Life insurance should be thought of as a way to offset financial disruptions should the worst happen. Many life events add financial responsibilities, and they can be good opportunities to consider acquiring coverage or adding to what you have today. Let’s take a look at what some of those life events might be.
When you get married, you start making financial decisions based on your combined income. You may be a dual-income household, or perhaps only one spouse works outside of the home. If something happens to either one of you, would you be able to maintain your current lifestyle? Would you need additional household assistance or help with childcare? Life insurance can be a way to offset this. But don't forget to include the estimated salary of a stay-at-home spouse or partner when calculating your annual income. Many couples tend to overlook accounting for this but if this key contributor is lost, expenses can amount to tens of thousands of dollars a year (or $143,102 annual net worth) based on the recent 2016 report from salary.com.
Having children means high hopes for their future. For many, this means the ability to send them to college. However, if one or both parents weren’t around to provide this support, would they be able to afford to go to college? Life insurance can provide the financial support for this important aspect of your child’s future should you not be there to help pay for it.
Buying or Upsizing a Home
Buying a home is a way to put down roots. It’s generally a long-term commitment that comes along with a mortgage. Most families buy because they want their family to establish memories in a particular area and live a certain lifestyle. Again, this might be difficult to maintain on a single income. Whether you are purchasing your first home or upsizing, it’s a good time to review your current coverage and see if you need additional coverage.
Getting a Big Promotion
With that new promotion, you also earn an increase in salary. Industry experts indicate a good rule of thumb is to carry coverage up to 20 times your annual income. While just a few years ago, the recommendation was 7-10 times, but now there are 2 key reasons for this:
- At 20 times your annual income level, it is most likely that at today’s interest rates, you can possibly produce enough annual interest income annually to replicate the annual income used in the computation.
- This would allow you to only have to touch the principal for larger items (college tuition, eliminating debt, weddings, vehicle purchase, etc.) and thus, have a more stable financial position long term.
So, any time after a promotion is a good time to revisit your coverage. As much as we all like to think we’ll maintain the same lifestyle on a larger salary, the reality is that we tend to increase our expectations and financial commitments. Perhaps you buy a bigger house or a new car. These are new financial obligations and income that your loved ones will come to count on. Increasing your coverage can make up this gap.
Are your children out of college? Have they moved out? Is your mortgage paid off? If so, you may think that you no longer need life insurance. But that may not be true. You may have a vacation home with a mortgage or a second home where you spend six months of the year. Or you could still be working with no intention of retiring any time soon. Or maybe you just want to provide for loved on after you are gone.
Regardless be sure to review your coverage, even if you no longer have the financial responsibilities that you once had. Some policies allow you to receive up to 60% of your total life insurance benefits while you are still alive if you are diagnosed with a terminal illness. This money could be a huge help to you and your family knowing you are not leaving big medical bills to loved ones.
What Will It Cost?
Life insurance premiums are based on age "at entry" — that means the sooner you buy, the less you’re going to pay. With policies that have 10 or 20 year terms, the savings to you could be substantial. Another reason to buy young is that you never know what your health situation will be when you’re older. Health issues may crop up that make securing coverage at an older age difficult or more expensive.
In short, whenever you have life circumstances that either add to your income or add to your financial obligations, it’s a great time to review your coverage and update your beneficiaries at the same time. Be sure to check out this Free Life Insurance Checkup tool to get a quick assessment of all your needs and see if you are on track.
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For more information about life insurance options available from your Alumni Association through The Alumni Insurance Program, click here.