You’ve finally decided to purchase a Life Insurance policy.
Things are looking good, income is stable, you and your family have checked off most of the significant milestones you wanted to up until now, and you’re ready to get that policy in place.
Medicals go well; you’re happy with the Life Insurance payout and other details, but then you take a look at that monthly premium amount, and you realize it’s a little outside of your reach just now.
With school fees, rent or mortgage, and all the other expenses weighing down on you, Life Insurance could slide down the priority list pretty quickly, no matter how important it is in the long run or more importantly, in the short term.
So should you put this purchase on hold? Probably not, and drop me a comment to learn why, I’ll link you to a few cases.
On a positive note, I’ve got news for you: A Life Insurance policy can be restructured so that it is made to fit within your budget. A Life Insurance Hack, if I may.
Here’s the case of Nabeel, a client of mine who found that premiums for his ideal Life Insurance policy were just slightly beyond his budget.
Case Background
Nabeel comes from an old, well-established business family that’s been in the Middle East for a long time.
A few years ago, he decided to step out of the family business and embark on a career he was more passionate about. He landed a great job with a Fortune500 and quickly rose the ranks to become a successful C-suite executive at his company.
Nabeel had quite a few of those major life boxes checked when we were introduced: young, happy family, house and mortgage in place, an exciting career, and counting.
A dear friend and client of mine introduced us when Nabeel wanted to purchase Life Insurance but wasn’t sure how much coverage he needed and what kind of a policy he should go for.
We talked and quickly worked out that Nabeel’s ideal Life Insurance policy would be a 35-year Term Life Policy with US$ 3 million worth of Life Insurance cover and about US$ 750,000 worth of Critical Illness cover, and that would last him until the age of 73.
The Challenge
We then worked through all of Nabeel’s finances. As the sole breadwinner of the family, he had a pretty hefty financial load. His income covered the mortgage, school fees, utilities and living expenses, holidays, savings – all of it.
He had also paid out a fair chunk on refurbishing their home a few months before we were working these numbers out. So, when we looked at what the monthly premiums were working out to, we saw that the numbers were slightly beyond reach.
One obvious option here was to reduce the amount of Life Insurance and Critical Illness cover. But that wouldn’t serve the purpose behind the Life Insurance policy.
At anything under US$ 3 million, Nabeel’s family would not have enough of a payout to cover the home loan and continue to support their lifestyle and expenses comfortably, which was what he wanted to ensure was in place with the policy in the first place.
The Workaround
We simply restructured the policy.
The way Term Life Insurance works is that the longer the life of the policy, the more expensive the premiums. So, we broke down the US$ 3 Million of cover into three policies:
Policy 1: A $1.5 million policy that lasted the full 35-year maximum term, until the age of 73. This was the contract we added the Critical Illness cover to, so that it gave him the maximum benefit and lasted long.
Policy 2: A $750,000 policy that lasted until the age of 55
Policy 3: A $750,000 policy that lasted until the age of 65
With this structure in place, Nabeel now had the full $3 million worth of Life Insurance cover until the age of 55.
At 55, when Policy 2 expired, he still had $2.25 million worth of Life Insurance cover.
And at 65, when Policy 3 expired, he still had $1.5 million worth of Life Insurance cover.
We also worked out Nabeel’s savings and investments in a way that by the age of 65, his dependents would rely more on other assets and financial investment returns, rather than just the Life Insurance payout.
This way, all of Nabeel’s immediate Life Insurance needs were taken care of. Should anything happen to him, his entire requirement was Life Insurance and Critical Illness cover until the age of 55 was in place while fitting his current budgets perfectly.
Over time, as his cover reduces, other financial returns kick in, and the family’s liabilities would likely have decreased too, with a lot more of the mortgage out of the way.
Restructuring Life Insurance policies to fit individual requirements is not an uncommon practice. It is, however, important that the new structure addresses every need – the pressing immediate need as well as the long-term need, without leaving yourself and your loved ones unsheltered or under-protected at any point.
As always, I hope this article has helped!
Have you got questions? Feel free to leave me a comment below, or drop me a private message or email, and I’d be happy to help with more specific information.