Many people don’t realize how much money they spend on insurance premiums. Auto insurance, life insurance, home insurance, contents insurance, and extended warranties can be expensive. Insurance is risk assessment and coverage. It is about the future, so like all decisions, we must turn to Jesus for guidance. Only He knows the future.
Every time we consider insurance we need to answer three questions, which I will discuss briefly, using life insurance for a family, Robert, Paula, and their five-year-old daughter Sarah. Robert works outside the home, Paula works at home taking care of the house, Robert and Sarah.
Questions about insurance that a person must answer
- Is there an exposure to a risk that I must cover?
- How much coverage do I need?
- How should I cover the risk?
Risk to cover
What life insurance risks should be covered for Robert, Paula, and Sarah? Paula and Sarah depend on Robert’s income. And then, if Robert dies, his income will stop. Paula would need funds to pay for funeral expenses and cover other necessary living expenses in the future. That is the exposure or risk that might need to be covered.
But if Paula died before Robert, the risk is different. Robert would not lose direct income. However, household expenses could increase for childcare and other related expenses to care for Sarah while he works full time. Robert and Paula may also wish to cover this exhibition.
Necessary coverage
Before moving on to the next question (how much coverage do they need), Robert and Paula must decide if they accept that there are risks to be covered.
If they agree and decide to cover the risk of Robert’s death, how much insurance coverage does Robert need in his lifetime? 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 a knowledgeable, independent financial advisor.
Most importantly, Robert and Paula need to turn to Jesus because only He knows the future. In addition, they must understand that the insurance coverage does not secure the future or eliminate risks; rather, it provides income if 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 that we must understand that nothing we do will secure the future, so we must seek God’s will for our insurance coverage. After all, you could say no!
How to cover the identified risks
After deciding on their insurance coverage, probably with the help of an independent financial adviser, Robert and Paula must ask themselves the third question: how to cover the risk. Think of life insurance coverage in two kinds: rental or term, and property or permanent. The insurance industry calls the rental class temporary insurance. With term insurance, Robert would pay an amount, called a premium, for a set amount of time, after which coverage ceases. If he didn’t die when the time limit expired, Robert and Paula would have to answer the same three questions later. Then his condition might have improved; they may have income that allows them to reduce or even stop life insurance.
Whole Life and Universal Life are examples of the proprietary or permanent class. Think of this kind of insurance as term plus insurance. It includes your basic term insurance coverage and something else, such as “savings.” Insurance companies like to tell you that this is a great idea because you could “borrow” out of “savings.” Do not go there!
If Robert chose this class, he would pay a premium for more than his basic insurance needs. That’s why it’s important to understand this kind of insurance, as it’s more expensive and greater than his basic insurance needs. Extras on top of term insurance coverage will cost you non-life insurance benefits.
As with all decisions, Robert and Paula should obtain insurance information from an independent financial advisor who does not benefit from their advice and seek God’s guidance.
Copyright (c) 2011, Michel A. Bell
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