Financial well-being September 01, 2016 By
Heaven forbid that something should happen to you. It’s an uncomfortable thought, but an important one if you have loved ones depending on you as a household provider. Even if you are a family with both parents working, life insurance is a valuable part of financial peace of mind and knowing that no matter what happens, your loved ones will get by without you.
“What is life insurance?”
The terms of life insurance vary but, like home insurance, you make regular (often monthly) payments. If you pass away, a predetermined lump sum of money is granted to your designated loved ones, known as beneficiaries. Life insurance is meant to replace your income in the case of your death.
“Do I need life insurance?”
If you have people counting on you at home, you may be a good candidate for life insurance. A one-income family with young children is a great example of someone who would benefit by having life insurance. You may even want to consider life insurance for a parent who stays at home caring for children, so that your family can afford childcare and other household needs. A single parent who wants to ensure their child(ren) will be taken care of if they are no longer here to provide financial support. A single parent will have peace of mind knowing their child’s college and everyday living expenses are covered in the event they are no longer around. Another great example is a married couple who wants to ensure their spouse is taken care of if they no longer are around to provide income. You may not need life insurance if your children are grown and independent or if you have accumulated enough assets and income to last the rest of you and your spouse’s lifetime.
“When should I buy life insurance?”
Life insurance rates are lowest when you are young and healthy. You may even consider investing in life insurance before you have children so that you can lock in a policy with a good rate before any health issues arise. Rates increase with health issues or a large benefit—the payout.
“How much life insurance do I need?”
First, how much do you still owe in debt? Do you want to pay off all debt (including credit cards or mortgage) so that your family and loved ones will not be burdened with paying these monthly expenses? Will you need to account for college and/or childcare expense for your children? Do you want to cover your funeral expenses, which can average around $7,000? Your family may also be left with final medical expenses. How much income do you make per year? Will you need to replace your annual income to help a spouse who may not have a job? These are all things you should consider when determining how much life insurance you may need based on your unique situation. If you’re not one to analyze the details, then multiplying your annual income by 10-12 is a good rule of thumb.
“How often should I review my policy?”
Review your policy annually or with big life changes. A lot can change in a year such as a pay increase or job change. A new child can be born in nine months so your dependent status or even your marital status may change. It’s best to be proactive so that you can be on the path to achieving financial well-being in your life.
As First United's new Financial Well-Being Director, please contact me if you have any questions or if you would like more information. I can help you review the questions above and choose a policy that’s right for your family’s unique needs.