Life insurance needs will change over time … so be prepared
If you’re going to achieve all your goals, such as sending your kids to college, retiring in comfort and leaving a legacy, you will need to save and invest throughout your lifetime. But to really complete your financial picture, you’ll also need to add one more element: protection. And that means you’ll require adequate life insurance for your situation. However, your need for insurance will vary at different times of your life — so you’ll want to recognize these changing needs and be prepared to act.
When you’re a young adult, and you’re single, life insurance will probably not be that big of a priority. And even married couples without children typically have little need for life insurance; if both spouses contribute equally to household finances, and you don’t own a home, the death of one spouse will generally not be financially catastrophic for the other.
But once you buy a home, things change. Even if you and your spouse are both working, the financial burden of a mortgage may be too much for the surviving spouse. So, to enable the survivor to continue living in the home, you might consider purchasing enough life insurance to at least cover the mortgage.
When you have children, your life insurance needs will typically increase greatly. In fact, it’s a good idea for both parents to carry enough life insurance to pay off a mortgage and raise and educate the children, because the surviving parent’s income may be insufficient for these needs. How much insurance do you need? You might hear of a “formula,” such as buying an amount equal to seven to ten times your annual income, but this is a rough guideline, at best. You might want to work with a financial professional to weigh various factors — number and ages of children, size of mortgage, current income of you and your spouse, and so on – to determine both the amount of coverage and the type of insurance (“term” or “permanent”) appropriate for your situation.
Once you’ve reached the “empty nest” stage, and your kids are grown and living on their own, you may need to re-evaluate your insurance needs. You might be able to lower your coverage, but if you still have a mortgage, you probably would want to keep enough insurance to pay it off.
After you retire, you may have either paid off your mortgage or moved into a condominium or apartment, so you may require even less life insurance than before. But it’s also possible that your need for life insurance will remain strong. For example, the proceeds of a life insurance policy can be used to pay your final expenses or to replace any income lost to your spouse as a result of your death (e.g., from a pension or Social Security.) Life insurance can also be used in your estate plans to help leave the legacy you desire.
As we’ve seen, insurance can be important at every stage of your life. You’ll help yourself – and your loved ones – by getting the coverage you need when you need it.