Buying life insurance involves considering your own death because the purpose of life insurance is to provide for your dependents after you die. Perhaps that is why so many people only want to go through the process once.
Like so many things in life though, your life insurance needs change with your life stages. The insurance policy that was adequate when you rented an apartment, had one child and your spouse or partner was fully employed may not be appropriate now that you own a house, have three children and your spouse stays at home full time.
A financial checkup, which is a review of your financial situation, is recommended on an annual basis. Providing for your dependents with life insurance is an important component of a financial checkup. Two common life occurrences especially necessitate reviews of life insurance coverage, regardless of your financial checkup schedule: having children and buying houses.
Most People Buy Life Insurance to Provide for Their Children
If you have no children and a healthy spouse or partner who is gainfully employed (or easily employable), you are unlikely to have a sizeable life insurance policy. Children are usually the catalyst for buying a substantial life insurance policy — one that is large enough to cover the needs of the insured’s children until they are adults.
Once children are part of the equation, parents make decisions such as whether one parent will stay home, and if so, how that will affect the family’s finances. Parents may talk about whether they want to pay for private schools and/or college, and if so, how that will be done. Parents may also talk about how the family’s lifestyle will be maintained if one parent dies.
Every child in a family may have different needs, so life insurance coverage should be reviewed with the birth of each child. Perhaps one child has special medical or educational needs that you want to meet until he or she reaches adulthood or beyond. Perhaps one child requires extra care necessitating one parent staying at home full time. Perhaps one child has extraordinary academic or athletic skills and you want to provide funds for that child to develop his or her talent even if you die.
Acquiring a Mortgage May Impact Your Life Insurance Needs
Since an important consideration when purchasing life insurance is the quality of life your dependents will have, most people who purchase insurance consider whether their dependents will be able to continue living in the family home. Could the surviving parent pay the rent or mortgage? In many cases, the answer is that the mortgage could not be paid without the help of life insurance proceeds or other additional income.
If you have purchased a home since you last purchased life insurance and you want your family to stay in that home if you die, you should check to make sure the life insurance you have will cover the mortgage payments for a certain amount of time. That time might be long enough for a stay-at-home parent to join the workforce, long enough for a stay-at-home parent to continue raising the children full time until they are grown, or until the mortgage is paid off. The calculation will be different for every family.
Life insurance lawyer Chad G. Boonswang recommends a periodic review of your life insurance coverage, particularly as your family and financial responsibilities change. Contact him today for more information about life insurance coverage.