Global Courant
Many people don’t realize how much money they spend on insurance premiums. Auto, life, home, contents insurance and extended warranties can be costly. Insurance is risk assessment and coverage. It’s about the future, so as with all decisions, we must go to Jesus for guidance. Only He knows the future.
Every time we consider insurance, we have to answer three questions, which I’ll look at briefly, using a family life insurance policy, Robert, Paula, and five-year-old daughter Sarah. Robert works outside the home, Paula works at home and manages the household, Robert and Sarah.
Insurance questions that an individual must answer
- Is there a risk exposure that I need to cover?
- How much coverage do I need?
- How should I cover the risk?
cover risk
What life insurance risks should be covered for Robert, Paula and Sarah? Paula and Sarah depend on Robert’s income. And so, when Robert dies, his income stops. Paula would need money to pay for funeral expenses and provide for other necessary, future living expenses. That is the exposure or risk that may need to be hedged.
But if Paula died before Robert, the risk is different. Robert would not lose any direct income. However, household expenses may increase for childcare and other related expenses to take care of Sarah while he works full time. Robert and Paula may also want to report on this exposure.
Need cover
Before moving on to the next question – how much cover do they need – Robert and Paula must decide if they will accept that there are risks to cover.
If they accept and decide to cover the risk of Robert’s death, how much insurance coverage will Robert need for his life? Robert and Paula would like this amount to cover a realistic future standard of living for Paula and Sarah based on current knowledge. This could be the present value of Robert’s future income and Sarah’s future education and other expenses. Calculating this amount is not difficult if you work with an expert independent financial advisor.
Most importantly, Robert and Paula should turn to Jesus because only He knows the future. Additionally, they must understand that insurance coverage does not secure the future, or remove risks; rather, it generates revenue when a specific event occurs. The prophet Isaiah reminds us in Isaiah 26:4: Trust in the LORD forever, for the LORD, the LORD, is the everlasting Rock.
Does trusting God mean we shouldn’t have insurance coverage? No, it means we must understand that nothing we do will secure the future, so we must seek God’s will for our insurance coverage. After all, he could say no!
How to cover identified risks
After determining their insurance coverage, probably with the help of an independent financial advisor, Robert and Paula need to consider the third question: how to cover the risk. Think of life insurance in two classes: rent or temporary, and own or permanent. The insurance industry calls the rental class term life insurance. With term life insurance, Robert would pay an amount called a premium for a specified period of time, after which the coverage would stop. If he didn’t die when the term ended, Robert and Paula would have to answer the same three questions later. Then their condition might have improved; they may have an income that will allow them to reduce or even stop life insurance.
Whole Life and Universal Life are examples of the possessing or permanent class. Think of this class of insurance as term life insurance plus. It includes your basic insurance and something else, such as ‘savings’. Insurance companies like to tell you this is a great idea because you could “borrow” from the “savings!” Do not go there!
If Robert chose this class, he would pay more premium than his basic insurance needs. That is why it is important to understand this class of insurance as it is more expensive and exceeds your basic insurance needs. Extras over term life insurance costs you, for non-life insurance.
As with all decisions, Robert and Paula must seek insurance facts from an independent financial advisor who does not benefit from his advice and seek God’s guidance.
Copyright (c) 2011, Michel A. Bell
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