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by Carlton Smith One time-worn artifice in the insurance salesman's bag of tricks is known as "backing the hearse up to the door." To the mournful dirge of the salesman's solemn tones, the prospect is made to see his mortal remains begin their journey to the graveyard, while his tearful widow and orphans ("your loved ones") face a financially bleak future, hard pressed to keep a roof over their heads and pay the butcher and baker. More-professional salesmen tend to deplore the tactic as a shoddy gimmick. Its users argue that the typical prospect for life insurance has the curious notion that "it can happen to the other guy, but it won't happen to me" —not just now, at least—and. keeps putting off buying insurance until, perhaps, it's too late. It is true, certainly, that most of us have an aversion to accepting our own death as an ever-present possibility. If, however, you want an objective and realistic answer to the question "How much insurance do I need?" you have to face the possibility that you might lose an argument with a truck at 4:36 tomorrow afternoon. Statistically, you have comfortably long odds in favor of your living to the ripe old age assigned you in the insurance company's life expectancy tables. But if you are going to count on that, you are saying you don't need any insurance. Getting the right answer to the question above begins with the fact that if a healthy twenty-five-year-old American male stands up in line with 1,130 others of like description (or some such number, depending on whose mortality tables you believe) he can be pretty sure that for one of them the hearse is going to back up to the door some time in the next twelve months. And if that one just happened to be you...how much insurance would your family need? It is important to work out your own individual answer beginning with this ruthless assumption, because other- 'wise you might get your calculations confused by considerations of "insurance as an investment^' and other secondary uses to which it can be put. The primary purpose of life insurance—the one that comes ahead of all others—is protection. It is fine to take into account the other possible uses of life insurance—such as providing retirement income or funds for college education, etc. — but only after you are satisfied' that your family has adequate protection against loss of the primary breadwinner's income. If it just happens to be you for whom the bell tolls tomorrow, or next week or a year from now, any insurance dollars spent on secondary purposes at the expense of protection will have been painfully misdirected. So, first things first. As one philosopher observed, "if two men ride a horse, one needs must ride behind." Keep protection up front where it belongs and let other things come behind—if there's any room left in the saddle. Determining family protection is a two-part question: How much insurance do I need, and what kind? It is difficult to address yourself fruitfully to the second part until you have some numbers to work with—that is, an answer to the first part. Fortunately, getting the numbers is fairly easy. Many insurance men use a sales approach known as "programming your insurance." This technique produces a graphic answer to the question of "how much," often an impressive array of figures and charts in a thick binder. You can do your own programming by applying a standard formula. irst step: Calculate, or estimate, as accurately ^ • ^ H as you can, your survivors' monthly income needs if you were suddenly to become a vital -M . statistic. Carry this out to the year when the youngest child will have finished college. Couples as yet childless, whose plans call for having a family, should include the intended number and approximate time of arrival of each child. Unless you keep much more accurate track than do most families of where the money goes, start by breaking down the family's current annual expenditures into major categories. The bottom line should be the year's total outgo. Consider each category and ask yourselves how it would change in the event of the breadwinner's death. You will have to answer such questions as whether the family would continue in your present home, if you are homeowners, or whether they would need that second car, if you are now a two-car family. Your current commuting costs can be eliminated, along with premiums for any life insurance you now carry, and other personal expenses. This step requires detailed analysis and perhaps a little crystal gazing. In projecting future years'
Object Description
Title |
Your insurance program |
Author |
Smith, Carlton |
Subject |
Life insurance |
Citation |
H&S Reports, Vol. 13, (1976 spring), p. 16-17 |
Date-Issued | 1976 |
Source | Originally published by: Haskins & Sells |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF page image with corrected OCR scanned at 400 dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Library. Accounting Collection |
Date-Digitally Created | 2010 |
Language | eng |
Identifier | HSReports_1976_Spring-p16-21 |