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Life Insurance

Kids activities……Juggling a career and a virtual learning environment…. These last couple of years has given us a world with lots of uncertainty and has shown us that life as we know it can change in an instant. Our kids now have the opportunity to learn in a different way, many of our jobs can be done from anywhere in the world, and shopping has become predominantly from the comfort of our own home. This upheaval has shifted our focus from going through our daily routines to spending time figuring out how we can assist our kids with an online learning environment while managing our careers. Even with these changes, families have remained optimistic and continue to think of the future and their children’s education as well as their own retirement.

As children get older and enter high school, the magic world of college planning begins, and parents begin to worry about having enough savings for their children’s education. At the same time, parents begin to think about life after their children leave and that magic term of being an “empty nester” emerges. “Oh, I can’t wait for all the free time, and now we will get to do what we want when we want” becomes the dream and reality.  However, there is an area that does not garner a ton of attention, and that is the area of life insurance.  

Many parents, myself included, understood the value of life insurance while we had our kids at home, but now that they are leaving the nest or have left the nest, there are questions that might arise.   Is it still needed?  How much should I have?  What is it used for? Now that my kids are “on their own” the importance of having life insurance may be deemed less important; however, that might not be the right thinking.

Life insurance at any age is something that should not just fall by the wayside. Whether it is for income replacement, paying off debt, or leaving an inheritance to your children or grandchildren, life insurance should be considered as you plan for today and tomorrow.

Types of Insurance

There are two main types of life insurance: term and permanent.

  • Term insurance is a type that covers a specific term of your life.  This is like renting a policy. You purchase a term policy for a specific period, and when that period is over your policy expires.
  • Permanent insurance does not expire and could build a cash value over time.

Which type is right for me? The answer to that is, it depends. Term insurance is going to be a cheaper policy and is targeted more towards younger people. Over the last few years several types of term policies have become available, which have made term insurance more attractive to individuals in their 40’s and 50’s.

Permanent is designed to live as long as you do. There are different types of permanent life insurance policies, and they provide not only protection for your lifetime but also the ability to build cash value. There are variations on how the cash value is built.  Which type of permanent policy is best for you should be discussed with your financial professional.

Do I Need Life Insurance?

As previously mentioned, many people understand the need to have life insurance while they are establishing and growing their family and lives.  However, once you become an empty nester you may question the need to continue having a life insurance policy.

We all try to follow the adage that we should not pay for something we do not need. As parents continue to age, whether they need to have life insurance is dependent on their situation. If your household has little to no debt, your kids are out of college, and you have a nest egg for retirement and unexpected purchases, then having a life insurance policy may not be necessary.

When speaking to clients who are now empty nesters and are beginning to plan for the next phase of their life, I utilize the below guidelines

  • Reliance on Income – Does anyone rely on your income? If a household does not have other assets to rely on for financial support, life insurance may be needed to replace that income so that the surviving spouse or partner is able to live comfortably.
  • Estate Planning – A life insurance policy can be used to pay for estate taxes. You would also have the opportunity to provide for your heirs in a manner directed by you.
  • Charitable Cause – With a life insurance policy, you can use the proceeds to support a cause that is of interest to you. This would also offer the opportunity to reduce taxes.
  • Retirement – Along with other retirement savings plans, a permanent life insurance plan offers the opportunity to build cash value with some tax advantages.

How Much Should I Have

There is not a magic number when it comes to the amount of life insurance you should have. When determining how much insurance you should have, you should consider the below items:

  • One-time Costs – These could include final expenses, education and/or wedding costs, estate taxes
  • Living Expenses – Determine what would be needed for your surviving spouse/partner
  • Years of Need – Number of years your beneficiaries would need these living expenses

Below is an example of how the above items can be used to determine an amount.

Final Expenses                                                $  10,000.00

Education                                                        $  50,000.00

Long-term Debt                                              $200,000.00

Living expenses for 5 years                           $290,000.00

Total Life Insurance Need                              $550,000.00

The amount of insurance you purchase should meet the needs of your situation and should have a premium payment that works for your budget and makes sense for your needs.

As you can see, just because you are or have transitioned to an “empty nester,” it does not mean that your need for life insurance goes away.  If you currently have a policy, it would be a good practice to review that policy every few years to keep up with changes in your needs and to see if there are new options on the market that might benefit you.

If you would like a review of your current policy or are interested in discussing your needs for life insurance, feel free to contact me at (612) 416-5997 or mike.rebischke@lpl.com.   

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