As My Family Grows, Should My Life Insurance Grow?
*Guest post
As My Family Grows, Should My Life Insurance Grow?
This is a great question. If you are asking, you probably have already decided that you need life insurance and have purchased a policy. Now you are adding to your family, perhaps getting married, having another child, or a parent has moved in with you. There is no doubt that you need to rethink your life insurance needs.
Why Do You Need Life Insurance?
First, consider why you’ve purchased life insurance. People usually purchase a policy for one of the following reasons:
- To pay for funeral and burial expenses
- To provide for continuing business operations, if they own a business
- To provide for a spouse who does not work
- To provide for minor children
- To provide for a family member with special needs
Chances are, if you are asking this question, you’ve purchased a life insurance policy to ensure the financial security of your dependants. Perhaps you are the breadwinner, and you purchased the policy to replace your income. Or, perhaps you are a caregiver and purchased a policy to fund replacement care should something happen to you.
What is the life insurance intended to replace? In many cases, death benefits replace a breadwinner’s income, but death benefits can also pay off a mortgage or student loans or pay for the continuing care of an aging parent or a child with special needs.
The reason you purchased life insurance will dictate whether you need to increase the benefit or purchase another policy.
How Has Your Family Grown?
You Got Married
If you are newly married then you probably want to take out life insurance for the benefit of your spouse. It is common to take out term life insurance in an amount that will replace salary or pay off a mortgage. If your spouse is the primary earner, then life insurance should at least provide for funeral expenses, then perhaps for child care.
Term life insurance is relatively inexpensive. Consider taking out a term policy for the number of years you are expected to live. An accidental death and dismemberment rider might be useful to you as well.
You Had a Child
Here is where term life insurance is important. You can take out a relatively inexpensive but high-value term life insurance policy for 20 or 25 years to provide for that child’s needs, including college. After the child is grown and moved out and working, that life insurance is no longer needed.
If you have more than one child, consider taking out multiple term policies that are staggered. For example, you might take out a $500,000 25-year policy when the first child is born, then when the second child is born three years later, take out another identical policy.
Child with Special Needs
If your child has special needs, whether a learning or physical disability or if some accident befell them, you can take out life insurance to provide for their continuing care should something happen to you.
How much to take out will depend on the other financial factors in this child’s life. Is there another parent or another family who can help? Are there community and government social programs that will assist this child in the event you die? All of this should factor into deciding how much life insurance to purchase.
Spouse with Special Needs
Things happen. If your spouse had an accident or illness that left him or her partially or wholly incapacitated, you need to think about their care after you die.
Again, consider what assistance programs are available, and think about what you want the death benefit to replace. Room and board? Your time in caring for him or her? Uninsured medical expenses? All of this can be quantified and provided for in a life insurance policy.
How long should the term be? Realistically, it should be for the number of years of your life expectancy. Talk with your insurance agent about this.
Ageing Parent
If a parent has moved in with you and the plan is to age in place, then you have several financial contingencies to consider. That parent may be relatively healthy and independent now, but that can change quickly with a fall, a stroke or heart attack, dementia or Alzheimers, cancer, or other illness. What will they need if you die?
Room and board? Continuing care? How does one quantify this? A good rule of thumb is to research the monthly cost of a local assisted living facility or nursing home. Multiply this by twelve and then the number of years that parent is expected to live with whatever condition they have – again, talk with your insurance agent about this. This gives you the amount of insurance you need as well as the term.
Life insurance is intended to fill a gap – namely, the hole in people’s financial lives caused by your death. Take stock of your situation and think of the worst-case scenarios, and take out enough life insurance to provide for those. This is how you purchase peace of mind.
About the author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a busy life insurance beneficiary lawyer.
