Most of us take more time planning our vacations than our financial futures. That’s why we decided that a quick chat with a top financial advisor might do us all some good. We spoke with Sarah Kaelberer, CFP, ChFC, who is a partner and President of Business & Estate Advisers Inc. in the Minneapolis area. She led us through some common misconceptions about life insurance and who actually has an “estate.”
What mistakes do you see people making when it comes life insurance?
People have so many misconceptions about life insurance. I hear people say, especially those that are just married or had their first child, is: “I don’t need life insurance.” And I always reply, “Of course you don’t. You’re the one who’s going to be dead. Your family needs it.” It’s not about what you need; it’s about what your family needs if you aren’t here.
Mathematically I can show most people that they do need life insurance, especially those who are younger and who can’t self-insure yet. It’s important ask yourself questions like, Could your family stay in your house, if you weren’t around? Could your children’s education be funded? And so on.
It’s not about what you need; it’s about what your family needs if you aren’t here.
Another misconception with life insurance is that you never get paid, but in this world there’s one thing that’s 100% certain: that we will die. If you buy a life insurance policy that will be there as long as you will, your loved ones will certainly get paid.
How about those who just aren’t convinced insurance is necessary?
I’d say to them, Just look around at someone you know that’s gotten sick or has died that didn’t have insurance and compare that with someone who did. You’ll see how much easier it is for a family to deal with these issues when there is insurance.
Our current “Insurance Barometer Study” shows that 8 in 10 people overestimate the true cost of life insurance. Do you see this in your business?
I think it’s especially true among those in their 20s and 30s. When you talk to them about getting $1 million or $5 million dollars in coverage, they think these are such big numbers. But what they don’t understand is that’s only about $400 or $1,500 a year for the premium.
I also think they need to know that insurance can be “sliced and diced” and made as affordable as someone needs it to be. That’s what an agent or advisor is there to help them with.
You also do estate planning. So, what do most people get wrong?
They don’t think they have an estate if they don’t think there will be taxes to pay when they die or if they don’t have a lot of money. It’s always fun to explain to them that everyone has an estate. It may be small, but it’s still an estate! Without the proper documents and the proper planning, it could still be equally as messy as a large estate when you die.
What are the basic documents they should have?
A will, a health-care directive, and durable power of attorney. These documents are really important. As we move through our plans with clients, these estate-planning documents are always a component.
Anything else you’d like to add?
If your advisor doesn’t bring up the life insurance conversation, make sure that you do. No one likes to talk about death or dying, but you want to make sure your loved ones are taken care of if something happens to you.