Q&A with Eli Zimmer, Partner at Daigle & Travers, on life insurance for parents.
Before kids, most parents never even gave life insurance a thought. Most of us don't like to dwell on our own mortality... especially when celebrating a new life, the birth of a child! But when you have a new baby, that's exactly when you should be thinking about it most. It's what life insurance for parents is for - to protect your family financially when faced with the loss of you or your spouse. So what exactly is life insurance? How does it work? And how much coverage do you need to protect your family's finances? Last week, I interviewed Eli Zimmer of Daigle & Travers to ask all these questions, get his professional insights on life insurance and exactly how important it is for every family's financial portfolio.
Do You Really Need Life Insurance? And 5 More Life Insurance Questions Answered
One of the most common topics I am asked to cover for Family Financial Savvy is insurance - which also happens to be one of the areas even as a former finance major and hedge fund analyst that I know the least about. Fortunately, my friend is a Partner at Daigle & Travers, one of the leading independent insurance agencies in the state. And he was kind enough to answer all your questions about insurance. This will be a multi-part series, beginning with the importance of life insurance for parents and families, with subsequent posts on home, auto and other areas of property and casualty insurance.
First, a few life insurance facts...
More than 37 million American families have no life insurance coverage, putting them at great financial risk in the event that their primary wage earner dies unexpectedly. This represents 30% of households, and 20% of households with children under the age of 18.
The numbers nearly double, however, when you account for adequacy of coverage. LIMRA, a financial services research organization, estimates 48% of households (60 million) have a more than $200,000 life insurance coverage gap. So how much life insurance do parents need? What is adequate coverage? What other factors should you consider when securing life insurance?
The entirety of my interview with Eli Zimmer of Daigle & Travers appears below. It has been edited for brevity and clarity.
Do all families need life insurance?
Term insurance is appropriate for most families. Term insurance is a life insurance policy with a set duration. As an example, you take out a term insurance policy at age 30 that expires in 30 years. It is up to the policy holder to elect to renew the policy at the end of the term. It is the cheapest insurance coverage available per dollar of premium and provides coverage if a devastating event (death) affects the family.
Term life insurance is appropriate for both parents, even if one parent stays home. Even if you are not the primary breadwinner, you are still contributing to your family's financial security either through a second income or through large savings in childcare.
How often should you re-evaluate life insurance coverage?
When reviewing life insurance for parents, it’s appropriate to reassess whenever a major life events take place. This might be when you add new family members (babies), make a large purchase (a new home), or if you have a significant changes in salary/lifestyle.
How much life insurance coverage do parents, families need?
There’s no formal set rule. It’s a bit of science and a bit of personal preference. Life insurance should help replace current and future income, while also satisfying a portion of current debt obligations (think mortgage) and future debts (think children's college tuition).
As an example, a 35-year- old earning $50,000 a year would have $1,000,000 in earnings of the next 20 years, and that's before any adjustments for inflation for future earnings increases. It is important to put that in perspective when assessing the financial impact of a potential future tragedy.
How do you evaluate different life insurance policy options?
Term insurance coverage is very straight forward. As long as you are looking at insurance carriers with strong financial ratings (low credit risk), then the lowest premium should be the deciding factor in most cases. There are very few moving parts in a term policy.
Carrier ratings, however, should be considered. Insurance carriers receive credit ratings from five major rating agencies, and these ratings are publicly available. These ratings give an indication of a carrier's financial strength and ability to meet it's current and potential future credit obligations, including paying claims on policies. With term insurance, the obligations may need to be paid in 20 or 30 years, and you want to make sure the carrier is viable long-term.
What do you wish more families understood about life insurance?
Life insurance for parents should not be evaluated as an investment. There are some types of life insurance policies not discussed here that are exceptions. But life insurance should be viewed as a small cost, the premium, you pay to move financial risk from you and your family to someone else, an insurance carrier. The benefit is often not readily tangible, but it is significant. And the financial security and peace of mind it provides in the event of an untimely tragedy can be immense.
What benefits do families get working with an independent insurance broker?
Insurance expertise. Regarding life insurance, navigating the details of policies, carriers and underwriting can have significant effects on the outcome of both the underwriting offer and the cost of a policy.
I want to offer a very big thank you to Eli for answering all my readers' life insurance questions. If you have more general insurance questions, feel free to email me, leave them in the comments below, or join my private Facebook group - Family Finance Moms. For more specific coverage and policy questions, you should consult your insurance broker.
Learn More About Eli Zimmer and Daigle & Travers
Eli Zimmer is a partner at Daigle & Travers Insurance in Darien, CT. Eli joined the Daigle team in 2006. After growing up in Western Massachusetts, he went onto Skidmore College. Post graduation, he worked for Head Sporting Goods and Paychex before moving into insurance. While in insurance, he was awarded top 40 under 40 for Fairfield County, and for the last 5 years, he has been award one of Connecticut Magazine’s top agents. Eli became a partner of Daigle & Travers in 2012.
Daigle & Travers represents over 20 insurance carriers in more than 20 states, with the focus on insurance for both individuals and businesses. Due to our relationships with insurance carriers we, are able to provide our clients with the best coverage while remaining competitive in the market place. Learn more at daigletravers.com, or follow D&T on Facebook.
Stay tuned for the second part of my insurance interview with Eli where we discuss personal property insurance coverage, or more commonly known to families as home and auto insurance. You can find all of these posts and more on my Family Financial Savvy board on Pinterest.