Recorder columnist
Although a person under age 65 is more likely to become disabled than to die, most underinvested and uninvested African-Americans assume that life insurance is a more significant need than disability income insurance. However, I suggest that you take a few moments to reconsider.
In many cases, without insurance, you and your family would have to liquidate savings and sell your assets to cover expenses.
Don’t assume that Social Security benefits will relieve this need. The criteria to qualify for benefits by African-Americans are stringent, and benefits are modest.
The cost of disability income insurance depends on several factors, including your age, health and occupation. Make certain the policy covers you appropriately. Group policies often are not sufficient for your needs, but can be combined with personal policies. If cost is a factor, you can reduce the premium by extending the waiting period before benefits begin.
There are a variety of other options you should consider before purchasing a policy. In order to make sure your family is adequately protected, it’s important that you purchase the proper amount of life insurance as well. A common rule of thumb is that you should purchase five to seven times your annual income. Unfortunately, like most rules of thumb, this does not take into account individual circumstances and may leave you with an inadequate amount of insurance.
The amount of insurance you need depends on your current net worth, the lifestyle you want to provide for your family, and ultimately, your personal desires. First, you should consider how much your family will need every year, being sure to take into account the effects of inflation.
Next, total your assets and other sources of family income. Be sure to include any benefits your family may be entitled to under any pension plans. If your spouse doesn’t work now, you need to consider if he/she would work if you died and how much he/she could earn. Don’t overlook Social Security survivors’ benefits available to your children under age 18 and to your spouse if he/she does not earn significant wages.
Finally, determine how much life insurance you require. This will depend on how long your family will need this income, what rate of return can be earned on the insurance proceeds, and other factors.
Unfortunately, this is not a calculation that can be made only once. Since your needs change over time, you should assess your insurance coverage periodically, especially if a major event occurs in your life.
Dr. Jesse Brown is a wealth management and wealth preservation specialist and is the dean of the School of Business at Martin University. He is a best-selling author of the book Investing in the Dream-Wealth Building Strategies of African-Americans seeking Financial Freedom, and Pay Yourself First – A Guide to Financial Success. For questions or comments about this column, email deanbrowncolumn@aol.com.
