Look through a wider lens to see life insurance at work. Life insurance protects you against income loss and the adverse effect that less income can have on your family if one were to die or have a disability.
As you build on that foundation by creating your assets and net worth, you may need to reassess your level of coverage. Caring for others is at the root of life insurance planning.
You have family responsibilities. Adequate coverage allows a surviving spouse and surviving family to maintain their current lifestyle.
You can support a stay-at-home parent caring for your children. If one parent’s income is currently relied on to provide all living expenses, the death of that individual may cause financial insecurity for all family members, particularly when there will be a stay-at-home parent caring for the children.
Life insurance protects children. The coverage needed will be affected by:
- the number of children and their ages
- educational expenses of the children
- the current value of your assets
- your current income
- debt accumulation
- your future employment goals versus stay-at-home parenting
- your overall financial goals
You can place young children as secondary or contingent beneficiaries; thus allowing them to receive the death benefit if your spouse if the primary beneficiary predeceases them. A trust can manage funds on behalf of the children. It can direct investing the proceeds of the death benefit to create guardian income for loved ones.
Continue coverage throughout college or university. When children go to college, many of us tap into our savings to help meet their tuition and housing expenses. We may purchase a child’s first car, or pay him/her income for one or more years. If you die without providing continuing support, your young adult child may need to quit seeking a higher education due to a shortage of funds.
Protect your income in case of a disability. Have you thought about how becoming ill or injured could affect your children’s financial security? Would your income be reduced, placing them under duress? Disability insurance is designed to replace approximately 70% of your pre-disability income and is especially necessary for the self-employed.