Here’s the deal with life insurance. In the best-case scenario, you lose every penny you spend on it. That doesn’t exactly sound like a winning financial strategy, does it? You have to remember that your life insurance isn’t for you, and there’s no winning. You either spend the money only to never use it, or you die, and you still never use it because, again, it’s not for you—it’s for the people you leave behind. Don't think of it as an investment that's going to pay off big time. View it for what it is—protection for your family to ensure they are taken care of even if you're not here.
It’s not a rosy picture. None of us like to think about our own deaths. Put yourself in the shoes of your loved ones though. If the unthinkable were to happen, and you passed away tomorrow, would your family be okay financially? How long could they keep paying the mortgage and other bills without your contributions before money ran out? Imagine the heartbreak and stress they would experience from your loss. Adding money challenges on top of that is too much to bear.
Paid and Unpaid Work Both Need to Be Covered
Think you don’t need life insurance because you don’t work outside the home and contribute to the family income? Take a harder look at the work you’re doing for your family. If you’re currently a stay-at-home parent, you’re providing full-time childcare—a huge cost savings for your family that would become a significant expense in your absence. Do you cook all the meals? Do all the cleaning and laundry? Chauffer the kids all over town to doctor’s appointments, sports events, and extra-curriculars? Just because the work you do isn’t paid doesn’t mean you aren’t contributing to your family’s finances.
So, whether you work full-time and contribute to your family financially or support your family through unpaid work, your death would make a significant impact on your family’s finances. You need life insurance. Just replacing your own contributions may not be enough. When would you be able to go back to work if your partner unexpectedly died tomorrow? Would it take you weeks to be ready? Months? A year? The living spouse may not be able to work for some time. Your life insurance policy should remove that burden so that in the wake of tragic loss, your family can take the time needed to grieve and recover.
In a two-partner family, you BOTH need insurance coverage. Consider both the paid and unpaid work each of you are doing for your family and what it would really cost to replace. Be sure that your combined policies are large enough to take care of any dependents left behind if both of you were to pass away.
Other Expenses to Consider
Income replacement is the first thing most people think of when they think about the need for life insurance, but there are other large expenses you want to make sure your policy will cover. The death itself is very costly. The average American spends $7,000-10,000 on basic funeral costs. There may be medical bills to be paid too.
We already talked about childcare expenses for your dependents, but the costs don’t end as they get older. You can ensure your children are looked after until they’re ready to launch their own careers by making your policy large enough to send them to college.
This discussion has focused on life insurance for adults, but, heartbreakingly, sometimes children are taken from us all too soon. As horrible as it is to consider burying a child, there are policies designed for children as well. A small term life policy for a child can be purchased inexpensively. The money will do nothing to mend your loss, but could pay for a funeral and possibly medical expenses so those items aren’t weighing over you while you grieve.
Do You Have Enough Life Insurance?
So, how do you know if you have enough life insurance? Well, if you don’t have any life insurance, you definitely don’t have enough. Maybe you’ve already got a policy though. It’s become more common for employers to include life insurance as a benefit for employees. If that’s one of your benefits, you may think you’re good, but those policies are rarely large enough to cover the needs of someone in the prime of life with kids still living at home. You also need to read the fine print. Does your policy go with you if you leave the company or retire? As you get older, life insurance gets more expensive. If you lose your coverage due to a change in employment, you could be in for a rude awakening when you’re looking for new coverage.
How Much Do You Need?
Plug your numbers into the calculator at the end of this post to get an idea of how much insurance you really need. Chances are it’s more than you’ve got. If so, don’t leave your loved ones unprotected for another day. The death of a loved one is horrible enough without the stress of financial struggles.
Term Versus Permanent—What’s the Difference?
There are two main types of life insurance: term life and permanent life. Term life policy lengths vary, but generally should be structured to not expire until you’ve hit retirement age. The idea is that by the time it expires, you’re no longer supporting dependents and you’ve accumulated enough assets to see you through your remaining years. Permanent life policies, which include whole and universal life, don’t come with an expiration date. They also have options that may benefit those hoping to use their policy as an investment or for tax strategies.
For most people, term life is the way to go. It’s the much less expensive option, and it does exactly what life insurance is designed to do: it keeps your family safe from financial hardship in the event that you pass away prematurely. We’ll talk more about the different types of policies in a future post.
The Key Takeaways:
- Everyone needs it—even if you aren’t earning income.
- Your policy should cover current debts, new expenses incurred with the loss of a partner, and give your family time to grieve without worrying about money or immediately returning to work.
- Term life policies are the best choice for most situations.
Life Insurance Needs Calculator
About Cheryl Bartholomew
Cheryl is the President & CEO at GOLD since 2009 and has over 36 years of banking experience. She ensures the happiness of all Members through positive experiences that exceed their expectations, regardless of whether it's a simple phone call, electronic transaction, or face-to-face interaction. She strives to provide a positive work environment for her employees so they continue to go above and beyond for Members. She works closely with Member Volunteers (Board of Directors and Supervisory Committee) and makes sure they feel appreciated for their contributions in setting up our Members for success. Cheryl believes that all Members can be empowered to take control of their financial well-being, and she's proud to say that we at GOLD are confident in helping them do that.