Understand when and why to take out life insurance – 07/13/2023 – From Grain to Grain

When most people have an accident, they usually tend to slow down and look. This is natural behavior out of curiosity. However, I think everyone can imagine what they might see, even without stopping to look. But, you know what you never see?

We never see how the victim’s family stands financially with the loss of this member.

Knowing the low savings profile of Brazilians, I believe that, right now, most families are going through a strong financial squeeze. It is more likely that the cars in the accident are insured, but not the occupants.

Any insurance serves to cover a risk. So the first step is to understand what risk you should be covering.

To understand what risks you are exposed to and whether you should have any insurance, the first step is to undertake financial planning.

Incredibly, most people who buy insurance do not have a plan. Making an analogy, this is similar to buying car insurance without knowing which car you have.

I’m going to cover just two basic types of insurance. Simply put, we can segregate insurance into two types: those in which the beneficiary is a third party and those in which the beneficiary is the insured person.

I’ll start with the first one. Life insurance where the beneficiary is a third party, who receives the premium can be your wife or husband, children or someone you want to protect in the event of your failure.

Its absence may or may not create a financial problem for your family. If you have a large financial reserve, enough to cover their needs, then there is no need for insurance. Maybe just one to cover the cost of succession, if any.

However, this is not the Brazilian reality. Therefore, if you have a family and your absence causes an imbalance in your budget, you need to have life insurance. I see some people arguing: I don’t want insurance, I’ll wait, I don’t need it.

Understand the following, if you don’t have equity, it’s not you who should decide on the need. Who should decide whether or not to have insurance is your wife or husband and your children. Make it clear to them that if something happens to you tomorrow, they will run out of money and ask if they want it, if it’s worth the wait, or if they don’t need it. I bet the answer will be different.

The amount of insurance required and the type depends on your financial assets, your stage of life and age. I will discuss these factors in future article.

In the second type, in which the beneficiary is the insured person, you are the one who should assess whether you want to take the risk.

You must also evaluate, in addition to your financial assets, also your activity. For example, if you are a surgeon and lose the ability to pinch your fingers due to some simple accident, your profession and income are compromised.

Therefore, it is necessary to carefully assess the risks of a simple accident leaving you disabled or unable to practice your profession.

The probability of this risk is much lower. Therefore, insurance is much cheaper. However, for some professions, the impact is very relevant. Soon, depending on your profession, it tends to be fundamental.

It doesn’t matter if you like insurance or not, before making any decision, you need to make a financial plan to understand, in addition to the need, what type and what capital is needed to be insured.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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