As you move through your life, changes to the dynamics of your family and business life may have a direct impact on the type and amount of life insurance you need.
The term “family” has a much different meaning today than it had for previous generations. Many people from older generations grew up knowing the traditional family unit, the one where Dad was the breadwinner and Mom stayed home to raise the children. Today, shifting demographics have helped to reshape the concept of a family. Families come in many shapes and sizes, so there is no longer a single definition of what makes up one. Today you are more likely to know families that include dual-income earners, same-sex couples and blended or extended families living under one roof.
There is one thing that hasn’t changed, though: life insurance. One of the main reasons for life insurance is to provide protection for the family upon one’s death. Traditionally, the death benefit would be there to help replace the income lost, but with changing family dynamics, serving a family’s needs isn’t always so clear. While replacement of income is important for a family, it is also important to address the role of the surviving spouse. Will he or she need to go back to work? Are there children? If so, how will they be taken care of in the short and long term? All of a family’s wants and needs can be answered with a few simple questions:
- Do you have a will? Is it up to date?
- Is there a trust that specifies how property is to be distributed upon death?
- Do you have enough insurance to take care of your family after you are gone?
Family dynamics can complicate your financial planning process. Understanding these dynamics and asking the right questions is necessary when advising a family on how life insurance can be used to manage the issues they may face, all while providing much-needed protection. To ensure you get the protection you need, it is imperative that you develop a comprehensive plan to guarantee that your wishes are fulfilled. When developing that plan, it is extremely important that you choose the right person to be the executor. This should be someone you trust and who you are confident will carry out your final wishes to the letter.
Ideally, you would only need to purchase life insurance once or twice in your lifetime. But this does not mean you should just put your plan in a drawer and forget about it. You should review your policy at least once a year. The dynamics in your life change periodically, so it makes sense that your life insurance should be adjusted as your needs change. Some of the common life situations that should make you take a look at your insurance are:
- Financial changes: Any change here, for better or worse, should result in a review of your coverage. Purchasing a home, caring for a family member and changes in employment or salary should trigger you to take another look at what you have.
- Family changes: Since it is likely that a family member will be the beneficiary of your policies, any change to the dynamic of your family should facilitate a change in your life insurance.
- Health changes: Your life insurance coverage is based on your health, and any significant changes will necessitate an adjustment to your policy, particularly in the case of severe illness or disability.
Life insurance is an important component in financial planning. Besides providing a death benefit for your beneficiaries and future generations, many of the options available today can address other needs like chronic illness or disability. As your life changes overtime, to possibly include marriage, having children, purchasing a home, retirement and all things in between, it is important for you to keep your family protected. You are purchasing life insurance to provide such protection, but to make sure it is adequate, you should review your coverage at every major life event, especially if the event changes the number of people depending on you or your financial security.
Source: David Kleinhandler Forbes Councils Member