. A BOP combines typical coverages into a standard package, and offered at a premium that is less than if each type of coverage was purchases separately. Typically, BOPs consist of cover property, general liability, vehicles, business interruption and other types of coverage common to most types of businesses. BOPs simplify the insurance buying process and can save you money. However, make sure you understand the extent of coverage in any BOP you are considering. Not every type of insurance is included in a BOP. If your business has unique risks, you may require additional coverage.

Find a Reputable, Licensed Agent

Commercial insurance brokers can help you find policies that match your business needs. Brokers receive commissions from insurance companies when they sell policies, so it’s important you find a broker that is reputable and is interested in your needs as much as his own. Make sure your broker understands all the risks associated with your business.
Finding a good insurance agent is as important as finding a good lawyer or accountant. You should always look for one that has a license. State governments regulate the insurance industry and license insurance brokers.

ASSESS YOUR INSURANCE COVERAGE ON AN ANNUAL BASIS

As your business grows, so do your liabilities. You don’t want to be caught underinsured should disaster strike. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss change in your business and how they affect your coverage.

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