by David Munn, CFP
Imagine you just died as you clicked on this link. Besides emotional trauma, which of the following will be true of your family?
● They will need donations to pay for the funeral and other final expenses
● They will struggle financially for the foreseeable future
● Your surviving spouse will need to work more than he/she would like
● They will need to move out of their current home for financial reasons and potentially move in with family
If you identified any of the above statement as being true, I have bad news and good news. The bad news is that there is a serious gap in your planning and you are doing your family a significant disservice. The good news is that it can be easily remedied.
It is not my objective to impose guilt or shame on anyone, but we do need to acknowledge the reality and severity of this topic.
The reality is that you will die. You could die . . . right . . . NOW.
Still with me? Good. So you survived, but please understand your next breath is not guaranteed.
The severity lies in the fact there is no “re-do” button when you die and the consequences of poor planning could be significant, as the above list shows.
All too often an unexpected death is followed by a pleading for donations and support on GoFundMe or YouCaring. Is this because the deceased did not recognize his own mortality, or because he didn't take the time to responsibly plan for his family?
Perhaps that's a harsh question, but it pales in comparison to the challenges the unprepared survivors will face, which only adds to the grief of their loss.
Now the good news. Life insurance--which can potentially remedy all the financial woes described above--is cheap for healthy individuals. By utilizing a single term policy for a limited number of years, you can provide financial protection for your family through a time period the need is greatest.
A common mistake is to collect a hodgepodge of various life insurance policies--frequently from different agents and friends--that total to a less than adequate death benefit, but still cost a sizable premium to keep in force. This in inefficient and wasteful. A single policy will almost always be preferable to multiple ones.
When done in the context of a proper financial plan that determines the right type and amount of coverage for the right amount of years, life insurance is extremely affordable. A common rule of thumb--for what it's worth--is for working spouses to purchase coverage equal to 10x their annual salary, up to certain limits. Non-working spouses typically should also have coverage, albeit lesser amounts.
If you recognized a lack of preparation while reading this, it’s time to do something. Schedule a meeting with a trustworthy advisor who will help you make good decisions and protect your family.