How To Eliminate Mortality Risk While Planning For Retirement
Every single day, there is the risk of something unexpected happening that could affect your life. If this were to happen while you’re trying to save and plan for the future, it could seriously hurt your family financially. Any long-term plans that you had, may no longer be possible.
This can be a hard topic to think about, but you must try and have a plan in place. If you or your family were to experience a sudden loss of income, then it can have devastating effects.
In today’s article, we’ll discuss:
What is mortality risk?
Do I need life insurance?
What are the different types of life insurance?
How much life insurance do I need?
Can I reduce or eliminate mortality risk?
By the way, if retiring in a 0% income tax bracket sounds good to you, then watch our free video here on how to do it!
For additional tips, you can read our top articles on “how to avoid market risk in retirement” and “how to eliminate tax risk in retirement”. Both of these are included in the “top 10 retirement planning risks to avoid” article.
What is mortality risk?
From a financial planning standpoint, mortality risk simply refers to the risk of passing away before your finances are in order. When you pass away, your income earning ability stops. If this were to happen prematurely, then your family’s future plans might completely disappear! If there are people who depend on your income, then you should protect yourself in case of an unexpected event. Protecting your income is one of the very first steps in any financial plan.
There are different risk factors to consider while planning for retirement, and mortality risks are ones that everyone can relate to, no matter what age group. Increased mortality risk will happen as you get older, since health status deteriorates as you approach life expectancy. For example, cardiovascular disease / heart disease can be more common in elderly patients, but this is just one risk factor. Secondary prevention is important for that reason, as it helps to identify diseases in their early stages.
The recent public health crisis (COVID-19) showed that we should be prepared for anything, and that mortality rates can spike unexpectedly. The CDC (centers for disease control and prevention) website provides a lot of great information. Keeping yourself in good health is important, and tracking your BMI (body mass index), blood pressure (systolic blood pressure and diastolic blood pressure) can be good indicators of overall health. It’s important to keep your risk score low and to try and avoid any adverse outcomes, as the relative risk increases with health issues.
Did you know? In 2020, statistics showed that more than half of Americans had life insurance protection.
Do I need life insurance?
There are many things to consider with this question, and we’ll break down this answer further as we go. But ultimately, if you have people who depend on your income in any way, then life insurance is probably a must-have for you.
Do you have a dependent spouse or any children, grandchildren, parents, siblings, family members, business partners or charities?
A loss of income can potentially trigger many other issues, especially if it’s the main breadwinner’s income that is affected. If this happened to your family, how would you pay for your bills, your mortgage, sending your children to college, helping to take care of your parents as they age, etc?
Did you know? According to a recent study, more than 50% of people overestimated the price of life insurance. They thought it cost 3 times, or more, than what the actual price was.
What are the different types of life insurance?
We won’t go too deeply into this in today's article, as there is a lot to cover when choosing the right life insurance policy. A separate article will be available specifically for this topic.
However, there are three main types: term insurance, universal life insurance and whole life insurance. There aren’t any bad products, as each one exists for a reason and they are all state-approved. The key is to find which product works best for your specific needs.
You may have heard about the “new versus old” type of life insurance. What people are referring to with this phrase is that the “old” type of life insurance policies only have death benefit protection, but the “new” type of life insurance policies can also include “living benefits”. These living benefits can offer extra protection while you’re alive, against critical illnesses, chronic illnesses and terminal illnesses… AND your price could actually be lower than other products that only have death benefit protection!
Did you know? One popular life insurance benefit is the ROP (return of premium) rider. This allows you to receive all of your money back if you don’t use the insurance.
How much life insurance do I need?
There will never be one standard answer to this question, because everyone’s situation is different. But let’s go through some of the main things that people consider, and we can use a simple three-step approach. For example:
1. Debt ($50,000 outstanding; car loans, credit cards, student loans, etc.)
2. Mortgage Protection ($450,000 remaining on the mortgage loan)
3. Income Replacement (providing your family with $4,000 per month of income, for 20 years, would require around $1,000,000 in coverage. Some people calculate their income replacement needs by multiplying their annual income by the amount of years until they retire. So if you make $100,000 per year, and you have 10 years left until retirement, that’s $1,000,000).
In the above example, to have income replacement, mortgage protection, and to clear all outstanding debts, that could be achieved with a $1,500,000 death benefit. (Other common things for consideration include: college savings, final expenses, etc.)
Try using this example as a guide, and replace those numbers with your own real numbers. Approximately how much life insurance do you need?
By the way, if you’d like extra information on the new “hybrid” options that offer multiple products in one… then be sure to watch our free video here!
Can I reduce or eliminate mortality risk?
The simple answer to this question is YES! You can definitely reduce and/or eliminate mortality risk. By understanding what we’ve discussed in this article, you’ll now know what mortality risk is. You’ll also have a better idea of whether you need life insurance to protect your loved ones, what type of policies are out there, and how much coverage you might personally need.
As with most financial topics, the general advice given in any single article can never be comprehensive for all readers. Each person’s life situation is different, which is why you should speak with a financial professional regarding your own personal needs.
Tip: work with a broker who has access to all available products, as most agents and companies are limited on what they can offer you.
There are many great products available that offer plenty of protection, and they can even guarantee your money back if you don’t use the policy! Imagine if your car insurance or health insurance plan offered “protection or your money back”… would you like that option?!
If you want to learn which products are available to you, then you can schedule a free retirement consultation today.
