Will my life insurance needs change over time?
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Life insurance is an important component of your financial security. Your policy should be evaluated at different stages of your life to be certain it meets your current needs. As we journey through life, our circumstances change dramatically. So do our needs for life and/or disability insurance. Review your life insurance at these times:
- When you get married. Assess your life insurance coverage to ascertain if your current responsibilities will be met if you die. Carry adequate coverage to allow your surviving spouse and/or surviving family to maintain their current lifestyle.
- It may be best to name your spouse as the policy beneficiary rather than leave bequests via your estate’s will. This will ensure that your spouse receives the monies without having to go through the process of probate.
- If your group insurance is being reviewed. One spouse may have an employer-sponsored group insurance package that you can review. Establish coverage for the other spouse if offered in the plan; and/or purchase additional insurance directly from a life insurance representative.
- If one or both spouses are in business, consider putting income replacement insurance in place, in case of an illness or disability.
- When you have a young family. When you are starting a family, life insurance is purchased to provide new tax-free capital in case one or both of the parents should die.
- When you have children. If one parent’s income is currently relied on to provide all living expenses, the death of that individual may cause financial insecurity and stress for all family members. Equally important, consider the financial cost of a stay-at-home parent. Alternatively, consider any potential increased daycare and housekeeping expenses if a spouse needs to work. Both parents can carry adequate life insurance to cover any potential expense that could result from their death.
- As the family grows. Re-evaluate your life insurance in view of your changing goals. Where two parents depend on each other’s combined income, consider if a surviving spouse would want to stay home with the children.
Life insurance can help the family meet its financial obligations and maintain its current lifestyle. Your life insurance needs 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
You can place young children as secondary or contingent beneficiaries; thus allowing them to receive the death benefit if your spouse, as the preliminary beneficiary, predeceases them. A trust can manage funds on behalf of the children. It can direct investing the proceeds of the death benefit to create necessary guardian income.
- At the time your children go to 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 an 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 shortage of funds.
- When you want to protect your income in case of a disability. Have you thought about how becoming ill or injured could affect your family’s financial security? Would your income be reduced, placing the family under duress? Disability insurance is designed to replace approximately 70% of your pre-disability income; and is especially necessary for the self-employed.
- When making the decision to protect your lifestyle in case of a critical illness. This insurance pays out a lump sum in case of a critical illness such as heart attack, stroke or cancer.
- If you have aging parents and are concerned about expenses. You can insure your parent with life insurance to provide enough money to pay for funeral expenses and/or pay off debts. If your parents are dependent upon you for care, you may want to consider insuring yourself, naming a dependent parent as the beneficiary, to provide elder-care income that will still provide for their care in the event that you pass away.
- When you will face a large tax liability in your estate. As you approach retirement, you may have accumulated assets that will be taxed on capital gains, such as a cottage, a business, or your accumulated savings. Life insurance can provide for final income tax that will come due if the estate is not passed on to a surviving spouse or a dependent. This can include paying taxes that may be due on remaining retirement savings assets.
- When you’re considering a donation to an organization or charity. Individuals may wish to provide money to a cause or organization that they strongly believe in and life insurance can be a valuable tool in providing such assistance. By naming an organization or charity as a beneficiary you can ensure that your wishes are followed. Additionally, there may be tax benefits associated with donating life insurance policies to recognized foundations, charities or schools.
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