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Your Insurance Coverage – Is It Adequate?
Many people do not realize how much money they spend on insurance premiums. Car, life, home, contents and extended warranties can be expensive. Insurance is risk assessment and coverage. It deals with the future, so like all decisions, we must go to Jesus for guidance. Only He knows the future.
Every time we consider insurance we have to answer three questions, which I will look at briefly, using life insurance for a family, Robert, Paula and five-year-old daughter Sarah. Robert works outside the home, Paula works at home managing the household, Robert and Sarah.
Insurance questions that a person should answer
- Is there a risk exposure that I should cover?
- How much coverage do I need?
- How should I cover the risk?
Risk to cover
What life insurance risks should be covered for Robert, Paula, and Sarah? Paula and Sarah depend on Robert’s income. And so if Robert dies, his income stops. Paula would need funds to pay for the funeral expenses and to take care of other necessary future expenses. This is the exposure or risk that might need hedging.
But if Paula died before Robert, the risk is different. Robert would not lose direct income. However, household expenses may increase for daycare and other related expenses to care for Sarah while she works full time. Robert and Paula may also want to cover this exposure.
Before moving on to the next question: how much coverage do they need, Robert and Paula must decide whether they accept that there are risks to cover.
If they accept and decide to cover the risk of Robert’s death, how much insurance coverage does Robert need for his life? Robert and Paula would like this amount to cover a realistic future standard of living for Paula and Sarah based on current knowledge. This could be the present value of Robert’s future income and Sarah’s future education, and other expenses. Calculating this amount is not difficult if you work with a knowledgeable independent financial advisor.
Most importantly, Robert and Paula must turn to Jesus because only He knows the future. In addition, they must understand that insurance coverage does not secure the future, or eliminate risks; rather, it provides income if a specific event occurs. The prophet Isaiah reminds us in Isaiah 26:4: Trust in the Lord forever, for the Lord, the Lord, is the eternal Rock.
Does trusting God mean we shouldn’t have insurance coverage? No, it means that we must understand that nothing we do will guarantee the future, so we must seek God’s will for our insurance coverage. After all, I could say no!
How to cover the identified risks
After deciding on their insurance coverage, probably with the help of an independent financial advisor, Robert and Paula must consider the third question: how to cover the risk. Think of life insurance coverage in two classes: rental or temporary, and property or permanent. The insurance industry calls the rental class term insurance. With term insurance, Robert would pay an amount, called a premium, for a set amount of time, after which coverage stops. If he didn’t die when the deadline expired, Robert and Paula would have to answer the same three questions later. Then his condition might have improved; they might have income that would allow them to reduce or even discontinue life insurance.
Whole life and universal life are examples of the proprietary or permanent class. Think of this class of insurance as just another term insurance. It includes your basic term insurance coverage and something else, like “savings.” Insurance companies like to tell you that this is a great idea because you could “borrow” from the “savings!” Do not go!
If Robert chose this class, he would be paying a premium for more than his basic insurance needs. This is why it is important to understand this class of insurance, as it is more expensive and larger than your basic insurance needs. Extras above term insurance coverage will cost you, for non-life insurance benefits.
As with all decisions, Robert and Paula should obtain insurance information from an independent financial advisor who does not profit from their advice and seek God’s direction.
Copyright (c) 2011, Michel A. Bell
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