One of the most important aspects of a well-rounded financial plan is addressing the need for Life Insurance. This also happens to be one of the most emotionally difficult subjects to discuss. While planning for the possibility of your premature death can be unpleasant and upsetting, it is important to consider how your loved ones will be impacted when you’re gone.
While we won’t be here to support our loved ones when they grieve our loss, we can attempt to provide them with the financial support they need. Not only can life insurance provide a way to temporarily replace your income, but it can assist your beneficiaries in paying off your debts as well as any medical or final expenses you leave behind.
After identifying who you want to provide for, there are several factors to consider when determining how much life insurance you need. One technique for determining this amount is by utilizing the acronym DIME – Debts, Income replacement, Mortgage, Education, and other essentials. We are going to explore each of these pieces in greater detail below.
The first factor to consider is what debts you will leave behind and how you would like them to be paid. This category does not include your mortgage, but may include debts such as credit card balances, medical bills, personal loans, and other lines of credit.
Generally, assets left in your estate at your death will be used to pay off your debts. This reduction in assets may reduce the inheritance your heirs receive. If there are co-signers or joint owners on your debt, they will likely be responsible to pay any remaining debt after the offset from your estate. In community property states, your spouse will be responsible for paying off your debts.
Your family may feel a large financial strain if your death occurs while you are still working and providing them with financial support. One way to reduce this burden is to purchase life insurance with a death benefit equal to the amount of income you would have received if you lived for a specified period. For example, you may want to provide your spouse with a lump sum of money equal to a few years of your salary to allow them time to grieve and adjust to being the primary provider of financial support for your family.
Another aspect to consider if you have an outstanding mortgage on your home is whether you want to provide your heirs with the means to pay the balance so they can keep the home. With a reduction in income it may become more difficult for your family to make the mortgage payments and stay in the home. Term insurance is a great solution for providing for expenses that end after a specified period.
Education and other Essentials
After considering your debts, mortgage and replacing your income, you can plan to provide for large upcoming expenses. One substantial expense you may want to help provide for, even after you’re gone, is a post-secondary education for your children. Even if you have been saving for your child’s education, there will likely be a gap if you are no longer here to fund that savings. Life insurance is a great way to fill any gaps in tuition expenses your children may have in your absence.
Waldron Private Wealth (“Company”) is an SEC registered investment adviser with its principal place of business in the Commonwealth of Pennsylvania. Company may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information about the Firm’s registration status and business operations, please consult Waldron’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.
This material is for informational purposes only and is not intended to be an offer, recommendation or solicitation to purchase or sell any security or product or to employ a specific investment strategy. Due to various factors, including changing market conditions, aforementioned information may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from Company, or from any other investment professional. Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Asset allocation and diversification do not guarantee a profit or protect against loss. Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.