Life insurance is an important part of a comprehensive financial plan and will provide your family with financial security in your absence. There are several different types of life insurance available that go beyond paying for a funeral. With age, our needs, family situation and goals change and as a result, our life insurance needs change too. Life is full of surprises, some good and some bad. A tragic accident or devastating diagnosis can quickly eat away at finances and leave your family in a vulnerable financial situation.
Simply put, life insurance in a contract between you and an insurer where the insurer guarantees a payment of a death benefit to named beneficiaries, like your spouse and children, when you die. In exchange for this promise, you pay premiums. There are life insurance options that don’t involve a death benefit; you can receive money for a disability or long-term care as well. There are multiple options when purchasing life insurance, and the type that’s right for you will depend on your situation and goals. It can be overwhelming but speaking with a professional can help answer any questions you have as well as determine the best type of insurance for you. To get you started, here’s a general look at how your life insurance needs change as you get older.
Early to mid-career: Income Replacement
If you left this world today, how would your family survive financially? Could they live comfortably? These are tough questions to ask, but necessary. Income replacement from life insurance can provide security for your family. You need life insurance when there are people in your life that depend on you financially, most likely a spouse and children. A life insurance plan will provide income to your family to help cover housing, bills, etc. At this stage in your career, your children are likely fairly young, which means that if you want to be able to provide for them as they grow up, you need to make sure there’s enough money to do so. Term life insurance is a lower-cost product providing insurance for a set period. For example, you can set the term for 10 to 20 years. This is more affordable than permanent life insurance and is a great option for those early in their career. Calculating how much your policy should cover is one of the most challenging parts. Using a life insurance calculator or speaking with a financial advisor will help you determine how much annual income your family would need.
Early to late career: Disability Planning
As you age you will need to think of additional coverage. A bad accident or critical illness can be life-changing and stop you from working. If you lost your ability to work and earn an income, what would your financial future look like? Would your family be taken care of? Without disability planning, the financial loss could be devastating. Disability insurance will replace all or a portion of your income in the event you become disabled or critically ill and are no longer able to early an income. Most employer policies only cover 50-60% of your income, which is often not nearly enough to support you and your family. A plan in place will also help take care of financial debts. Debts and financial obligations taken on while working can be challenging to carry when income is lost. A life insurance plan will help you and your family continue to pay these financial debts without any repercussions. In addition to income replacement, disability insurance will provide you with peace of mind and take care of you and your family.
Mid to late career/early retirement: Long-Term Care
At this point in your career you should be planning for long-term care. At some point many older adults require assistance and can no longer live independently. Moving a into a long-term care home or receiving care at home is expensive. The average lifespan of an American is significantly increasing, and at a faster rate than the average age of retirement. That means older adults are spending a lot more of their years in retirement. Long-term care planning in your mid to late career or early retirement will provide coverage for your care. Long-term care policies will cover the cost of care if you need it and if not, provide a death benefit to your family.
All stages: Legacy and Tax Planning
Leaving your family with a significant amount of money is a goal many people aspire to. A permanent insurance policy can take care of this for you. If you don’t plan carefully, the estate and everything you leave behind for your family can be taxed away – your legacy would be left with the government. Fragasso Financial Advisors, a financial planner Pittsburgh, can help prevent this through legacy and tax planning, ensuring your family is left with the legacy you intended. Estate planning is not exclusive to the wealthy, it’s for anyone who plans to leave any amount behind. A long retirement can eat up savings, leaving little to pass on as an inheritance. A life insurance policy can ensure that money is left behind for beneficiaries as a tax-free lump sum.
Life insurance is one of those rare things in life you hope is “money wasted” – something you want to invest it but hope you never need! The thing is, you will never know what the future holds and whether or not it will be needed. As we age, get married, have children and grow in our careers we come to appreciate the need for life insurance as a part of our financial plan.
A life insurance plan will provide you with peace of mind, knowing that you and your family will be taken care of financially, should you no longer be able to work. Choosing the right life insurance plan can be complicated. Seeking assistance from reputable advisors like those at Fragasso Financial Advisors who will walk you through the process should be your first step. It’s a big purchase with a massive impact should you need it.