LIFE insurance is a cornerstone of wealth-building, providing financial security for loved ones in the event a loved one dies. However, having coverage is only half the equation.

Financial advisor Jheanel Dixon of Sagicor Life Jamaica reveals why policyholders need to re-evaluate their coverage and maximise its benefits, not just for loved ones but for their own financial growth and milestones, like they do for homeownership.

Dixon explained to the Jamaica Observer that there is what is called the financial underwriting guideline that Sagicor and all other financial institutions follow to calculate how much life insurance is ideal for each individual, based on age and annual income of the insured.

“I’m 34. My income factor is 18. Therefore, if I’m earning $10 million per annum I multiply that by 18 to get $180 million coverage to replace my income,” she explained to the Sunday Finance, illustrating how the calculation is done to determine the best coverage.

Dixon explained that the income factor, determined by actuarial tables and data analysis, varies based on age. To calculate coverage, multiply your annual salary by the corresponding income factor for your age. This determines the recommended coverage amount. She emphasised that determining the right calculations is not a random process but rather requires referencing a standardised chart. Therefore, consulting a financial advisor is crucial to ensure accurate guidance and adequate coverage.

“For those who have started and think they already have enough, you may already have enough, but you may not. Information does not hurt,” she advised.

Proper calculations aside, having adequate life insurance coverage can be a cost-effective way to lower your mortgage payments. By using your policy as collateral you can secure a lower monthly payment. This approach offers numerous benefits, including reduced financial burdens on your loved ones in the event of your passing.

“I have clients who have their whole-life policy for their family but they’re maybe buying a house with a 30-year mortgage; they just take a term, and it’s cheaper,” Dixon stated, giving an example. “So they just take a small-term life policy and pay maybe $3,000 for a 30 million — depending on their age. They’re not going to get it back, but they need it anyways for the mortgage. And if they don’t have that, they’re not going to charge them.”

Without individual life insurance, banks automatically assign a policy, leading to significantly higher mortgage payments. Financial advisor Dixon cited a recent example, highlighting the substantial cost difference. A borrower purchasing a $50-million mortgage was quoted $65,000 monthly for bank-provided life insurance. In contrast, assigning a pre-existing Sagicor life insurance policy to the mortgage reduced the monthly payment to $23,000. By using their existing policy the borrower saved approximately $42,000 monthly, demonstrating the financial benefits of securing personal life insurance before applying for a mortgage.

“Younger people are to be insured more because they are more likely to be just entering the homeownership stage, their children will be younger, so God forbid if they pass on they still want to be able to provide for them to maintain whatever standard of living. While the older person’s children, like those in their 60s and 50s, are grown, they have already bought their house, so they need less coverage… therefore their income factor is always lower,” Dixon explained to the Sunday Finance.

She further highlighted the benefits of life insurance, specifically whole-life policies which offer a cash surrender value. This feature enables policyholders to receive a portion of their paid premiums — reinvested on their behalf — plus accrued interest if they choose to surrender their policy. This feature ensures that policyholders receive a return on their investment, even if they choose to close their policy. Whole-life policies have no expiration date, covering individuals up to age 100. In contrast, term-life policies have limited terms, ranging from five to 35 years, and do not offer cash surrender value. This makes whole-life policies a more attractive option, especially for young individuals seeking long-term financial security.