Why Pilots Need Life Insurance

by | Aug 15, 2016 | Money Tips | 0 comments

Renting vs Buying an Airplane is not a simple math equation. Buying a plane rarely makes financial sense, but don’t dismiss it completely.

Despite advances in science and medicine, your risk of dying is still about 100%.    No one particularly enjoys thinking about their own mortality…I know I certainly don’t.  With that said, accepting the fact that we will die, and could die at any time, has its advantages.

For some of you, the thought of dying someday could be what motivates you to seek new adventures in your life.  Others may be encouraged to spend more time creating new memories with family and friends.  Many pilots can’t imagine anything better then flying up among the clouds.

The thought of dying should also motivate everyone to make sure you aren’t a burden on anyone after your gone.  For example, having a will can help ensure your money and property gets distributed exactly the way you want after you pass on.

Is Life Insurance For Me?

Take a minute and imagine what would happen if you, and your income, were to disappear tomorrow.   Do you have children that depend on your income?  How big of an impact would it have on your spouse, fiancé, or significant other if you died unexpectedly?  Are you the caretaker to your elderly parents?  Who would pay off your debts?  Who would pay for your funeral?

Apart from the emotional toll of losing you, there is most likely one or more people that would be financially affected from your death.

Death, especially when unexpected, is a very emotional time for survivors.  Having a life insurance policy on your life won’t help the grieving process, but it won’t make it worse.

Life insurance provides the money to fill that financial void.  Unless you have hundreds of thousands of dollars stashed away in savings, you probably need life insurance coverage.  If you are retired, have no children depending on your income, and you have a steady flow of retirement income for you and/or your spouse, you might not need life insurance coverage either.

Benefits of Life Insurance

The benefits of life insurance are more suited for protecting against the financial consequences of premature death.

As I mentioned, life insurance coverage provides a benefit to those that might need extra financial assistance after you die.  These funds can help provide for your children, payoff the mortgage, debts, funeral expenses, etc.  Some will also use life insurance to fully fund their children’s education expenses.

A benefit from life insurance can also provide income during a period of grieving and adjustment.  Your spouse may want to take extra time off work, maybe even a year or two.  The life insurance benefit can provide much needed breathing room for those purposes.

The paid life insurance benefit is also generally tax-free which is welcome news for beneficiaries.

By now, hopefully you understand the real purpose and value of having a life insurance policy on your life.  The next important questions to as are “How much?” and “What type?”

How Much Life Insurance Coverage Do I Need?

The first step in pursuing life insurance coverage is how much coverage do you actually need.   Minimum and maximum coverage amounts vary by insurance company, but you can expect to get coverage anywhere from $50,000 to over $3,000,000.

Determining the amount of coverage you need is not an exact science.  In fact, there are a few different ways to calculate the right amount of coverage for you.

1. 10-16X Annual Salary

The general rule of thumb is 10-16 times your annual salary.  This can be a good starting point, although it might not be very accurate depending on your family needs.

2. Needs Approach

The “Needs Approach” calculates coverage by combining the cost of your final expenses (funeral, burial, etc.) with the cost of providing for your family after your death.  This is a more accurate estimation of how much coverage you will need as it considers your unique family situation.

3. Human Life Value Approach

The “Human Life Value Approach” calculates coverage by considering the amount of income you would have expected to make for the remainder of your life.   By estimating your income potential, your life insurance can provide that amount in one lump sum upon your death.  Your family can then draw from that money as if you were still working.

Don’t worry about having to make any complex calculations.  You can find many calculators online that will ask you questions about your income and family situation to help determine the right coverage amount right for you.  Your insurance agent will also help you determine the right amount.

What Type of Coverage?

After you determine the amount of coverage you need, you’ll now be faced with choosing the right life insurance product.   This can be confusing as there are many different type of life insurance products on the market today.   Whole Life, Universal Life, Term Life, Annuity Contracts….

Allow me to simplify the decision for you.  Term Life policies are what you want.

Term Life policies cover you for a period of time (term) for a flat-monthly fee (premium).  Most people purchase a 20 or 30-year term policy, but shorter terms are usually available if needed.

With a term life policy, you can lock in $1,000,000 of coverage for yourself for the next 30 years and you’ll make the same payment each month regardless of what happens to your health in the meantime.

The longer your term, or the older you are when you start the policy, the more expensive it will be because there is more risk to the insurance company.  Generally, the younger you are, the less expensive your policy will be.

Why Term Life?

For 95% of the population, Term Life policies are the best choice for your needs.  Term policies are the least expensive given the amount of coverage you receive, and the most straight-forward policy in my opinion.

Other insurance products on the market will typically offer life insurance for your entire life (Whole Life policies) with some type of “cash value” component.  The cash value is sold as a type of savings account, but that can a bit misleading.  There are other considerations I’d be happy to discuss in more detail.  Feel free to send me a note!

Yes, Whole Life policies cover your entire life, so they will be more expensive, but a lot of your premiums will go towards fees and commissions.

For example, I used Lifequotes.com to determine the rates for a healthy, non-smoking male, age 30 for $1,000,000 worth of coverage.  For a 20-year term policy, this individual could expect to pay around $35-$40 a month.  Compare that to a Whole Life policy that would cost over $300 a month for the same coverage.

Simply investing the difference each month over the life of the 20-year term policy could result in substantially greater returns.

*My disclaimer:  I’m not an insurance agent or an investment adviser, so what I write here are my own opinions I’ve formed after doing my own research.   If you want more information on the pros and cons of various insurance products, I highly suggest you do your own research.  Ideally, speak with a fee-only financial planner or another professional who does not receive commission for selling insurance products.  It’s important to get the opinion of non-biased professionals. 

Considerations for Pilots

When you buy any type of insurance, you are basically placing a bet with the insurance company.  You are betting that you WILL be in a car accident, have damage to your home, or die prematurely.  You pay the insurance company a fee for having this bet.  If you lose, you get nothing.  If you win, the insurance company will pay out.

Certain risks will influence how much the insurance company will charge you to make that bet.  For instance, if you’re a brand new driver, the odds of you winning your bet are much higher, so the insurance company charges you a higher premium.

Despite flying being safer than ever before, being a pilot is considered a high risk for many life insurance policies.  This can raise your premium by quite a bit, and some insurance companies may decline to cover you.

Try to first speak with an insurance agent that has experience in the aviation industry.  These agents will help you get the best coverage for your needs.  They will also help guide you on what aviation activities may lead to higher premiums.  You do not want to answer a question incorrectly because of a misinterpretation.  This could have costly consequences.

Apart from flying, many lifestyle attributes such as smoking, health, and exercise can impact your life insurance quote.  For example, smoking celebratory cigars a few times a year might classify you as a smoker with one insurance company, and not the other.  All the more reason to work with a knowledgeable insurance agent that understands your lifestyle.

If you fly professionally, check with your employer to see if you qualify for any life insurance coverage.   Organizations like the AOPA and ALPA also offer insurance help.

Summary

By reading this article, I hope you’ve gained a better understanding of the financial impact to others in the case of a premature death.  After grieving the physical and emotional loss, survivors are then faced with the financial burden of lost income.

Consider the life you want your loved ones to have if you were to pass away unexpectedly.  What would you not want your children, spouse, or parents to worry about financially if you were to go tomorrow.  Paying the mortgage? Providing child care? Funding college?  Paying for home health care?

You can provide for all of these needs by properly covering your life with insurance at relatively low cost.   Even if you’re not young or healthy enough to receive the lowest premiums, don’t let that stop you from purchasing some type of coverage.  Enough to cover funeral expenses may be enough to lessen the blow.

Again, talk to a professional insurance agent about your situation and the amount of coverage that is right for you.

Please leave a comment or contact me directly if you would like any more sources or information on life insurance.

About the Author

After graduating from Purdue University in 2009 with a pilot’s license and a degree in Aviation, Dan Kellermeyer had over $100,000 in student loans and faced a virtually non-existent job market for new pilots. Today, Dan is free of consumer debt and is passionate about helping others finding the best way out of debt and planning for the future.

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