Life Insurance and the Young Professional

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Over the years, life insurance has developed a stigma thanks to the stereotypical sleazy life insurance agent persona, not far removed from the used car salesman. And so it is one of those topics that doesn’t get discussed very often these days, but should because it’s an important component of a well-rounded financial plan.
 
In the past, people were often sold unneeded or excessively expensive plans where the benefits were difficult to quantify. But the days of the hard sell and pressure from insurance agents are gone if you know who to turn to. Your options range from the individual who makes their entire living selling nothing but life insurance to the Certified Financial Planner certificants and Chartered Life Underwriters. It is the latter two who are recognized in the industry as having superior training and practice standards, but may not actually be licensed to sell you insurance. I will touch on that later.
 
Life insurance is just like any other type of insurance in that it transfers the risk of a certain event to another party. There are four ways to mitigate risk: avoidance, retention, reduction and transfer. The first three are not practical; transferring the risk is the logical choice. 
 
But should you buy life insurance? If you are single with no serious financial obligations, such as a mortgage, then you can probably dispense with purchasing a policy. Though, you may consider a term policy with a low face value, around 10 to 15 thousand dollars, so your family can cover the cost of funeral expenses. Those with spouses, dependents and financial obligations should have a policy in place as soon as possible. The tricky question is, “how much insurance should I buy?”  Many formulas exist to determine how much insurance coverage is necessary. At the very least a policy’s face value should include the total of the mortgage balance and other debts, higher education expenses for children, funeral expenses and a year's living expenses for the surviving spouse. Again, more or less will be needed depending on the individual. A qualified financial representative can quantify it for you.
 
The first step is to ask for referrals from friends and family. For someone to actually sell you a life insurance policy they must be licensed in the state in which they are conducting business. Life insurance is regulated at the state level and the state insurance regulatory body passes the insurance regulations, as well as administers the exams for agents. Most states abide by a uniform code of practices so there is some continuity from state to state. CFP certificants and others with well known industry designations may or may not be licensed to sell life insurance, but are more than qualified to discuss it with you.
 
Part two for next week will cover the different types of life insurance available, companies you should look for to underwrite your policy and a little bit about the process.
 
Nick Wychocki works for Global Wealth Consultants, a registered investment advisory firm, as their Senior Wealth Strategist.  He has worked there for six years in beautiful Naples, Fl., after having cut his teeth in the currency options pits of the Chicago Mercantile Exchange. He is a CFP certificant and a graduate of the University of Florida’s MBA program.
 
Read more from Nick Wychocki on investing your money in a brokerage account.
 
(Photo credit: Kanfuziy; C.C. 3.0)