** Separate each number onto new page
The Postman Always Rings Twice
Life insurance isn’t usually a very exciting or sexy subject. If a book or movie has life insurance in its plot, it almost invariably has to do with one spouse trying to off the other to get their life insurance money. That’s not a tactic I would recommend if you are seeking financial security.
But I do recommend having life insurance! In the event something unexpected befalls you our a loved one in your household, it is important that you leave your family in a position where they can manage and grieve.
Would You Rather?
Would you rather:
1. Pay a few hundred dollars a year to leave money behind for those who depend upon you in the event you pass away?
OR
2. Cause your family to have to put your sob story on GoFundMe, going to sleep each night hoping that others might contribute enough to make ends meet?
I get it, there are lots of things you’d rather spend your money on, but at such a small cost, the peace of mind is well worth it.
Step by Step
Now that you you’ve decided that you need life insurance (or at least that you should really think about it), let’s take this process one step at a time.
1 – Who needs life insurance?
2 – How much life insurance is enough?
3 – What kind of life insurance should you get?
4 – Should you ladder your policy?
5 – Where do you apply for a policy?
6 – What should you expect from the application process?
7 – What needs to be done if the policyholder passes away?
1 | Who needs life insurance?
Do you need life insurance? If your answer is “yes” to any of the below, then you probably need insurance:
A – Do you work to provide an income (part- or full-time) that your spouse, child(ren), parents, etc. rely upon to cover expenses?
B – Do you contribute to the household in a way that would still be needed if you were to pass away? This includes full-time homemakers, but it also contemplates those who take on other household duties or home management responsibilities, from picking children up from school/daycare to doing yard work or housework to managing finances.
C – If you were to pass away, might someone else who contributes to your family financially or through services need time off from those contributions to grieve?
Child’s Play
Many companies will try to sell you lots of life insurance on your children. To be honest, unless your child contributes significantly to the running of your household either financially or through services, you likely need very limited insurance.
In my analysis, I considered:
1 – Estimated burial costs. Costs may vary depending upon the burial choices you make and where you live, however $10,000 is usually a safe estimate.
2 – Time & space to grieve. If my child passed away, perhaps my husband or I would need the escape of work, or maybe we would need time off work for our own or each other’s sakes (or to care for other kids if/when that were a factor). To be safe, I would want to be able to cover expenses for at least three months, adding in a little room for someone else to handle housework, etc. during that period, and I would tack on a little more to cover therapy/family time for myself and my other family members.
Some employers will provide limited insurance for your kids (either for free or for a few cents each pay period), so check out your benefits. This alone may be plenty sufficient. If not, it may be worth considering a small policy. MOVE TO SECTION 2
2 | How Much Is Enough?
We’re going to get in the weeds here, but don’t get too worried about the pennies – get a rough estimate and move on.
Bottom line: If someone in your household passes away, you ultimately need to figure out what they contributed that you will need to replace.
What do I mean by this? If your family has two drivers and two vehicles, then will you keep the second vehicle if one of the drivers passes? And how much did their travel cost on a monthly basis (fuel, oil changes, other maintenance, etc.) that will no longer be necessary?
Let’s look at each contributing individual in your household separately. We’ll call the first person Pat.
Incoming
| What is Pat’s annual take home pay? | $ |
| Does Pat pay for health insurance for anyone else? | |
1 – What does Pat contribute financially? This includes take home pay, health insurance (medical, dental, vision), … If Pat is staying home or is in school but there is an expectation that Pat will work in the future, you’ll want to consider that as well.
2 – What does this person have put away for retirement? How much do they contribute each month?
3 – What other life insurance policies does Pat have? For example, through work…
4 – What services does Pat contribute that will still remain after passing? Does Pat maintain the yard or stay at home with the kids?
Outgoing
3 – What debts does Pat have with no co-signers/-owners? For instance, student loans or a credit card. Some of these will disappear, others can only go after money in the decedent’s estate, but none can go after anyone else unless others are co-signers on the debts. [Why you should talk with your attorney about A Year’s Support if your spouse passes away.]
4 – What will your family’s expenses be if Pat is no longer around? This is a good time to look at your budget (or if you don’t have one, the accounts you use).
- No vehicle, less fuel, car insurance
- Food costs
- Medical expenses
- Phone bills, phones
- Student loans and credit card bills ONLY in the decedent’s name
What do you need to have for retirement without Pat? How much do you have now? (Math for growth/taxes/inflation)
Now that you’ve added all the incoming and subtracted all of the outgoing…. take inflation and interest into account.
3 | Term- or Whole-Life?
Grown Up Math
Your employer may also cover you and your spouse. Usually this amount falls far short of providing sufficient coverage, but it’s a great start.
How do you calculate what else you need?
How much income are you replacing? What about retirement savings? Factoring in Social Security…
Whole Life Insurance
Unless you are ultra-wealthy, the goal of life insurance is to give your family a quality of life similar (or maybe a bit better) than they would have had if you/the insured had lived.
4 | Should You Ladder?
What is laddering?
5 | Getting a Policy
You’ve made it! Now, where do you find a policy? What steps should you expect to take upon applying? (maybe immediate, maybe medical exam – at home or at doctor’s office)
Policy Genius affiliate? – process sometimes fast other times slow; may have several options, maybe not – Soldier/being shot at, less companies willing to ensure you…
Ladders?? affiliate?
6 | Using Your Policy
What if the worst happens and you need to use the policy? Read on.
Who? Who is supposed to give notice to the insurance company? Does an attorney need to be involved?
When? When should the ?? submit
What? What will you need to submit?
- Death certificate
- ???
Where? Where do you submit the required materials?
How? Do you email them? Mail them certified? ??
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