Comment: Is your life insurance coverage sufficient?

I think I was in college when my father explained the proper use of insurance to me. Insurance allows you to pay a relatively small amount of money to avoid a major financial setback. These days, you can also purchase insurance to protect against relatively small events. Consider insurance against breaking your cell phone screen, a potential $150 loss that happens only seldom to most of us. Rather than paying numerous small amounts to insure against relatively small losses, many people will opt to self-insure—that is, take the attitude that “$150 won’t break me. Let’s just try to be careful with the phone.”

For major losses, however, such as destruction of your home or loss of a family salary due to death, self-insurance is less appealing and may be impossible. This is where homeowners insurance and life insurance, respectively, come into play. A life insurance policy costs a relatively small amount annually to guard against financial hardship resulting from one’s own demise.

Life insurance can help provide a financial safety net for loved ones who rely on your support. It can cover funeral expenses, pay off debts, and help provide for day-to-day expenses like food, clothing, and housing. In the long term, life insurance can help pay for college tuition and even ensure your partner’s retirement dreams come to fruition.

Life insurance comes in a number of flavors, with a number of financial uses. Life insurance, at its simplest, is called term insurance, which is sometimes viewed as a commodity. That is, one product is not easily distinguishable from another, and one of the main factors driving the purchase decision is price.

With term insurance, you pay an annual fee that is determined by your risk profile and that guarantees your beneficiaries a specific payout at your death. An individual’s risk profile is determined by age, overall health, and, in some cases, lifestyle choices. Thus, if you’re young, healthy, and avoid particularly risky behaviors, your price of insurance is relatively low.

Now, you might ask: “What has insurance got to do with chemistry?” Well, nothing in particular; but as a professional society we have the capability to offer group insurance to ACS members. This means risk is assumed on a group-wide basis instead of an individual basis, which leads to specially negotiated rates.

Many people who work for companies or universities in the chemistry enterprise receive some life insurance as part of their benefits package and have the opportunity to buy more to manage their individual needs. But employer-provided life insurance coverage may not meet those needs, as the features and benefits it offers are often limited, and it may be expensive.

Individuals can supplement their employer-provided coverage with annual renewable term life or level term life insurance, available through the ACS Member Insurance Program. With the first option, the policy renews annually and your premium is calculated annually, gradually increasing as you age. With the second, you pay the same premium annually for the initial period you choose, either 10 or 20 years.

Some employers may offer add-on purchases in employee benefit plans, such as accidental death and dismemberment insurance or disability income insurance. Accidental death and dismemberment isn’t the same as life insurance; instead, it provides benefits in the case of a covered accidental death or injury. Disability income can help replace a portion of your income if you become too ill or injured to work.

The need for life insurance changes over the course of a lifetime. When the mortgage is paid off or the children are educated and on their own, there may be less of a need to hedge against such large financial obligations.

Deciding on and putting in place a long-term financial plan can be a complicated and daunting task. There is a lot to learn about becoming financially secure and maintaining that security in the face of both known and unknown risks. A certified financial planner is a trained professional who has passed a challenging and complete certification process. A planner can help with implementing the basics of a financial plan when you are young and adding more complex elements as needed. The appropriate use of insurance—particularly life insurance—is a vital part of that plan.

No matter what your stage of life, you can help protect it with insurance. For over 55 years, the ACS Board of Trustees has been pleased to provide coverage options and services to help protect you with options such as life, disability, auto, professional liability, and more. For further information on the coverages available, visit the ACS Member Insurance Program at www.acs.org/insurance.

Views expressed are those of the author and not necessarily those of C&EN or ACS.