It's Your Money: Life insurance a basic part of good financial plan

Ralph Lunt

Ralph Lunt

ROBINS AIR FORCE BASE, Ga. -- When it comes to financial products, life insurance is certainly one of the most confusing, complicated, improperly sold and under-purchased monsters out there. It is easy to understand why.

Let’s face it, when we talk about life insurance, we are dealing with death, not exactly one of the most appealing subjects to discuss. However, regardless of how you feel about the topic, the fact is life insurance is one of the most basic features of a good financial plan.

In any discussion about life insurance, there are three basic questions to consider:

Do you need any insurance? Would someone feel the financial impact of your death? If you’re married, no doubt your spouse and minor children would be affected by the loss of your income. How will the mortgage and car notes be paid? College? Retirement? Most likely, married Reservists need life insurance.

If you’re single and have debts that would go unpaid or become the responsibility of a friend or family member, you are a candidate for life insurance.

How much insurance should you have? There are lots of ways of going about answering this question. However, as a rule of thumb, the amount of insurance you purchase should be tied to the amount of income you need to replace. For income replacement, use the income that your loved ones would loose in the event of your death and divide that by .04. For example, if your death would result in your family losing $30,000 in income, you should purchase $750,000 of life insurance. For debt satisfaction, buy whatever amount someone would need to settle your financial obligations, to include a proper burial.

What kind of insurance should you buy? Again, as a general rule, I recommend term insurance. Term insurance is pure insurance; it includes no savings element. I also recommend that you select the longest term (in years) you can afford. Permanent insurance, or cash-value insurance, is more appropriate if you have significant excess cash flow or an estate situation.

Let’s say that you either need to purchase life insurance or that you should add to what you already have. What next? Life insurance is usually purchased through agents, financial planners or employers.

As Reservists we have the ability to purchase $400,000 of Serviceman’s Group Life Insurance via payroll deduction. SGLI is a good place to start, but it does have its limitations. See http://www.insurance.va.gov for more information.

If you need additional amounts of life insurance, and my guess is that you do, I would suggest you work with an independent insurance agent or financial planner. Ask to see quotes from multiple companies for comparison. A key point to consider is your SGLI is only available while you are actively serving. Therefore, depending on your career aspirations, it might make sense to purchase some insurance from a private company in lieu of SGLI.

(Editor’s note: This feature is designed to provide financial advice of a general nature. Individuals should conduct their own research and consult a financial adviser before making any financial decisions. Based in Cleveland, Ohio, Colonel Lunt is the reserve forces director for the Great Lakes region of the Civil Air Patrol advisers program. He is also a certified financial planner and vice president of a financial planning and consulting firm.)

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