Do You Still Need Insurance?
There has been countless written on the idea that “you need to protect yourself and your family with life insurance that you won’t outlive”. This is often true and permanent life insurance such as whole life or universal life policies can play an important role in many financial plans. However, what about those people who outlive their need for life insurance?
Not everybody needs life insurance throughout their lives. The following circumstances MAY dictate that you no longer require life insurance:
1. When you and your spouse have accumulated enough assets to comfortably retire and your income stream exceeds your needs, the death of one spouse will not create a financial hardship for the surviving one.
2. When your children are self sufficient adults and no longer require support from you.
3. When your estate is too small to owe significant taxes or it is liquid enough to pay the estate taxes that will be due.
For those people that find themselves in the above categories, their need for life insurance may have expired. A proper insurance needs analysis should be run with a Certified Financial Planner® to determine if their insurance is something they can do without.
In its most basic form, the primary purpose of life insurance is to replace the future income of a family’s primary breadwinner. There are two main groups most likely to require significant insurance coverage.
The first is the parents of young children and ideally these parents will have at least $1,000,000 or more of coverage. Most new parents don’t have the finances or ability to pay the high premiums of permanent insurance for this amount so most or all of this coverage should be term insurance. Ideally, most of this coverage can then be cancelled once the children are grown up and self sufficient.
The second group is the middle aged couple saving for retirement. If one spouse or the other were to pass away before a significant nest-egg is established, the surviving spouse could be left with a mortgage and other liabilities and no way to both pay off the debt load and save enough to retire on. Once again, term insurance can be a low cost way to provide temporary coverage until the debt is paid off and the retirement funds are built up.
Life insurance is a vital component of financial planning and ensuring that your family is protected. Each type of insurance, whether its term, permanent or some hybrid of the two, has a place in financial planning and could be of benefit to you. Make sure you take the time to find out what type of coverage is right for you and ensure that you’re properly protected and utilizing all of the tax efficient strategies available. Just remember that part of that planning should include the decision of if and when it is no longer required at all.