Autumn is here, and in some parts of the country, apparently that already means snow…
Weather is a close second to “life” in terms of unpredictability.
So I think that means two things:
- You should always carry an umbrella.
- Your life insurance policy should be clear and up-to-date.
Today, we’re going to focus on that second item and how life insurance is CRUCIAL for the good of your family and loved ones.
Think you’re set in this area? That’s great. But there are still some items to keep in check. Because remember: just like a tax return that hasn’t been planned for (ahem), life is unpredictable and I want you prepared for what can happen.
Here’s what I mean…
Hale, EA, MBA, MST’s Rules of Thumb for Life Insurance
“The future has a way of arriving unannounced.” -George F. Will
I often get asked about what level of insurance my clients should carry, so I thought I’d put this to you to keep for reference, and hopefully act upon. Even if you have this thing down pat, feel free to send to someone else you know is in need of some help.
I’m happy to help think this through with clients, or really, anyone who needs some unbiased advice.
For Starters
If you have a spouse and/or kids, please secure life insurance AS SOON AS POSSIBLE. And even if you don’t, paying for basic life insurance coverage is a solid budget item to get you in the habit of paying necessary insurance.
Term Life Insurance is the safest bet for starters. This policy will be in force for a certain number of years and will pay out a certain amount if you die during that term.
Note: Some people encourage policies that are versions of a Whole Life policy (a.k.a. universal life, indexed universal life, variable life, etc.). These can be great and, in some cases, very compelling tools. But they are not mandatory for your basic coverage.
The Amount
Now, let’s break down what an average policy could look like.
In the breakdown, it’s important to consider two primary factors:
- The term (length in years you are going to pay and be covered)
- The face amount (the amount the policy will pay when you get hit by the proverbial bus)
Let’s first look at the amount…
- Start at $50,000
- Add enough (in round numbers, to the closest $10,000) to cover any consumer debt, student loans, and mortgage balances.
- Add $500,000 for each kid you have under ten years old
- Add $250,000 for each kid you have over ten years old.
The total amount is how much you should have in coverage. If you are married, this is the amount of coverage the spouse with the lower income should carry. The primary or larger income spouse should carry double this amount.
The Term
Next, you want to calculate a reasonable term for your policy.
- If you have any kids under ten, use a 20-year term.
- If you are under 40 years old, use a 20-year term.
- If you are between 40 and 55, use a 15-year term.
- If you are between 50 and 55, use a 10-year term.
- If you are over 55, you need to contact a professional, as the rates get way more complicated.
Need a recommendation on which San Diego professional to help you put together a policy? Reach out to me — I’d be happy to give you my input. (858) 549-9666
The Legal Documentation
To tack a bow on the life insurance conversation, I want to also address the importance of a will and/or trust.
I HIGHLY RECOMMEND reaching out to a local San Diego lawyer soon who can help you file this basic legal documentation.
We will dive a little deeper into wills and trusts in the near future, but I leave you today thinking about the importance of life insurance and how it will eventually impact your friends and family. In the same way, make sure they know the importance of a policy and how it can benefit.
Because in the unpredictability of this roller-coaster life, the least we can do is help one another buckle up.
Warmly,
Darryl A. Hale, EA, MBA, MST
Top Hat Tax & Financial Services