While not always the most pleasant thing to think about, estate planning is an important part of creating a comprehensive financial plan. As part of estate planning, it’s important to think about how your family and beneficiaries will be cared for after you’re gone. For the very wealthy, this might not be much of a concern. But for others, this could be where life insurance comes into play.
Life insurance can be a wonderful and useful tool. It can help ensure your loved ones can pay for any necessary expenses related to your passing (like funeral costs or debts), or it can help keep them financially stable after the loss of income.
However, life insurance isn’t always top of mind when it comes to estate planning. After all, many employers offer life insurance as part of their benefits packages, so most people believe they’re covered, but that’s not always the case. If life insurance is weighing on your mind, here are some things to think about.
Can I Rely Solely on My Employer’s Life Insurance?
As mentioned, many companies offer life insurance to their employees, which is definitely beneficial. Your employer could help pay the premium, and the money you use to pay your share of the insurance is automatically deducted from your paycheck, so you won’t even miss it. These group plans often don’t require a medical exam, either, so for those who may not be in perfect health, you can still qualify for the same amount of coverage as your coworkers.
Even with those perks, solely using your employer’s coverage is likely not a good strategy. If your employer pays for part of your premium, for example, it may not be the lowest-cost option for you, especially if you’re young and healthy.
Additionally, in many cases, this coverage may not provide enough insurance for you and your family. It may not even provide coverage for your family and instead only provide for you, the employee. When evaluating life insurance, it can be hard to know exactly how much coverage you need, but industry guidelines often recommend 7-10 times your salary. The rub is that you’ll be hard pressed to find a policy through an employer that offers this large of a benefit.
Finally, if you choose to only have coverage through your employer, remember that your coverage is tied to your job. This means that if you leave your job, that policy will likely not be portable. Moving jobs could lead to the risk of having a gap in your life insurance coverage.
3 Mistakes to Avoid When Buying Life Insurance
While getting life insurance through your employer is a benefit, there are some clear gaps. That’s why you may decide it’s prudent to supplement your coverage with a personal policy—one that you can hang onto even after you retire.
If you decide to buy a personal life insurance policy, here are three mistakes you should avoid:
1. Waiting to Purchase Coverage
Procrastinating on the purchase of life insurance can be a big mistake for two reasons:
First, while we all have dreams of living a long life, the unfortunate reality is that death can come suddenly and unexpectedly. Would your loved ones have the financial stability they need to maintain their standard of living if something happened to you? If not, then you may want to consider purchasing life insurance.
Second, life insurance tends to become more expensive the older you get. As your health declines, or as the likelihood of your health declining increases, so will the cost of your premiums. And if you develop more severe health problems, it will be that much more challenging for you to even qualify for a policy.
2. Getting the Wrong Type of Coverage
When looking into your own life insurance policy, you have a couple options: term life or permanent. Your situation and what you want to accomplish with your policy will dictate which type of coverage is right for you and your family.
Term life policies offer coverage within a set timeframe (often 10–30 years), after which time the policy will expire. Since the likelihood of these paying out is much lower, the premiums are also much lower. On the other hand, permanent policies will stay with you for the rest of your life and can be used as an investment tool. But because of this, the premiums are generally much higher.
3. Purchasing Insurance Only for the Primary Breadwinner
Insuring the primary earner in a family is a good idea. How would you survive financially if that spouse passed away? But if one spouse stays at home to take care of the kids, don’t forget the value that he or she brings to the table.
According to a recent survey from Salary.com, before the COVID-19 pandemic, stay-at-home moms worked an estimated 96 hours per work and should be receiving an equivalent salary of about $178,000 for all their hard work. But after the pandemic, both those numbers jumped up in a big way, with estimates closer to a 106-hour work week and a deserved salary of around $185,000! This means that with all they do, insuring a stay-at-home parent is one of the best ways to preserve your family’s quality of life.
What’s the Verdict?
Whether or not you need a personal life insurance policy is ultimately up to you and your specific situation, but it’s important to understand the benefits that life insurance has to offer, as well as the aspects of a policy that you should look for. Taking the time to understand life insurance can help you make sure your policy is right for you. And if you need any help in determining which type of policy, if any, is right for you, don’t hesitate to reach out to one of the specialists at Wealth Enhancement Group.
CFP®, CRPC®,* MBA, Series 7, 24 & 63 Securities Registrations¹ With almost three decades of experience in the wealth management industry, Vince's depth of expertise helps give confidence and clarity to his clients. He joined Wealth Enhancement Group through the 2018 partnership with Cimino Wealth Advisors. Vince specializes in working with individuals interested in retirement and post-retirement distribution planning needs. He takes into account not only the accumulation of funds, but also...Read More