Surprisingly, not every young family needs life insurance. That is, as long as there is plenty of money in the bank to provide for a surviving spouse and see the children through to adulthood should a parent’s life end unexpectedly. Do you know of any young families like this? Probably not. Most have mortgages and car loans and schooling costs…and many struggle financially just to make ends meet. In fact, many young parents make the mistake of believing estate planning is only for older people, or they may assume “We’re young, we’re healthy…nothing is going to happen to us.” Sadly, life is tenuous. Life insurance can be a financial safety net, ensuring funds are available to cover a mortgage, loans, college expenses, medical bills and more.
Which Insurance Type is Best for You? Two main types of life insurance exist: Term insurance and permanent (whole life) insurance. Term insurance requires a monthly premium for as long as you maintain the insurance. When you die, the value of the life insurance policy is paid to your beneficiary (usually a spouse or children). With whole life, you also pay a monthly premium, but a portion of that payment is invested in a fund which you can access, tax-free, during your lifetime, somewhat like a savings account. This benefit makes whole life insurance premiums higher than term life premiums. Generally speaking, buying insurance when you are young and healthy means premiums will be lower, as compared to someone older with health problems. Answer These 4 Questions When Selecting Life Insurance Let’s break down how much money your dependents may need if you die.
- What is your total debt?
Buy enough insurance to pay all of your debts in full upon your death. Car loans, credit cards, the mortgage…all of it. Don’t forget to estimate any interest due when bills are paid off.
- What is your total income?
Buy enough insurance to replace your income. If you earn $75,000 per year and are the family’s sole provider, you’ll want your insurance policy to cover your lost income, plus some extra as an inflationary hedge. Your family should invest the proceeds. If this is not possible, work with an estate planning attorney to help you calculate how much life insurance you really need.
- What are your future obligations?
Do you hope your children can attend college, or your spouse can take that trip of a lifetime? Then you will need to estimate the costs of these items and cover them via your life insurance policy.
- Who else needs insurance?
There is no need to insure someone whose death would not impact you financially…say, a young child. But the death of your spouse may be financially devastating and, in this case, your spouse may also need coverage. As well, if you have business partners or share financial responsibilities with someone not your spouse, additional coverage may be needed. Determining the necessary amount of life insurance is only the first step in purchasing the best policy for your needs. The offerings are vast, and the information often confusing. You can benefit from consulting with an estate planning attorney. In St Louis, Missouri, call Quinn Estate & Elder Law.