Life Insurance at Various Life Stages
Your life insurance needs change as your life changes. When you’re young and single, you typically have less need for life insurance, but that changes as you take on more responsibility and your family grows. As you grow older and your responsibilities diminish, your need for life insurance may decrease or evolve to a different type of coverage.
Let’s review the Top 5 Life Stages of Life Insurance Needs
In the event of death of one spouse, a life policy can ensure the surviving spouse has immediate funds to pay down a mortgage, eliminate debt, continue a family business, or settle outstanding tax obligations, without having to liquidate assets. Typically, couples choose term life insurance because of its affordability and protection for only a certain period of time when the need is greatest. But many term life policies have the option of conversion to permanent coverage— a cash-value policy that allows your money to grow tax–deferred, and can help supplement retirement savings.
When dependent children are living at home, having sufficient life insurance for each parent is critical. If you or your spouse were to suddenly die, insurance can offer a means of paying for daycare, education, and everyday expenses. Both spouses (stay-at-home or breadwinner) should carry enough life insurance to cover the lost income or the economic value of lost services that would result from their deaths. Term life insurance can be sufficient but the accumulated cash value in a permanent life policy can help prepare for the long-term future, and even fund college education.
When you work for someone else, you may have employer-sponsored, group life insurance coverage, which might not be enough to cover your families’ needs if you die. You may need to purchase additional life insurance to fill in the gap. But if you’re self-employed, you’re on your own, and the investment in your business can be substantial. If the value of your business has increased and has debt obligations, insurance proceeds can protect your family from being obligated to repay this debt if you die so they can avoid having to suddenly liquidate assets.
Divorce happens, statistically more often than not. It is a critical time to make decisions relating to beneficiaries. If you have children, be sure to check any existing policies and change your beneficiary from your former spouse to your children. If your spouse owns the existing policy, you may need to purchase a new one, as part of your divorce settlement.
Estate & Retirement Planning
Having a will or trust is only part of the picture of estate planning. If you expect to have a large estate tax burden, you should consider the tax and cash accumulation benefits of a permanent life insurance policy. It can help provide funding to pay estate taxes by reducing or even eliminating them.
Unlike most investments and financial products, life proceeds are passed to beneficiaries, tax-free.
Hear more about the changing stages of life insurance coverage in a recent CNBC report.