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A good conversation with close friends often includes meaningful life topics like love, work, dreams, and family. But your life insurance death benefit is a topic that’s not as likely to come up! Even so, life insurance intertwines with and impacts every one of those other topics.
For many, their first life insurance policy comes through their benefits package at work. Typically, it costs next to nothing and provides enough death benefit to cover one year’s salary. It’s a good start, but hardly enough to pay off the mortgage or cover a child’s college tuition. Evaluating whether you need insurance, or if the policy provided through work can feel complicated and confusing. To help alleviate the confusion we’ve assembled the following reference guide for you.
We’ll start with the basics, do I need Life Insurance?
Here are three common scenarios where life insurance may be appropriate:
Adults who own property together. A life insurance policy should be at the top of your to-do list if you own a home with someone else and that home has a mortgage. In the unfortunate event one of you should pass away, the death benefit can help the other person pay off the mortgage, pay for upkeep, even prepare it for sale.
Parents with minor children. Whether you’re expecting your first child or you’re getting ready for an empty nest, it takes a lot of money to raise kids. A life insurance policy can help make sure your children are covered financially if you die. Depending on the policy, the payout could help cover things like college tuition, medical expenses, and day-to-day living costs. However, a minor child cannot be the direct beneficiary of the policy’s proceeds, so be sure you have a legal guardian or custodian in place.
People looking to lock in low rates. When it comes to life insurance, it’s best to lock in pricing when you’re young and healthy. Most life insurance plans require some form of a physical or check-up. In general, the healthier you are during that process, the less you’ll pay per month in premiums on your policy.
Now to get a little more into the weeds, let’s talk death benefit: Just what is it, and what does it mean?
A life insurance death benefit defines your policy’s final payout and is the amount your loved ones receive if you pass away.
Here are three common expenses you’ll want your insurance payout to cover:
Burial costs. The most obvious expense you need to account for is average funeral costs, between $7,000 and $12,000. While prices can vary widely depending on what sort of send-off you’d like, it’s important to make sure your loved ones don’t have to be responsible for this expense.
Mortgage and debt. Any debt you leave behind must be paid before your estate can distribute any assets to your heirs or surviving loved ones. Include mortgage loans, auto loans, and credit card debt in your total, because none of those is forgiven when you die. The exception is federal student loans, which are forgiven after the required proof of death is submitted; private student loans are not.
Future education costs. Education costs continue to rise. The average tuition for a public four-year college averages $28,000 per year per child and is expected to double every nine years. College costs can be a major factor in determining how much life insurance you need.
Still wondering if Life Insurance is right for you or if you have enough coverage? Ask yourself these questions.
Is the death benefit on my current insurance enough to cover my family? That means all financial obligations, current and future. What if I leave my job? Some employer-sponsored life insurance plans terminate if you’re no longer with your employer. That might not be a problem if you’re heading to a new job with similar coverage right away. But if you aren’t sure what your next move is — or you lost your job unexpectedly — you may have to deal with gaps in your coverage. Something more permanent through a secondary plan could provide more lasting peace of mind.
What if my health changes? It’s easy to find a policy at a great rate when you’re young and healthy because a young, healthy person represents less risk to the insurance company. So what happens if/when you get seriously or chronically sick? You’re likely to have a much harder time finding an insurance company that will offer a policy at a reasonable rate.
Please schedule some time with our office to review your existing coverage, particularly if you’re unsure which type of policy could be right for you. We’re here to help, and a quick phone call can get you and your loved ones on the road to peace of mind!