When it comes to your financial future, procrastinating can make things much harder down the line. Here’s how to get confident about your money. USA TODAY
I havenâ€™t purchased life insurance in roughly seven years.
Donâ€™t get me wrong, I have life insurance, but I havenâ€™t purchased any additional life insurance, with the exception of the group plan I set up for my company, since my wife was pregnant with our second child. And up until this week, Iâ€™ve enjoyed the peace of mind which comes with believing that I purchasedÂ the right amount of life insurance to protect the financial interests of my family, in the event of my early demise.
I have no idea why, but this week I decided to personally scrutinize that component of my financial plan. And at the risk of filling up my inbox with emails from every insurance agent in America â€” Iâ€™m pretty sure I need more life insurance.
Iâ€™ll get to why in just a moment, but Iâ€™d rather begin with a few brief notes on life insurance in general.
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Life insurance isnâ€™t some sort of strange â€śIâ€™m sorryâ€ť award for your family when you pass away. And while itâ€™s often a windfall, itâ€™s not really meant to create a lottery winnerâ€™s lifestyle, although sometimes the death benefit can be in the millions. Life insurance is meant to fill the financial void created by your absence.
You can, of course, use life insurance proceeds to pay off debts and fund particular needs, but life insuranceâ€™s most powerful purpose is income replacement. When I leave the building, my income leaves, too. My income is the fuel for my familyâ€™s financial present and its financial future. No fuel, no future. Plain and simple.
For families with young children, or couples who have only one source of work income, I recommend that the life insurance face amount equaling at least 10 times an earnerâ€™s income. Non-earners need life insurance, too, especially if young children are involved.
A fundamental truth about life insurance is that you purchase it knowing you won’t directly benefit from its utility. There are two groups of people: Mature adults who accept this life insurance reality and those who insist on having their cake and being alive to eat it too.
Am I bothered when I sense someone doesnâ€™t want to purchase life insurance because they wonâ€™t be around to benefit from its payout? I guess, but it makes me no more upset than I get when I see a family of four at a restaurant all buried in their smartphones. Iâ€™m more sad than mad when I see a person choose to leave their loved ones exposed to the possibility of financial tragedy. Thereâ€™s a difference between overlooking something important and acknowledging something objectively important, and then dismissing it as unimportant. In those cases, Iâ€™m both sad for the family and sad that the person making the choice feels the way they do.
Fortunately for my desire to get restful sleep at night, I donâ€™t care whether I directly benefit from my death benefit. That being said, the strangest part about my realization that I need more life insurance is my financial life hasnâ€™t really changed drastically in the past seven years. Itâ€™s been on the exact same trend line, just like Iâ€™ve planned. My income increased modestly, as have my expenses. The only two elements of my plan that have changed are the refinement of my goals and an increased awareness of my original planâ€™s flaws.
Seven years ago, I had no clear vision of retirement. Donâ€™t get me wrong, I was aggressively saving for it, with faith Iâ€™d match the funds with a vision someday. That faith was well-placed. Iâ€™ve worked in the financial industry for 20 years, and it took me 19 years to figure out what I wanted retirement to look like. As a side note, if you havenâ€™t quite been able to picture your retirement yet, donâ€™t be too hard on yourself. Just keep at it. It will come. Essentially, in order to achieve my retirement vision, I needed to move my retirement date closer. If youâ€™re still following, this means I have less time to fund retirement, and in the event of my early death prior to retirement, I still want my wife to be able to complete our goal without me.
Your life insurance need is not static. And itâ€™s not just significant life events, such as the birth of a child or job change, which stoke the need for increased coverage. Underfunding your financial goals, especially retirement, can create a massive problem for your partner if you die and leave them with less income to fund those goals. In other words, getting off track or being off track over an extended period of time, will create a larger need for life insurance.
I have no reason to believe Iâ€™ll run into any insurability issues when I apply for my increased amount of coverage because of my current laser focus on health and fitness, but uninsurability can easily destroy a personâ€™s plans to protect their family with life insurance. The life insurance company I selected seven years ago felt I was an acceptable risk then, but thereâ€™s no guarantee theyâ€™ll make the same judgment today. They could either charge me more for suboptimal health, or deny me altogether. Whether my health is deemed to be good or bad, I do know one thing:Â The coverage will now be more expensive because Iâ€™m 40 years old, not 33.
The best way to avoid the exact same problem Iâ€™m currently faced with is to over-insure yourself a bit with your next life insurance purchase. I realize paying for more life insurance than you need isnâ€™t ideal, but itâ€™s better than the alternative â€” dying without the proper amount of life insurance.
Beyond that, evaluate your life insurance needs every three to five years, and examine how your change in priorities and goals may impact your need for coverage.
How to watch:Â Tune in to Pete the Planner, who also is Fox59â€™s personal finance expert, at 8:15 a.m. Wednesdays.
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