The insurance question we ask every new client

Most insurance reviews go the same way. A client arrives with a folder. We open the folder. There's a term life policy from 2011, a long-term disability rider buried in a benefits summary from a previous employer, an umbrella policy on the homeowner's line, and — often — a universal life contract that somebody bought in their thirties for reasons nobody can quite reconstruct. We could spend an hour talking about each of those documents. That hour would be a bad use of everyone's time.

The question we ask instead is: if you didn't go home tonight, who would be on the hook, for what, for how long. It sounds grim. It is grim. But it is the only question whose answer tells you how much insurance a household actually needs, which is almost always a different number from the one the household already has.

A 38-year-old mother of two in Montclair with a mortgage, a spouse out of the workforce, and a household dependent on her salary has a very specific exposure. Call it eighteen more years of income she meant to earn, a mortgage balance, an emergency cushion, and a college education the couple has started funding but not finished. Add those numbers up honestly and the total usually lands somewhere between nine hundred thousand and two and a half million dollars. Her in-force term policy is for $500,000 because that's what the agent quoted her when she was 31.

The gap is the interesting number. We're not trying to insure her for a dollar amount. We're trying to insure the specific obligations that would otherwise land on a specific set of people. Twenty years of level term is often the simplest answer, because it matches the shape of the obligation — large and front-loaded, fading as the kids graduate, the mortgage amortizes, and the spouse re-enters the workforce. Permanent insurance has its place, mostly in estate-tax and special-needs-planning contexts, but it is dramatically oversold to ordinary families who would be better served by more term for a fraction of the premium.

The same question works for disability, which most people under-insure even more dramatically than life. A 42-year-old dentist with a paid-off student loan and three kids has a roughly one-in-three chance of a disability lasting 90 days or longer before age 65, and a household that depends entirely on her ability to stand at a chair for seven hours a day. A group long-term disability policy through her practice typically replaces 60% of base salary, capped at an amount that is often lower than what she actually earns, and — because the premium is employer-paid — the benefit comes out taxable. The real replacement ratio is often closer to 40%. An individual own-occupation policy, paid with after-tax dollars, closes that gap.

Umbrella liability is the cheapest line in the whole conversation. A $3 million umbrella for a household with two cars, a pool, and teenagers who occasionally drive runs somewhere between $400 and $700 a year. The pool alone would justify it. We write the number on a whiteboard in every new-client meeting and almost everyone raises their coverage within a quarter.

What we don't do is sell insurance. We don't earn a commission on any policy recommended here. When a gap needs filling, we refer to an independent broker we've worked with for years, the quote comes back, and we compare it to one or two others. The recommendation is in writing. The broker is paid by the insurance company. We are paid by you.

The folder is still useful. It's just not the plan. The plan is the sentence that starts with "if you didn't go home tonight" and ends with "and this is what would hold."

One thing we revisit every two or three years rather than at every meeting: beneficiary designations on life insurance policies and retirement accounts. Insurance companies will pay the named beneficiary regardless of what your will says. A 52-year-old who bought a policy in her thirties and named her mother as primary beneficiary, then got married and had two children, may have a policy that will bypass her entire family if she dies tomorrow. The gap is not uncommon. It takes about fifteen minutes to fix and is one of the items that falls through the cracks most reliably in households without an advisor who tracks it.