Understand how life insurance needs change over time
Many people understand the vital role life insurance plays as a risk management tool. However, life insurance planning can be daunting. That’s because each family’s needs and situation differ. As a result, your risk management strategy needs to reflect what’s unique about your lifestyle, goals, family, and financial circumstances.
Life insurance is primarily used to protect loved ones against the loss of income due to the death of a wage earner. That makes life stage an important variable in the life insurance planning process. As discussed below, you can expect your insurance needs to change over time as your life and family evolve.
How should you approach life insurance planning if you’re young and single?
People often assume that they don’t need life insurance if they don’t have a spouse, children, or other dependents. While the need for life insurance at this stage of life may be minimal, it can still play an important role in paying off your debts and final expenses in the event of an untimely death.
To understand your life insurance planning needs, add up any outstanding debts that are not forgiven upon your death, such as loans or credit where another party cosigned to help you secure the loan. You also want to make sure your final expenses are covered for funeral and burial or cremation costs. The good news is that since life insurance premiums are determined in part by your age and health status, life insurance is generally inexpensive when you’re young and in good health.
How should you approach life insurance planning if you’re newly married?
Whether your lifestyle is based on one or two incomes, the unexpected death of a spouse could create a significant financial burden for the remaining spouse. When it comes to life insurance planning, consider if your surviving spouse would be able to meet your household’s debt obligations and cash flow needs without your income. Both spouses should consider purchasing life insurance in an amount that will pay off all household debts and replace their spouse’s income.
How should you approach life insurance planning if you’re married with children?
When adjusted for inflation, the average cost to raise a child is $312,202, and that doesn’t include college costs.1 That makes life insurance planning critical for protecting those who depend on your income to meet their essential expenses and lifestyle needs over a period of 18 years or more.
If one parent were to die, the loss of income could significantly alter your family’s quality of life, including their ability to remain in their home or attend the college of their choice. A stay-at-home spouse may be forced to seek work outside the home. Single parenthood can also diminish a surviving spouse’s future earning power if they have to reduce their hours, cut back on travel, pass up promotions, or delay continuing education opportunities due to obligations at home.
To help protect against the potential financial loss associated with the death of a spouse, the life insurance planning process takes your lifestyle, debts, the number and ages of your children, and your estimated K-12 and college education costs into consideration, among other factors.
How should you approach life insurance planning if you’re an empty nester or retired?
As you get older, life insurance planning should reflect your changing financial needs and circumstances. For example, once you retire, there’s no longer a need to replace lost wage income. And, if you’re an empty nester, adult children have their own careers and are no longer dependent on you to meet their income needs. However, the need for life insurance planning may not go away entirely. That’s because life insurance is often used as an important estate and legacy planning tool to help meet certain liquidity needs and assist in the tax-efficient transfer of assets after your death.
To learn more about life insurance planning at each stage of your life, including the type of insurance that’s right for your family, schedule time to meet with one of our experienced team members who can evaluate your current coverages, and make recommendations based on your needs, goals, and budget. For more on this topic, be sure to listen to my latest podcast episode of Frank Wealth Insights. To learn how we can help you and your family pursue the Return on Life® you desire, contact us today for a free consultation.
About Return on Life® Wealth Partners
Return on Life Wealth Partners is an independent Registered Investment Advisor (RIA) founded in 1994, with headquarters in Cleveland. The team provides comprehensive wealth planning services to individuals, families, and business owners. By examining clients’ lives before their money, Return on Life® aligns its advice with clients’ values. With access to its Complete Family Office (CFO)SM and Personal CFO™ services, Return on Life® Wealth Partners aims to help clients achieve the milestones that matter most to them. This personalized approach also extends to the institutional and corporate retirement plan services available through 401(k) Prosperity®.
1WTOP.com, May 2024, https://wtop.com/news/2024/05/how-much-does-it-cost-to-raise-a-child-4/
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific tax or legal issues with your qualified advisors.
The opinions expressed and material provided are for general information purposes only.