Your Insurance Coverage – Is It Adequate?

Many people don’t realize how much money they spend on insurance premiums. Auto, life, home, contents and extended warranties can be expensive. Insurance is risk assessment and coverage. It’s about the future, so like all decisions, we need to go to Jesus for guidance. Only He knows the future.

Every time we consider insurance, we need to answer three questions, which I’ll briefly discuss, using life insurance for a family, Robert, Paula, and their five-year-old daughter, Sarah. Robert works outside the home, Paula works at home managing the household, Robert and Sarah.

Insurance Questions a Person Needs to Answer

  1. Is there an exposure to a risk that I must cover?
  2. How much coverage do I need?
  3. How should I cover the risk?

Risk to cover

What life insurance risks should Robert, Paula, and Sarah cover? Paula and Sarah depend on Robert’s income. And so if Robert dies, his income stops. Paula would need funds to pay for funeral expenses and cover other necessary living expenses in the future. That is the exposure or risk that might need coverage.

But if Paula died before Robert, the risk is different. Robert would not lose direct income. However, household expenses could increase for child care and other related expenses to care for Sarah while he works full time. Robert and Paula might also want to cover this show.

Necessary Coverage

Before moving on to the next question, how much coverage do they need, Robert and Paula need to decide if 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 need to turn to Jesus because only He knows the future. In addition, they should understand that insurance coverage is not secure the future, o 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 Rock forever.

Does trusting God mean we shouldn’t have insurance coverage? No, it means that we must understand that nothing we do will insure the future, so we must seek God’s will for our insurance coverage. After all, he could say no!

How to cover identified risks

After deciding on their insurance coverage, likely with the help of an independent financial advisor, Robert and Paula must address 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 fixed period of time, after which the coverage ceases. If he didn’t die by the time the deadline expired, Robert and Paula would have to answer the same three questions later. So his condition might have improved; they could have income that allows them to reduce or even stop life insurance.

Whole Life and Universal Life are examples of the proprietary or permanent class. Think of this kind of insurance as term plus insurance. It includes your basic term insurance coverage and something else, such as “savings.” Insurance companies like to tell you that this is a great idea because you could “borrow” from the “savings.” Do not go there!

If Robert chose this class, he would pay a premium for more than his basic insurance needs. That is why it is important to understand this kind of insurance, since it is more expensive and greater than the basic insurance needs of it. Extras above term insurance coverage will cost you, for non-life insurance benefits.

As with all decisions, Robert and Paula must obtain insurance information from an independent financial advisor who will not benefit from their advice and seek God’s direction.

Copyright (c) 2011, Michel A. Bell

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