Life insurance is that great safety net that will help take care of the ones you love after you pass away. How much life insurance you need to have will depend in large part on who is dependent on your income and what type of legacy you want to leave after you pass away. Though death is hardly a pleasant thing to consider, it is important that you revise your life insurance plan as you pass through major milestones in your life.
Just starting out
Young, single adults may believe that they have little need for life insurance since no one is counting on their income. This may be so, but you may also consider what type of legacy you want to leave. Term life insurance can be very inexpensive for young, healthy adults and can allow you to leave your family with more financial security if the worst should happen.
Married with no children
You may think you don’t need insurance if both spouses work. However, if it takes both salaries just to make ends meet, you may want to purchase insurance to replace your income. Your life insurance payout could help your spouse keep up on the mortgage and car payments. Also, if you live in a community property state like California or Texas, your spouse may be on the hook for your outstanding student loan debts if you die.
Two incomes with children
This is typically the time when your insurance needs are the greatest, since several family members are depending on your income. The death of either spouse can create a financial hardship for the family. Even if only one spouse works, the death of the nonworking spouse can require additional funds to take care of the children and home.
Children are expensive, especially if you want your insurance policy to help cover future college costs. You’ll also want to consider increasing your policy with each new bundle of joy that the stork drops on your doorstep.
Middle age with children
You should reassess your insurance again as your children approach college age, since you may need to increase coverage to fund their education.
Children out of college
Once all of your children are out of college, you are off the hook for one of the biggest potential expenses of your life! Your need for life insurance may decrease as your children become independent. On the other hand, you may find you now have different needs for insurance. If you and your spouse have come to appreciate living in a certain lifestyle, then you may want to make sure your payout can continue to support that lifestyle for your spouse after you are gone. You may even have a large enough estate that you want to provide funds to help pay estate taxes.
Since your life insurance needs can change drastically over the years, you should periodically assess that coverage with your insurance advisor and/or financial advisor and focus on getting your financial life in order this year.
Insurance is just one component of a sound financial plan. Check out our full archives on investing and saving just for women.