Part of every household financial plan should be financial protection against life’s greatest curve balls. This is why you hear financial planners talk about a six-month emergency fund in case of job loss or disability insurance in case of injury.
However, the greatest economic loss that a family can experience is often a result of the unexpected death of a primary income earner. When families do not plan appropriately for such an event, the financial impact on a surviving spouse and children can be totally devastating.
Life insurance must be an essential component of every family’s financial plan. When considering life insurance, I have a few simple rules that I encourage you to follow.
The Majority of You Only Need Term Insurance
Most of us only need life insurance coverage through certain critical stages of our lives, so whole or permanent life insurance is not necessary for the average person. Term life insurance is also significantly cheaper than whole life insurance.
Purchase Term Insurance When You Are Young and Healthy
Life insurance is cheapest when you are young and healthy. I encourage all young new parents to purchase a 30-year term life policy on themselves as soon as a first child is born.
Make Sure the Death Benefit on Your Life Insurance Policy is Adequate
When deciding how much death benefit and what term to purchase, consider these factors: 1) your gross income; 2) outstanding household liabilities such as a mortgage; 3) age of children at home; 4) education and earning capacity of a surviving spouse; 5) accumulated college savings for children; and 6) other assets like retirement savings, liquid investment accounts, and real estate equity.
If your dependents lose your income at your death, they should have enough resources to pay off debts and generate replacement income until they can become financially independent themselves.
Use an Independent Insurance Agent
It pays to have someone shop your policy in order to get the best rate possible.
Scott Johnson is the CEO of DecisionPoint Financial, LLC. He is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary. He and his firm provide comprehensive financial planning and investment management services to individuals and institutions. Scott can be reached at (480) 553-6249 or scott@dpplanners.com. Visit decisionpointfinancial.com.
DecisionPoint Financial, LLC is a Registered Investment Advisor. All investments involve risk. Risks associated with investing in securities include increased volatility and loss of principal. Past performance is no guarantee of future results. The information herein is educational in nature and does not represent investment advice. All rights reserved. DecisionPoint Financial, LLC © 2021.