“The time is always right to do what is right.”
—Dr. Martin Luther King, Jr.
Many people do not like talking about life insurance. For those people it’s a morbid subject because it forces you to take into consideration your own death. At the same time we can’t afford not to talk about it because there are countless cases where families suffer a loss while not having enough money to satisfy final expenses for the deceased. During this time the proverbial “passing of the hat” must take place to help fund those expenses. Therefore, every adult must ask themselves who would my death hurt financially
Who Needs Life Insurance? The answer is almost everyone because simply put everyone will have final expenses. If you are single with no dependents and no assets, you will not need as much coverage as a married person with children and a home because your final expenses will probably not be as much. At the same time, some people have enough money saved to take care of final expenses. These people are considered self-insured. By final expenses, I mean those expenses incurred by the funeral home, hospital (if any), and all the incidentals that are apart of putting a loved one to rest. There are other expenditures that one must consider when there are dependents and assets at stake.
Ever heard the expression “Insurance if for the living not for the dead?” It’s true. Insurance is for your family : you put it in place so your loved ones will not have to find the funds to cover things such as funeral arrangements, mortgage, auto loan, hospital bills, or other creditors. It would also help secure your spouse’s standard of living.
So, life insurance benefits your family in ensuring their lives will not be financially impacted in a negative fashion as a result of your demise.
How to determine how much you need? The average funeral home expenses are about $7,000-$10,000 nationwide. The costs vary depending on the market and geographic area. So, at the very least you need to be insured for $10,000. After that, consider the other expenses we itemized above that would apply to you. For example, if you are single with no children and a homeowner with a mortgage balance of $150,000, you would need $160,000 in coverage for your family to pay your final expenses and keep your home. If you are working and have a spouse or children depending on your income, then your income should be replaced to maintain your family’s standard of living. This means you will need a lot more coverage. Using simple math, Let’s say you have an annual income of $100,000, the coverage to replace your income would be $1,000,000.
Having a needs analysis done on your behalf is important because every situation and every family is different.
When you purchase life insurance you must choose your beneficiary — make sure they are people you trust. Remember these are the people that will distribute your insurance proceeds and pay your final expenses. You have the option to choose primary, secondary, and even tertiary beneficiaries. Primary beneficiaries will typically be your next of kin, i.e. your spouse or parent. Secondary beneficiaries are typically your extended family, i.e. your grandparents, siblings, etc. In some case extended family members will serve as primary and next of kin will be secondary, it depends on your preference. Before choosing a beneficiary, ask yourself this question, who is financially responsible, trustworthy, and who truly cares about me and my family?
Finally, decide what type of insurance suits you best. Life insurance comes in two basic forms: Term and Whole Life. Term insurance is more affordable than whole life and can provide adequate coverage with a minimal price tag. Your monthly premium pays for insurance coverage only for a certain amount of time, or specific term, i.e. 10, 15, 20, or 30 years. There have been instances where some insurance companies offer ‘lifetime’ term coverage, but those are few and far between. Whole life insurance offers coverage with a savings component. This is the type of insurance most of your parents and grandparents purchased. It is considered traditional insurance and it accumulates equity (savings). It also provides more permanent coverage than term insurance.
There are many offerings and options among insurance products that have been brought to market to assist tremendously in securing a financial foundation for you and your family. Choose the one that best suits your needs.
-Carla Madison
Madison Financial Solutions
Carla is an Enrolled Agent, a designation conferred by the IRS that deems her one of America’s tax experts! She also has a graduate certificate in Financial Planning from DePaul University and has spent more than 20 years assisting clients with Taxation, Accounting, Asset Protection, and Financial Planning. She is a member of the Association of Financial Educators and since 1998 has served as an instructor of financial education for various institutions.
Additionally, Carla is the owner of “Madison Financial Solutions,” (www.mfs4u.com) where she assists her clients with tax and financial planning advice.
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