This post is part of the TermLifeInsurance.com blog tour, which helps spread awareness of the importance of providing financial security for your family. September is Life Insurance Awareness month, so learn more with LifeHappens.org and how life insurance can protect your family and your finances.
Life moves at lightning speed.
One day, you’re sitting in high school, wishing for it to be over. The next you’re in college, then married, and then you have kids. It all goes so amazingly fast, and keeping your insurance up to date may (understandably) have slipped your mind.
If you’re still young and single, life insurance is probably not a priority for you. But if you have dependents, a source of income that rely upon, and bills that need to be paid, then life insurance needs to be a part of your financial plan.
At every stage of life, your life insurance needs change:
With fewer bills, no dependents, and only yourself to support, life insurance is usually not a priority – but that doesn’t mean you don’t need it. If something catastrophic were to happen, your parents would be responsible for your funeral costs, which can range anywhere from $7,000 – $20,000.
Besides funeral costs, you may be debt such as a mortgage, car payment, or student loans that your parents would also become responsbile for. Even if your parents are well off, you do not want them to dip into their retirement savings to cover your debts.
When determining the amount of life insurance you need while single, factor in funeral costs as well as your total debt, and make sure to designate your parents as your beneficiaries.
Once you’re married, your spouse becomes responsible for your debts and funeral costs should you pass away, not to mention settling your estate, which can be much more involved after marriage because you tend to have more assets and more debt. But besides you estate, your spouse may be dependent upon your income as well as help with monthly bills.
Most couples find that they both need to raise the amount of their life insurance when they get married, and when you do so, also designate your spouse as your beneficiary so that they can settle your estate and pay any taxes.
Having kids is a big life change emotionally, physically, and of course financially. Instead of one person depending upon your income, you now may have 3, 4, 5 or more – and you don’t want you death to leave them unable to pay their bills, or even settle your estate. Think about all of the bills your spouse would have to pay if you died: housing, food, clothing, daycare, education, transportation, and more.
Not only would your family still need to pay for all living expenses, it is a good idea to raise your life insurance to a level that will maintain your lost income for at least a few years. Most people wouldn’t want their family to lower their standard of living as a result of their death.
When you have children, designate your spouse as your life insurance beneficiary, but designate a secondary beneficiary, in the case of your spouses death that would take custody of your children and who would receive the proceeds of your life insurance. Alternatively, you can set up a trust to receive the proceeds of you life insurance, and designate your children’s caretaker to administer the trust, ensuring that someone you trust not only has custody of your children, but has the funds from your life insurance to take care of them.
Job changes can mean many things, whether a geographic change, children’s school change, or even a pay raise. If your family raises their standard of living because of your raise, if the cost of living in your new town is higher, or if the children have higher education costs, it is smart to raise the amount of your life insurance to keep your family held to the same standard of living if you were to pass away.
In the event of a divorce, the most important thing to do is to change your policy so your spouse is no longer your beneficiary. You could name adult children or your parents.
If you pay child support as a result of your divorce, you should also consider taking out an additional policy specifically to cover your child support payments. You should name yourself as owner and beneficiary of this policy to protect everyone involved.
Since many life insurance policies are in force through your workplace, make sure that you have a plan for after you leave that workplace and retire. Many employers offer “portable” insurance policies that will allow the policy to be transferred to another insurer without a medical exam.
Retirement may also be the time to lower your coverage since your house is probably paid for, you’re free of student loan debt, and you have fewer bills. Additionally, but retirement, you should have accumulated sufficient savings to cover a significant portion of settling estate if you were to pass away.
During retirement, depending upon your situation, it may be smart to drop your life insurance coverage completely – especially if you have significant savings. As you get older, coverage becomes more expensive, and your financial obligations become fewer.
Finally, if your spouse passes away, make sure to update your beneficiaries to either your new spouse or your adult children.
Life insurance is not a fixed product that you can buy once and forget about it. Instead, remind yourself to review your policy once per year and make sure that the amount still fits the needs of your changing life, and your expanding family. Life insurance is designed to ease a burden, and used right, it can do just that.
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