It is the elephant in the room. Everyone knows it is there, yet no one wants to talk about it. The elephant is death.
I recently lost my brother in law, Joseph, at the age of 36. It was unexpected, and of course devastating. What is tragic is watching my sister in law struggle with the bills and funeral costs. These come to the surface and demand attention. She has taken phone calls from people wanting money when she has had none to give.
The problem is that Joseph was under-insured. In my profession I have been working with those who are dying and their families for many years. What I have found is that many are unprepared for the roller coaster of emotions, the mounting pile of medical bills, funeral plans, extended family issues and finances. It is unfortunate that during this emotional time important decisions need to be made. Much of this is unavoidable. One thing that can ease some of these burdens is life insurance.
There are a many types of life insurance policies. The most common are Permanent, Whole, Universal, and Term Insurance. The first three are sold as a life insurance policy and a method of investment. Life insurance is not the best way to invest your money. There are other investments that yield a higher return. These policies also allow the insured to borrow or withdraw cash against the policy.
Some individuals cannot qualify for term or find it too expensive. These other policies may be more budget friendly and still get the job done. There are advertisements on the television about policies that require no physical or medical questions. They are by reputable companies and can be considered an option. Be sure to read the fine print. There are limitations placed on this policy that may range from a few months to a few years. They may not be a bad purchase, just read all of the fine print. Be an informed consumer.
Term insurance allows you to buy the amount of insurance that you need, for only as long as your need it. The money saved by purchasing a term insurance policy can be used to pay off debts or to invest. Term insurance is the best option for those who are young and raising children. When the kids move out, ask your agent about adjusting the amount or if another type of insurance would better fit your needs.
Some term insurance companies are offering a return of premiums (ROP) to their customers. If you out live the term of your policy, they will refund you 100% of the premiums you have paid. Read the details and ask your agent any questions about insurance. It is a product you will want to work seamlessly for you when you need it to.
Many employers and financial institutions offer free life insurance. Employers usually base the coverage on your yearly income. There may be an option to buy additional insurance coverage. Check to see how much coverage you have through work and include that amount when making your life insurance decisions. Remember that if you switch jobs, you need to purchase it through the new employer or with an agent. If you lose your job, you lose that insurance. Banks and credit unions may offer insurance for free, but it is not a large amount.
Another option is to self-insure. This is when you save money in an account that is to be used only when you pass away. The dollar amount must be enough to pay for funeral expenses, medical bills, and any other expenditures. Make sure that your final papers are in order so a family or friend will have access to the account and make sure it is spent on your funeral.
There are many sites on the internet that offer insurance calculators. You will be asked information about possible expenses and any special needs that your family may have. Plug in the requested numbers and amounts and a detailed report will follow. Many sites (and employers) offer other types of insurance to consider. These may include disability, long term care, critical illness and income protection. Again, examine the variety that is available and speak to an insurance specialist about what additional coverage your family may need.
How much coverage?
Many ask how much life insurance is needed. You need to have coverage that is 10 times your family’s annual income. The whole point of insurance is to replace yours or your spouse’s salary. If your homes income is $75,000 a year, your insurance coverage should be $750,000. Your chosen beneficiary can invest this money at 10% per year, which will provide them with an annual income of $75,000.
By replacing your income, your family can maintain the same lifestyle that you provided for them. Chose a beneficiary with care. It should be someone that you trust. The beneficiary should understand what you want done with the insurance money. Not only should you verbally discuss this, it needs to be written out in a will.
What could be more traumatic on the heels of losing a spouse than being forced to sell your home, find a job, and uproot the kids? Imagine how nice it would be to know that when you pass, your spouse will be able to be there for your children during this difficult time. Evaluate how long you will have your children at home and purchase a policy that will at least cover your family until the last child leaves home.
As your life changes, so will the amount of insurance coverage needed. When the children are moved out, the amount of insurance coverage can decrease. It is wise to reduce or eliminate any debt and increase the amount you save. A policy will need to cover medical bills, existing debt, and funeral expenses.
Where do you keep your policy? I recommend that you have a drawer, file cabinet, or box that holds all of your important documents. When you pass away, your family can quickly find your life insurance policy and all of the other needed documents. These documents should include:
• Will and estate plans that tell your family how you want your life insurance money spent
• Tax returns, your monthly budget, and bank account information
• Passwords, PINS, combinations, user names
• Other insurance policies
• Investments and retirement accounts
• Funeral and other after death instructions
Final thoughts. (So to speak.)
Seven months after Joseph’s death, his widow is still adjusting to her “new normal.” A GoFundMe page and a yard sale of donated items has helped ease some of the financial burden, but there is still a shortage of money and some bills still need to be paid.
You know you are going to die. We all are. No one should be left behind worrying about going back to work, keeping the lights on, and paying the mortgage. Do the right thing and purchase life insurance. There is no “thinking about it” or “I will get around to it”. Do it now. It is the most thoughtful gift you can give to your loved ones.