Life insurance is an important part of a well-rounded financial plan. While it can be an emotionally difficult topic to contemplate, life insurance provides a degree of protection for loved ones, in the event of a death.
Most adults who have dependents who rely on them should have life insurance coverage. The challenge is determining what amount of coverage is right for you. If you already have life insurance in place, is it sufficient to meet your family’s unique needs?
Here are five questions you can ask yourself to help assess the types and levels of life insurance you should have in place to protect your loved ones.
#1 – Who do I want to protect?
Life insurance’s primary purpose is to provide financial resources to those who are left behind. If you have a spouse, partner, children, or others who are dependent on the income you generate, your death may leave a significant financial gap, unless you have the right protections in place. Start by assessing the difference it would make, not just this year, but over the long term, if you were no longer around. If you are past your working years, you might consider whether life insurance can play a role in protecting your estate.
#2 – What expenses need to be covered by life insurance proceeds?
Start with non-discretionary expenses such as your home, debts that need to be repaid, living expenses like food costs, and childcare expenses. You may also want to consider non-discretionary expenses such as money for extracurricular activities and vacations. Beyond that, it’s important that a surviving spouse or partner can continue to save, to meet key goals like retirement or a child’s education. Determine annual expenses and then account for how many years you want to be certain that those expenses are covered. If you are at or near retirement, you may want to determine if insurance is needed to provide liquidity for the dissolution of your estate.
#3 – What type of life insurance makes sense for me?
There are different types of life insurance. The simplest and typically least expensive form is term insurance, which provides a death benefit for a set period of years. You can also consider “permanent” forms of life insurance that provide a death benefit and can have an investment component or cash value benefit. These policies will be costlier than term insurance, but may be more suitable, depending on your circumstances.
#4 – Are there riders I should add to my policy?
Life insurance riders allow you to tailor your policy to meet certain needs. These can range from premium coverage if you should become disabled, protection against accidental death and dismemberment, or even coverage to pay for expenses related to long-term care needs.
#5 – Is my current coverage adequate?
If you already have life insurance in place, it’s important to review coverage, periodically, to account for changes in your life. For starters, answer the questions listed above. A thorough review of all your protection needs can help ensure that you have the most appropriate protection solutions in place.
Discussing these questions, and others you have, with a financial advisor, can help you assess the most effective life insurance strategy for your circumstances.
Edward Pontarelli Jr, APMA®, CRPC® is a Financial Advisor and Managing Director with BeaconPoint Wealth Advisors a financial advisory practice of Ameriprise Financial Services, Inc. in Providence, RI. He specializes in fee based financial planning and asset management strategies and has been in practice for 23 years. Please contact him at https://www.ameripriseadvisors.com/team/beacon-point-wealth-advisors or (401)824-2532, 1 Citizens Plaza Ste 610 Providence, RI 02903.
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