There are many factors an athlete should consider when purchasing life insurance, but the first thing to decide is the objective. With that in mind, the next step is to decide which product is best suited for their needs. There are two types of life insurance products: whole life insurance and term life insurance.
- Whole Life: Oftentimes, these cash value policies are referred to as investment vehicles because they combine life insurance with a savings component. Some athletes purchase a whole life insurance policy as part of an overarching investment strategy, with the intent to diversify their portfolio. Although whole life insurance is a permanent insurance product that allows them to put money away with a modest return for retirement, it generally comes with a much larger monthly premium.
- Term Life: More commonly, we find that athletes choose to purchase term life insurance to provide financial insurance for dependents. Term life insurance is a policy that pays out a set amount if they die during the period to which the policy applies. The premium is more affordable, and athletes are less likely to use life insurance as an investment vehicle.
The next step is to take inventory of what and who needs to be taken care of financially to determine the amount of life insurance.
Life Insurance Inventory Questions:
- How many years into the future will the athlete’s dependents require income (e.g. do they have young children that need support through age 18?)
- Amount of income replacement for the athlete’s dependents for day to day expenses?
- How much in liquid or semi-liquid investments are available?
- How much money would be needed for burial expenses?
- Are there any one-time expenses to fund (wedding, new car, home improvement)?
- Outstanding debts? (e.g. home mortgages)
- Future obligations? (e.g. college tuition)
Another consideration for athletes is their earning fluctuation through their lifetimes. Most tend to be at their earning peak in their 20s and 30s and may not yet have dependents to consider. This is the best time for them to purchase life insurance because it will usually be more affordable, and once established, the policy is easy to adjust upward or downward, depending on the fluctuation of their earnings.
Every lifestyle is different and it’s important that the athlete and their professional advisors have an open and honest conversation with any dependents to discuss their needs should the athlete no longer be around to provide for them.Disclaimer: The above response is a general overview which is provided for discussion purposes only and is not in any way meant as providing recommendations or legal counsel. It is not intended to apply to each circumstance. Because the facts and circumstances of every matter differ and the terms, conditions, exclusions and limitations contained in insurance policies vary, you should review your policy carefully and seek any legal counsel that may be necessary or appropriate. If you would like to further discuss the issues raised here, you may contactusby phone at 818-933-2700.