As of a 2021 only 52% of Americans have life insurance, according to LIMRA, and of those covered half are underinsured, meaning about three fourths of Americans will likely struggle to make ends meet in the wake of losing a loved one. With these numbers in mind, and since September is Life Insurance Awareness Month, I felt it an important topic to discuss. There are myriad reasons why so many people don’t have coverage. Some people might have other financial priorities, or they might not know how to go about finding the right coverage. Sometimes people are relying on a life insurance policy provided through their work and feel that is enough, neglecting the fact they will lose their insurance if they leave that company. Other people think life insurance costs more than it really does, or may have other misconceptions that prevent them from taking action. I’d like to shed a little light on this important aspect of financial planning and provide some insight so you can make the decision that is best for your family.
So, who needs life insurance? The short answer- everyone. Even the most wealthy need life insurance coverage. Whether you’re rich or poor, the government still needs to be paid, funeral expenses need to be covered, and life’s other demands will persist; if you don’t have life insurance your family may have to sell off possessions and other assets to cover final costs and maybe estate taxes. An old friend, who was a mortician by profession, told me once the thing he hated most about his job was putting a family in debt to bury a child. Having life insurance, and appropriate coverage, provides your family with options, giving them peace of mind and freedom from debt.
Life insurance is a bit of a misnomer because it’s not really about insuring your life, as much as actually insuring that your loved ones are taken care of after an unexpected death. Let’s face it, we’re all going to pass away sometime, and no one knows exactly when. It’s better to have the peace of mind knowing if death comes unexpectedly, stress over money won’t have to add to an already difficult time.
You spend your life working hard to provide for your family, you don’t want all your effort to be undone when you die. I’ve known people of all ages and in all different family circumstances, mature people, married with or without children (young or adults), young newly married with no kids or older people who are single that passed away unexpectedly. Every life has value to those left behind.
Once you decide to purchase life insurance you’ll need to figure out how much coverage your family will need. A general rule is to estimate ten to twenty times your annual earnings. To gain a better idea, it’s best to remember the why. Why will your family need this money, what financial obligations will they need to cover to maintain their security? This number may change over time, just as your life circumstances change. When you’re first starting out, you’ll want to make sure your mortgage, utilities, groceries, as well as other day to day expenses are paid for, maybe even the extra cost of your children’s education. Later in life, your focus might be on ensuring your spouse has a secure retirement. The goal is to have adequate coverage to pay all the known expenses and enough to cover the unexpected ones as well. This will provide stability and peace of mind. My father passed away when I was completing my second year of college. His life insurance policy helped my mother navigate the final expenses, and continue on. It provided some peace of mind that things would be o.k. And she did, she lived another 28 years.
There are many things in life to worry about, don’t let what will happen to your family after you pass be one of them.