Life insurance isn´t just for dads, mothers should have it too!
Traditionally, the male half of the couple has been the primary income earner, and the one primarily responsible for tending to the financial matters of the family. All too often, this means that the wife and mother is left out of important financial decisions. For example, it is typically the husband and father who determines how much life insurance each family member has. And while you love him and trust him dearly, it’s not a good idea to leave the fate of your family entirely in his hands. The fact is, if something happens to him, you’re the one who’ll be running your home and raising the children. So take it upon yourself to ensure your future and that of your children by getting the right amount of life insurance.
NO COOKIE-CUTTER POLICIES
How do you determine how much life insurance you should have? Standard formulas, for example, “ten times your annual income,” are quite common. The problem is, utilizing a rule of thumb is almost as silly as pulling a number out of thin air. Every family is unique. Two different couples may have the same income, but if one couple has one child, and the other couple has three, it is ridiculous to think they’d need the same amount of life insurance. So if the person providing you with life insurance uses a general formula or a cookie-cutter policy, take it as a sign that he or she may not really have your best interests in mind.
A better approach to ensuring you have the right amount of life insurance, and one commonly used by financial planners, is called the “capital needs analysis.” It is a complex calculation which factors in projected increases in the cost of living as well as well as current and future changes to family income and expenses. But you needn’t worry about the math; most insurance agents and financial planners have sophisticated software to make those calculations for you. Your job is to make decisions about your future and express them accurately to your financial planner. Likewise, your insurance provider should express an interest in your well-being, and ask you questions which will help determine your real life insurance need.
Read Related: 12 Reasons Why You Need a Will
THINGS TO CONSIDER
Here are just some of the issues a financial planner should bring up when determining how much life insurance you need to protect your family:
- Dying is expensive. If your husband or partner were to die today, how much money would you need for expenses related to his death? You’ll need cash to pay for the funeral and burial expenses. Would you need to pay to fly people in to your town? Maybe you and your family will need to travel elsewhere for the funeral. What about paying off any debts such as credit card balances and auto loans? How much do you already have set aside to cover these expenses?
- Lifestyle changes. How will your monthly expenses change? For example, if your husband were no longer around to mow the lawn, clean the pool, or care for the kids after school, you may need to pay for someone to do that. Account for expenses that may decrease, as well, such as food, gasoline, or any costly hobbies he might have had. Would you want to make sure you and the kids can stay in your current home, or would you be willing to move to a smaller place? Do you want to continue to pay the mortgage on a monthly basis or would you prefer to just pay that off in one fell swoop?
- Tough questions. Quite often, couples set goals based on a compromise, or based on activities and desires they enjoy doing together. When they suddenly find themselves alone, things may be different. Consider how any of your financial goals, if any, might change if it were just you and your children. For example, sometimes people will change their retirement age—to either earlier or later. Do you still desire that cabin in the woods, or is that not important anymore? What about college for the kids? And what resources do you have to put toward it? If your husband was the primary income earner, that income is no longer available. If you are the primary earner, is your income sufficient to meet your current expenses as well as saving for education expenses, retirement, etc.? If you’re currently a stay-at-home mom, is it important to you that you continue in that role? If so, for how long? And if you did seek employment outside the home, what will you do? How much income will you earn?
The emotional grief from the tragic loss of a partner can be devastating for anyone, but for a child, the loss of Mommy or Daddy can be unimaginable. It’s a matter that causes so much anguish that many of us don’t want to even think about it. But if you don’t, you can’t be prepared for it. And when you fail to plan, you put your family at risk. While there is little you can do to prevent death, you can prevent death from taking your and your children’s dreams and goals with it. The right amount of life insurance will allow you the flexibility to have choices rather than being forced into an undesirable situation.