Look through a wider lens to see life insurance at work. Life insurance protects you against income loss, and the adverse effect 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
Beneficiaries and your children You can place young children as secondary or contingent beneficiaries; thus, allowing them to receive the death benefit if your spouse or the primary beneficiary predeceases them. On behalf of your children, a trust can manage funds to protect the income uses as directed in your will. It can direct proper investing of the life insurance 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.
Life Insurance can pay off all your debts If you have a car loan, or credit card debt you can direct that all of your debt be cleared up and paid off.
Pay off a Home Equity Line of Credit (HELOC) HELOC debt is a liability many do not understand. Debt is very often tied to your home enabling banks and financial institutions to offer quick credit especially in a market where home values rise quickly. The downside is that you may be unaware that you are spending the value of your home equity. A trip, a car, or a home renovation can deplete your home asset value.
If you have business debt Businesses can accrue debt in many ways and if you have personally signed for business debt there can be liens against your assets, or in some cases your home. Business debt can be redeemed by purchasing life insurance on all shareholders or partnerships using a buy-sell agreement. Talk to you advisor about business uses of life insurance.