Your Insurance Coverage: Is It Adequate?
Many people do not realize how much money they are spending on insurance premiums. Auto, life, home, contents, and extended warranties can be expensive. Insurance is a risk assessment and coverage. It’s about the future, so like all decisions, we must look to Jesus for guidance. Only he knows the future.
Every time we consider insurance, we must answer three questions, which I will 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 home, Robert and Sarah.
Insurance questions a person should answer
- Is there an exposure to a risk that you need to cover?
- How much coverage do I need?
- How do 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 funeral expenses and to cover other necessary future living expenses. That 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 can increase for daycare and other related expenses to care for Sarah while he works full time. Robert and Paula may also want to cover this exhibit.
Necessary coverage
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 be covered.
If they accept and decide to cover the risk of Robert’s death, how much insurance coverage does Robert need in his lifetime? 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 should understand that insurance coverage does 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 everlasting Rock.
Does trusting in God mean we shouldn’t have insurance coverage? No, it means that we must understand that nothing we do will ensure 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 your insurance coverage, probably with the help of an independent financial advisor, Robert and Paula should 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 temporary insurance. With term insurance, Robert would pay an amount, called a premium, for a fixed 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 could have improved; They may have income that allows them to reduce or even suspend life insurance.
Whole Life and Universal Life are examples of the proprietary or permanent class. Think of this kind 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 “savings.” Do not go there!
If Robert chose this class, he would pay a premium for more than his basic insurance needs. This is why it is important to understand this type of insurance, as it is more expensive and larger than your basic insurance needs. Extras on top of term insurance coverage will cost you, in the case of non-life insurance benefits.
As with all decisions, Robert and Paula should obtain insurance information from an independent financial advisor who does not benefit from their advice and seek God’s direction.
Copyright (c) 2011, Michel A. Bell
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