You’ve got to know the basics.
No, it’s not one of the 3 R’s or on the standardized tests we’ve all taken at one time or another. Still, life insurance should be a cornerstone of your protection package and a subject you should understand.
Here are 6 key questions on the topic, have you got the answers?
How Much Do I Need?Of course the answer depends on your vision of what you want to see happen if you’re not here. Paying off debts, sending kids to college, providing income for your spouse and funding a special needs trust are all examples of why you might need life insurance. Sure, there are rules of thumb based on multiples of your income, but the easiest way to get a handle on the answer to this question is to use a life insurance calculator like the one on usaa.com or lifehappens.org.
What’s The Right Type of Insurance?There are two basic types: permanent life insurance or term insurance. Permanent coverage is meant to be owned for the rest of your life. It’s generally more expensive than term, but can be used to fund estate planning, special needs trusts or other long-term goals. Permanent policies, like whole life or universal life provide a death benefit but also have a cash value or investment account. The majority of reasons for life insurance will change or go away over time. Debts will be paid off, kids will grow up and the retirement nest egg will mature. These temporary (yes, in this context even 30 years is temporary) requirements are covered most efficiently with term insurance. With term insurance things are pretty simple. You pay a premium and have coverage if you die, period.
How Much Does It Cost?You may be pleasantly surprised by how much term life insurance $20 or $30 per month will buy. The $400,000 offered through the Servicemembers Group Life Insurance program for less than $30 per month is a good deal, but it’s not unique. Outside of SGLI or other employer offerings, age and health play a huge role in cost and availability, but if you need more coverage you may be able to get it for a similarly low price.
What Happens If I Leave The Military Or My Civilian Job?Take advantage of coverage offered through your employer, but understand your options when you leave. In most cases, it makes sense to have a portion of your coverage that’s not tied to your workplace.
Do We Both Have Adequate Coverage?No matter who makes what, money is a team game and both spouses bring financial value to the family. Don’t overlook the financial changes that would be necessary if something happens to the spouse that doesn’t work outside the home. From childcare to the need to change careers the loss will have financial ramifications. Life insurance coverage shouldn’t be limited to the bread-winner.
Do My Kids Need Coverage?While you can buy a policy for a child to preserve their insurability, in most cases the coverage you need for your kids can be gotten through riders on personal policies or through employee coverage. The $10,000 of free coverage provided through FSGLI is a great example.
Well, they weren’t true-false questions and your responses may change as your life does, but knowing and acting on the answers to these questions will go a long way towards ensuring you’re building your financial future on solid ground.