GREENSBORO, NC -- How much are you worth? That's a tricky question. But Certified Financial Planner Matt Logan says it is one you need to answer if you have a mortgage or family members that count on your income.
Matt says $250,000 sounds like a big round number. But if you make $50,000 a year, that $250,000 won't take your family too far. He recommends 10 times your salary if you're the breadwinner.
For stay-at-home parents, Matt suggests you calculate the coverage by looking at the age of your children and figuring out how much childcare will cost for the years ahead. If your kids are already in middle or high school, you don't need as much coverage. Also, don't discount the other services most stay-at-home parents provide whether that be home maintenance, cleaning, etc. Those services have a value that need to be calculated in.
Do You Currently Have Life Insurance Coverage?
So you are sitting there wanting to turn off the TV to avoid thinking about your life insurance and your lingering questions in the back of your head? If you don’t have coverage, you will be happy to know that you are not alone. According to this recent survey, 42% of Americans do not have coverage. Don’t be too hard on yourself about it but I would recommend looking into coverage if you have none as it may be a financial need that you are missing.
How Much Coverage Do I Need?
This is a tricky question. The truth is that in my opinion some people do not need coverage. Some people I meet with I believe are over insured, but for the most part people I meet with tend to be under insured. It is hard to come up with an amount of money to replace a person and many times the amount of insurance coverage people have is a nice big round number that sounds like a lot of money. One way I like to look at things is to look at your financial needs of your household and then review them in the case that your income ceased completely. Side note: stay at home moms, while not adding to the income monthly, definitely have a financial contribution and need for coverage. While I love my children dearly and think they are fantastic, the truth is they are a lot of work as well.
If something were to happen to my wife who now handles the bulk of their needs during the work week, there would be a financial burden to go along with the emotional devastation. That financial burden would be having to be able to afford some sort of childcare so that I could still work. For those of you who work outside the home, I generally like to start with life insurance coverage that is at least 10 times your annual pay. This would allow for income for your loved ones for some time and not create an overwhelming financial burden for most families. Unfortunately, based on this chart showing the amount of coverage people reported having shows that many people just have a round number. A full 47% have less than $100,000 in coverage. While $100,000 is a lot of money, it likely would do very little to replace your
Do I Need Coverage When I Get Older?
As we get older, life insurance becomes more and more expensive. As you age, your likelihood of passing away grows. Some people think that as soon as they are no longer working, they do not need life coverage. This may be true for you or may not. It really depends on your situation as to whether that life insurance coverage is important in retirement. Do you receive a set pension that does not pass on to your spouse in full upon your death? You may very well still need life insurance coverage in that case.
Do you have children who you would like to leave an amount of money to? Life insurance can be a great way to do that. Are there charities that you feel very strongly about? You could make them the beneficiary of your coverage. Unfortunately, the information below shows that many US Seniors do not keep their coverage and let it lapse. While each of their financial situations are different, I do find it shocking that a full 4 out of 10 US Seniors either let their coverage lapse or surrender coverage. Be sure to check on your coverage before you get to the point where you have to make this decision so you don’t have to drop coverage due to a surprise jump in costs.
What Should You Do?
I recommend that people review their life insurance coverage every other year. Be sure that your coverage meets your needs and any changes in income, debt or family structure are reflected in your policies. You should also understand how your policy works, how long it lasts or is projected to last and whether or not the costs will increase in the future. Be sure to also check your beneficiaries of your coverage. If you have been through a divorce or had other changes in your family situation, you may very well need to update your beneficiaries and not even think of that. While life insurance sales have a terrible name many times, there are some great financial professionals in our area who can help you if you so reach out to someone for assistance if you are unsure.
Matt Logan Inc is an independent firm with Securities offered through Summit Brokerage Services, Inc., Member FINRA, SIPC. Advisory services offered through Summit Financial Group Inc., a Registered Investment Advisor. Summit Brokerage Services, Inc., its affiliates and Matt Logan Inc. do not give tax or legal advice. You should consult an experienced professional regarding the tax consequences of a specific transaction. These are the views of Matt Logan Inc, and not necessarily those of Summit Brokerage Services, Inc. and any of its affiliates and should not be construed as investment advice.