Recently I have been asked by a lot of families in Beijing about life insurance. Maybe my article two months ago on wills and trusts got people thinking, or more likely it’s the pollution and crazy Beijing roads.
Regardless of what it is in life which makes people inquire about life insurance, there should be only one key driver….’if I were to die tomorrow what would happen to my family and loved ones.’
Currently I am in the process of helping a client with his life insurance. Things in his life are great, he has just had a little boy and like any new father he is very happy. However, the birth of his son has brought back some painful memories. When he was around ten years old, his father fell ill and tragically died. My client was extremely fortunate that his father had put in place a life insurance policy that allowed him to continue his life as his father would have wanted. It is therefore of no surprise that when he found he was going to be a father his attention quickly turned to protecting his new family. My client is not really in a position where he has that much spare cash to spend on life insurance, particularly with all the costs a newborn can bring. Nevertheless, he wanted to put in place as much protection as he could afford.
I deal with many clients that do and do not have life insurance. For the ones that do not it is the first thing I talk about every time I see them. I believe it’s your duty to have something in place if you have children.
No one wants, or likes, to talk about death and this is understandable. However, that should not make planning for it any less important. One thing we know for sure is that death is inevitable, so we have to think about it at some point.
So how much insurance do you need? Some people I meet have great insurance benefits as part of their job. Others have substantial personal wealth so that they can self-insure through their savings. Unfortunately, the vast majority of people I meet are underinsured. Alarmingly, a lot of people I meet do not have any insurance because they think they can’t afford it. Let’s make one thing clear now; insurance is always affordable when you consider the risk to your family not having it. Insurance that you put in place now could be what allows your family to keep their home or your children to attend college.
I often hear the phrase ‘life insurance is the worst investment you’ll ever make’. People say this because the only way to get a return from it is if you die. While I understand the sentiment of this statement, I do not agree with it. Life insurance is the one best investments you can make with your money. What we must understand about life insurance is that it increases the power of our money. Paying USD 1 for insurance might mean my family will receive USD 1,000 if I die. That’s a 1,000 percent return on my investment; pretty good if you ask me.
What are my options?
Term Insurance – This is very simple, what you do is nominate an amount of money you would like your loved one to receive if you die. How much? At the very least I advise everyone to have insurance that will pay off major debts such as a mortgage. If you are the primary wage earner, I also recommend an amount of money that is capable of generating 75 percent of your income.
Whole of Life or Universal Life – As the name suggests this type insurance covers you for the whole of your life. A key feature of this insurance is that it has a cash value that you can redeem at anytime. A lot of the people I speak to like this because they can cash the policy in and receive an investment back which can make the insurance very cheap or even free.
Critical Illness – This type of insurance pays a cash amount on the diagnosis of a terminal illness such as cancer. I find it is often overlooked by people as something they do not need. However, the fact is you are 75 percent more likely to die of a terminal illness than natural causes
As a point to close on, I would like to repeat that anyone who has financial dependents has a duty to have some form of protection in place for their loved ones! How much differs for everyone, but trivial matters such as time and cost should never stop you planning.
About William Frisby
William originally arrived in Beijing as a finance guy on a bicycle and will probably leave as a finance guy on a bicycle. He works for Premium Finance Group (PFG), a financial consultancy that has been established in China for over ten years. PFG offers clients no-nonsense, personalized advice and serves the whole of China from their Beijing and Shanghai offices. Services include international property, investment, insurance and financial planning. To contact William, email firstname.lastname@example.org.
Photos: stockMonkeys.com (flickr)