Time for a financial check-up…

By Finbar Garcia LUTCF, FSS, MFA

When did you last have a check-up? I am referring to a financial check-up.

There are people holding some life insurance policies that were purchased many, many years ago with coverage that was sufficient back then. Fast forward 20 years, is that life cover still sufficient? I doubt it very much. Imagine having a vehicle that is worth more than your life insurance policy.

Insurance cannot bring you back when you die, but its main purpose is to fill that financial void that will be created upon your untimely passing. If you are still in the prime of your earning years and have young children or a child that will depend on you due to a disability, then you better be prepared and have your policies up to date and with the relevant coverage.

When this financial check-up is done, it will align your income and liabilities to future-proof your family’s financial security. Simple upgrades to your Life and Critical Illness policies will put you and your family in a better place.

It’s not about just buying more insurance but managing it. Always remember, your income and responsibilities have grown today, compared to 20 or 30 years ago, so that safety net may not be that safe today if you leave it to fray in your safe box.

During your working life and as your income and earning potential increases, there is a tendency to focus on other investments and forget your life policies that are ageing and not increasing in value.

With inflation being a main factor regarding your purchasing power, you need to ensure your policies are in line with today’s cost of living. Based on the type of policy you purchased years ago, there may be options available to you to either convert or increase the cover with little or no medical investigations.

Our mid-life is when we most likely earn the highest income while simultaneously shouldering the greatest liabilities. These can be additional mortgage, tuition fees for children attending secondary school or university, medical bills and hopefully investment in retirement programmes.

Think about it for a moment. If something happens to you today, would your existing policies cover all your current expenses and debts, future goals, and lifestyle for your loved ones?

One of the simplest ways to calculate your insurance needs is to have at least 12-15 times your annual income. This should be a good starting point in determining the coverage needed.

There are other benefits called ‘riders’ that can enhance your overall coverage. These are based on certain events happening, so it’s something to consider.

Let’s look at some ideas in ensuring that you have the correct coverage:

(a) Always pair your saving goals with an equal amount of life cover. If your saving goal is to accumulate a certain amount of cash, then have equal coverage. Just in case you die, your goals don’t die with you.

(b) Carry enough coverage to take care of all your current expenses, debts and any foreseen future expenses that may be coming up soon.

(c) Make sure your mortgages are fully covered with a life policy that stays equal to the value of the mortgage loan you initially took out. Do not reduce cover, as you would not have any excess leave for your loved ones or to refinance the loan if needed. A level term policy is best, as both premium and cover stay the same until maturity. This is different to a reducing term, where the coverage reduces and is always in line with the mortgage balance, but the premiums remain fixed.

(d) Where possible, add a waiver of premium rider to your policies to ensure that if you become disabled, the insurer will have to maintain your policies as if you were paying just before the disability.

So, today’s informed policyholders don’t just buy insurance: they manage it. They review their coverage at least once a year and make the necessary adjustments. Mid-life should not be a crisis, but a checkpoint. It’s your chance to realign your protection with your priorities.

The biggest mistake we make in life is thinking we have time.

Call me for more information on planning your financial future. Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.