Imagine this scenario: You have two young children and are 6 months pregnant with your third and one day you receive a phone call that no one ever wants to receive: your husband has been in a terrible accident and didn’t make it. In that one split second, your life has been forever changed. Unfortunately, this was reality for a young woman that I know. Although nothing can bring your loved ones back, you can take measures to protect your family financially should the unthinkable happen to you or your spouse.
No matter what your occupation is or what life stage you are at, there is always an opportunity to better protect your loved ones from a financial crisis. September is Life Insurance Awareness month so I thought it would be fitting to briefly summarize why it is so important to have life insurance and what types of coverage are available to you.
If you are in your 30s or 40s and have a young family, you likely have competing demands on your cash flow: child care, tuition payments, mortgage, car payments and the list goes on and on. So what happens when an income stream stops due to a premature death and there are little to no life insurance proceeds….a financial crisis in the making.
Or perhaps you are a retiree, and since you are no longer working, you may feel the need for life insurance has dissipated. But what if you have a special needs child who continues to need financial support, or perhaps you are still carrying a mortgage. When one spouse dies, your social security benefits will decrease as well. Will you still be able to maintain your lifestyle when your social security benefits are cut by as much as 50%? These are all reasons why you may still need life insurance.
Life insurance comes in a variety of flavors but the two main categories of coverage fall under Term and Permanent. For those who have only a temporary need for coverage or for those who are looking for the highest amount of coverage for the lowest cost, then a term policy will likely suit your needs. But remember, that once that “term” is up, the policy will lapse unless you choose to renew the policy.
For those with a longer term need for coverage, then a permanent policy will better suit your needs. Because you are insuring a much longer period of time, permanent policies will cost 2-4x as much on average then term policies.
Ideally, you will want to carry a mixture of term and permanent coverage. In most circumstances, your need for coverage is much higher when you are younger and have competing financial demands. As you get older and your financial commitments decrease, your need for coverage decreases as well. However, if you have accumulated a large estate and are subject to estate taxes, than insurance policy proceeds can be used to pay the tax bill so that your heirs still receive the bulk of your estate.
This topic is much more broader than what I can explain in a short article but if you are wondering whether you need coverage, ask yourself these questions:
1.) Is someone dependent on your income?
2.) Do you have outstanding debts (i.e. mortgage, credit card debt, loans)?
3.) Do you wish to help cover my children’s college education expenses?
4.) Do you own a family business?
If you answered “yes” to any of those questions, then you have a need for coverage. The next step is to determine how much coverage and what type to best suit your needs. If you already have coverage in place, it would be wise to have it reviewed to make sure it is adequate based on your current situation.
Please visit Life Happens.org to learn more about the importance of life insurance as well as for more detail on all the various types of coverage that are available. Your family and loved ones will thank you.
About the Author
Kelly Stanley, CFP®, MBA is a Financial Planner with Beverly Financial Group and is an Investment Advisor Representative offering securities and advisory services through Cetera Advisors LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.