By Adam Freeland
Special to The Dagger
You have heard that old adage, “The only certainties in life are death and taxes.” Maybe so, but, it can give you comfort to plan for the future. As part of your planning, you should consider life insurance, especially if anyone will experience financial hardship by your death.
Does Your Family “Need” Insurance?
You often need life insurance for the first time when you start to share liabilities, such as:
• secure a mortgage
• live together
• share a credit card
• get married
• give birth to your first child
• start a business together
For example, if you and your spouse or significant other own a home together, and your spouse would have difficulty making the mortgage payments alone, you need life insurance with the other home owner as the beneficiary. However, if your spouse has a high income, lots of assets, and can easily pay all the expenses, then life insurance may not be necessary. This website—marketreview.com/insurance/life/—carefully elucidates how and when life insurance could be vital to you.
Another example concerns the family’s breadwinner and the family’s caregiver. Young families tend to be near the beginning of their mortgage, so their debt is high and they are able to set aside very little for future college costs. If the breadwinner passes on, the surviving spouse and children may struggle to make ends meet. In this situation, the breadwinner needs life insurance, so the family can maintain its life style and keep its goals for the future. On the other hand, the caregiver may need to be insured, too. If the caregiver passes on, the family has to pay for the many functions the caregiver did at no cost. The most notable expense is child care, but some families, have unexpected meal, laundry, and transportation costs, as well. The caregiver needs life insurance if the family would be burdened by paying for all those services performed by the caregiver.
Do You “Need” to Protect Anyone Else?
If you are a guardian, or you provide substantial financial support for your parents, or you wanted to help nieces, nephews, grandchildren pay for college, you may need to consider life insurance. As in the situations with your immediate family, you should think about the financial need and hardship involved if you were to pass on.
Do You “Need” to Protect Your Business?
In addition to your family, if you are an entrepreneur, business owner, or executive, you should consider your business. If the loss of a key person will hurt the business or create hardship to your business or family in any way, the key person needs life insurance. Life insurance is typically used with legal buy-sell agreements which are set in place so that partners of a business are able to pay the spouse of the deceased partner for their share of the business and protect the interests of the spouse and the business partners. Additionally, life insurance is often used as a tool in executive compensation programs.
Do You “Need” Life Insurance As Long As You Live?
By the time you reach your 60’s and 70’s, if you have paid off your big debts, like your mortgage; educated your kids; and built up a nest egg in retirement savings to cover you and your spouse, you may not need life insurance. If something were to happen to you, your spouse could tap into the retirement savings to live on and if the savings are sufficient for your spouse’s lifestyle, you do not need life insurance.
Cost is another consideration for life insurance in your mature years. The pricing of life insurance is predominantly based on actuarial science which is a method of assessing risk based on factors like age, health, and certain behaviors. Therefore, as you get older and the chance of health issues increases, the cost of life insurance increases, too. Typically, those costs can go up considerably in your 60’s and 70’s. As a result, knowing whether you still need life insurance is crucial.
Of course, some of you may have a permanent need for life insurance. You may need to protect a family member with special needs; or need to pay estate taxes on a substantial estate; or need to preserve a business.
Determine if You Need Life Insurance
By taking the time to determine if someone would experience financial hardship if something were to happen to you, you can quickly decide your need for life insurance. In future articles, we will discuss what kind of insurance you need and how much.
Adam Freeland is a Certified Financial PlannerTM with Harford Financial Group located in Bel Air, Maryland.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Harford Financial Group and Cambridge are not affiliated.