Life insurance is like a contract between you and an insurer. You pay premiums periodically in exchange for a payout to your beneficiaries upon your death. Life insurances give you peace of mind in knowing that your loved ones are protected when you pass away.
What makes life insurance so important is the financial security you leave behind. Especially for 35-55 year olds, who often reach their peak financial responsibilities during this age. You have mortgages, career growth, personal development, and perhaps, children as well.
For a 35-55-year-old living in Puerto Rico, it is crucial during peak earning and family responsibility years to get a life insurance plan because you are likely healthy enough for affordable rates.
As per robust local regulations, tax perks, and many more factors, life insurance in Puerto Rico offers a financial safety net that is tailored specifically to your needs. This island has one of the strongest insurance industries in Latin America on a per capita basis, with an insurance protection gap of 0.2%. Regardless, determining your coverage needs depends on several crucial factors like debts, family size, etc.
Most families typically have some type of life insurance through their jobs (or term), but it typically is not enough to meet their needs if they were to experience a significant amount of income loss. Many of the families do not verify if what they purchased is enough to maintain their families’ current lifestyles, in case anything catastrophic happens.
What is Life Insurance Like on The Island?
Life insurance is a policy that allows your family or beneficiaries to have financial security when you are no longer there to provide for them. Over the past few years, Puerto Rico has had a growing interest in getting their life insured. Having expanded by 5.8% in 2024, this small island remains one of the top places to require life insurance, some driven by the market fluctuations in nearby places, others by local calamities.
When it comes to securing the ideal coverage, it is crucial to know that the top thing a life insurance policy in Puerto Rico covers is the passing away of the insured or their permanent disability.
However, you must discuss the clauses that activate your insurance, as there are instances where your death may not be covered as well. These include factors like whether the death was caused by a high-risk sport or if you are an aviator. Thus, you must discuss any relevant clause while choosing among the life insurance companies in Puerto Rico.
How Much Does Life Insurance Cost in Puerto Rico?
The cost of life insurance premiums, no matter where you are, depends on your situation, lifestyle, and financial goals. It depends on multiple variables like your,
- Age
- Health history
- Coverage amount
- Policy type (term vs permanent)
- Riders and optional benefits
These factors that shape your life are some of the most essential points that are evaluated when structuring your life insurance policy.
Types of Life Insurance
There are two most popular types of life insurance available anywhere. These include Term Life Insurance and Permanent Life Insurance. There is, however, another additional policy that is life insurance with cash value accumulation.
Simply put, a term life insurance guarantees the insured sum to your beneficiary upon your death, but for a certain time period. It is not something that lets you acquire values or get level premiums, which means it stays the same. In term policy, which is usually purchased for 10, 20, or 30 years, does not increase over time. This makes it ideal for covering some specific goals over a decided time period.
On the other hand, there is Permanent Life Insurance. This guarantees your beneficiaries’ financial security for an indefinite time period, as long as your premiums are paid on time. Additionally, this is the type of insurance that is perfect for when your needs are long-term.
This type of insurance in Puerto Rico can further be divided into two parts.
-
Whole Life Insurance:
- Offers a death benefit
- Generates returns on saved value
- Cost is usually fixed permanently
2. Universal Life Insurance:
- Better choice if you want some flexibility in premiums.
- It fits your budget at all times
- It is adjustable at the time of death
- But the values generated from this policy are not guaranteed
The other, the third type of life insurance, is Life Insurance with cash value accumulation. This is the type of insurance that has its unique characteristics. What separates it from the other two is that it offers compensation during life. This means that it is not dependent on the death of the insured.
While several factors influence life insurance plans, most families in Puerto Rico prioritize those that offer financial security and comprehensive coverage. However, when it comes to the different types of insurance in Puerto Rico, the best option is to choose the one that fits you and your beneficiaries’ present circumstances and financial goals in the long run.
Read Also: The Financial Risks Puerto Rico Families Ignore (Until It’s Too Late)
What Makes Proper Structuring Crucial?
While life insurance costs in Puerto Rico are crucial, what matters more is how your policy is structured. Here are some of the questions, answering which will help you figure out the ideal structure of your policy.
- If the policy is going to be owned personally or by a trust.
- Can it be owned by a business in certain situations?
- If there is a death benefit, how does it fit into the distribution process
- If the payment of the death benefit causes tax consequences?
It is crucial to establish the life insurance contract correctly, as it may cause several issues. These issues often include unnecessary delays and exposure to creditors, resulting in uneven distribution among beneficiaries.
How Much Coverage Is Actually Enough?
Once you understand the structure, the next question is about the quantity.
Start with Income Replacement
In general, an income-replacement strategy involves replacing 10 to 15 times your annual income. However, the better formula uses the actual income gap between you and your family.
- Here are some questions to consider:
- How long will your family require financial support?
- What are your family’s annual expenses?
- Will your spouse continue working? If yes, what will their income be?
Based on our example, if your household requires $85,000 a year for 15 years, your total income replacement or “financially sufficient plan” would be $1,275,000.
Income replacement will create the basis for any permanent plan.
Add Debt and Financial Obligations
Continue to calculate your outstanding obligations:
- Balance on the mortgage
- Car loan
- Personal loan(s)
- Lines of credit
- Guarantor of business
When survivors eliminate their debt, they will not need to sell their assets or liquidate retirement savings before the end of their period of storing cash.
For example, if your total amount of debt equals $400,000, all or some portion should be added to your calculated income replacement amount.
Account for Education and Future Goals
If you have children, you will need to consider education funding. College costs can represent a significant future expense, especially if you have been planning for mainland tuition.
Funding education within the coverage amount prevents the surviving parent from diverting retirement funds or adding to debt.
Account for Education and Future Goals
Parents may want to think about paying for their kids’ education after they are gone. College costs can add up to being a huge expense later if your family has kids going to college on a limited-budget basis. With the amount of coverage you provide for your kids’ education, it will keep the surviving parent from having to withdraw from their retirement funds or borrow additional funds.
Include a Liquidity Buffer and Minus Existing Brackets
Immediate expenses such as funeral costs, estate administration, and transition planning require liquid funds. Adding a buffer of even $25,000 can help avoid financial strain during a difficult time.
Once you have put everything together, it is time to deduct what is already available. This includes,
- Savings account
- Investment portfolios
- Retirement balances
- Employer-provided life insurance
- Survivor pension benefits
This process will help you secure coverage that goes beyond guesswork; it will be something thoroughly calculated. However, if you are still wondering what kind of coverage you need, you can look for a life insurance calculator that will securely guide you to a policy that serves your best interests.
Read Also: Puerto Rico Tax Code Vs. Federal Rules: Guide to Retirement Plan
Conclusion
If you are a 30-50-year-old professional, at the peak of your career, wondering “how much life insurance do I need?” is a fair and valid thought. Especially, with the growing uncertainties of the world, being worried about protecting your family is essential. At JLA Financial Planning, we offer a comprehensive range of services that cater to your personal as well as professional goals.
Thus, if you are someone who wishes to explore family life insurance planning, work with professionals who understand your needs and offer a sustainable plan that fits both your needs.