Life Insurance Planning
How your family will live tomorrow depends on how you invest today. Financial planning is one of the most integral steps to attaining peace of mind. When it comes to life insurance, an all-important cog in your financial plan, your needs may differ depending on where you stand in your personal and professional life at a given point of time.
There are various life events and stages of life that may affect how much life insurance you need. It's important to consider these stages to understand how life insurance planning plays a role in your overall financial plan.
Is your life insurance keeping up with your life? You'll be surprised at how often your life insurance needs change! Life insurance is not a one and done process, it needs to be looked at every year to determine if your coverage amount fits with the phase of life you’re in.
Read the different scenarios to learn when you'll need life insurance and when you should reevaluate your needs.
Life Insurance Planning Stages
Planning a Family?
Just a heads up: the financial responsibility arrives even before the baby does! So you need life insurance, regardless of whether you're trying to get pregnant, pregnant or a new parent. Life insurance will be the single most important purchase you make to secure your child's financial future.
The cost to raise one child from birth to age 18 is now over $240,000. Are you prepared for these huge expenses? This estimate only covers housing, health care food, clothing, childcare and miscellaneous expenses. This does not even cover college! Does your financial plan take this into consideration? What if something happens to you, how will your family survive? Life insurance will be the single most important purchase you make to secure your childrens’ financial future.
Married couples share everything, right? You now have a partner that shares everything. Right? This partnership means you depend on each other emotionally and financially and requires that you both have a financial plan that includes life insurance. Make sure that both of you have enough life insurance to cover the loss of your individual financial contributions if one of you were to die unexpectedly.
So, you’ve finally bought your own home. It’s a big step and a big financial responsibility. , Do you have a plan to cover the cost of the mortgage if something were to happen to you or your spouse? If you died today, would your surviving spouse or family members have the means to cover the cost of your mortgage or even pay it off completely, while having enough to cover other expenses like maintenance, utilities, unexpected repairs and property taxes? A well-thought-out life insurance plan would allow them to keep the house you bought together.
The Debt Factor
When your life is running on credit, it increases the need for life insurance. Whether it's old debt, new debt or upcoming debt, you need a life insurance policy that will cover outstanding balances, especially if a loved one is a co-responsible party on a loan, credit card, etc. Make sure when you're creating your overall financial plan, debt management and life insurance is a large part of it.
Finally got that much-awaited promotion? Congratulations! But when your income increases, so does your need for life insurance. Why? Because when you have more money coming in, you tend to spend more. Additional life insurance coverage will allow your family to maintain their new financial situation and standard of living. Remember, experts suggest having a life insurance policy that is 10 to 20 times your annual salary.
Caring for Aging Parents
It''s your turn to take care of your aging parents. If your parents live to the age of 65, according to the Social Security Office there’s a good chance that your mother will live to the age of 86 and your father will live to the age of 84. Will they be able to take care of themselves or will they need you to help care for them? If you are financially responsible for them, think about how they would survive financially if you died prematurely. Healthcare, housing or long term care – make sure these expenses are calculated into the total face value of your life insurance policy.
Yes, life insurance can take care of your business, too. That’s why it is important to reevaluate your life insurance policy every time your business goes through a phase of change (becoming more profitable, acquiring more debt, hiring employees at key positions, etc.).
Changes in Marital Status
In the unfortunate event of the death of your spouse or a divorce, it's a good idea to relook at your life insurance needs. Who knows, you may not even need as much coverage anymore! But if you have kids, remember, their financial security should be at the top of your priority list. If your new life includes a new marriage, you need to ensure you change your life insurance beneficiary and tweak your plan to satisfy the financial needs of your new spouse.
Planning for College
These days the cost of a college degree is staggering. Your kids' education is the single most important thing (apart from life insurance) that will help them stand on their own feet. Even if you’re not around to see them go off to college, make sure your life insurance plan is adequate enough to cover the cost of housing, tuition, books, etc.
Retiring in Peace
Plan well (and early) for your retirement and live in peace. Life insurance should be an indispensable part of your overall retirement plan. A sufficient policy will provide for your loved ones who may not be able to sustain solely on your retirement savings.
How Much Life Insurance Do You Need?
To determine how much would be adequate, do the calculations based on your predicted expenses and your family's future needs. These may include:
- Household expenses
- Living expenses including mortgage or rent
- Educational expenses
- Emergency needs
- Outstanding debts
- Funeral expenses
Calculate it Yourself, or Consult an Expert
Life Insurance should be viewed as the replacement of your income (at least for a couple of years) when you’re gone. How long will loved ones need to rely on your income? The younger your children, the more income your family would need to replace if you passed away. To get a broad idea about your needs, you could try using our Term Life Insurance Calculator, but we suggest talking to one of our life insurance experts to get a better view and robust guidance on the subject.