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Life insurance is a matter that so many of us do not like discussing. In fact, we often delay the discussion because of what it means will happen. Nevertheless, we all need to discuss and purchase life insurance, especially a married couple - even more so with kids involved. My parents had enough life insurance to ensure that we could cover all of their final expenses and still have some left to divide among their six sons, and we greatly appreciate how they considered us in their financial plans.
Begin with an affordable plan
When we first began discussing life insurance with our financial adviser back in 1997, he put us on the best plan that we could afford at the time. We began with a joint whole life policy that doubled as a retirement fund. He suggested the combined plan because we did not have a child then, but we did have low income, lack of life insurance, and lack of private retirement plan. This way we could start each type of investment all together.
We could afford the premiums, but our adviser told us that we would need to upgrade as time passed. The death benefit equaled the original mortgage loan value but nothing more. He suggested that as we earned and saved more over time that we eventually convert to a plan that would pay enough so that if one of us should die, then the other would have enough money to cover final expenses, pay off the mortgage and other debts, and maintain his or her current lifestyle.
Our adviser recommended term insurance
As we grew financially throughout the 2000s, our advisor let us know the right time to switch to separate term policies. We converted our joint whole-life plan into a separate term plan for each of us. By this time, we had our son, private and employer-funded retirement plans, and growing personal savings accounts. We had also increased our mortgage balance because of foolish decisions, so the original plan would not cover the new balance. We could, though, now afford higher premiums for better coverage. Therefore, our advisor had us switch to term life insurance so the survivor would receive a far greater death benefit of ten times our current total income. The premiums cost a little more, but the benefit will make the survivor much better able to pay off the mortgage and have money left for other expenses and savings.
What we needed to consider
How much life insurance we needed to purchase depended on a number of factors. We agreed that if one of us passes early, the survivor's first responsibility is to use the insurance money to pay off the mortgage. Next, the survivor pays off any other outstanding debt in the form of loans or credit card balances. Third, the survivor adds to his or her retirement funds. Finally, the survivor immediately declares our son as the primary beneficiary on all remaining accounts, assuming that he has turned 18. We made other provisions should we both die before our son becomes an adult. We decided that each of us would purchase ten times his or her total income so that the survivor can perform all of these tasks easily.
Enough to leave to our son
Just as our parents have done with us, we want to make sure that we will leave our son with something to cover our final expenses when we both pass on. We also want to him to have money left for his own family and financial purposes. As he becomes an adult, we will discuss all of these financial plans with him and teach him to begin doing the same. We want him to avoid some of the financial mistakes that we have made so he can build a better foundation for himself and his family. It takes discipline, and we do not like talking about our deaths, but planning early will make the transitions much easier.
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