What If You Die Young? Protect Your Family in Three Easy Steps. Life Insurance Is Just One.
Posted by Rick Miller on February 11, 2020
Americans face a very small chance of dying between the ages of 30 and 50, less than half a percent per year for both women and men. Those chances increase as we age – almost 3% of 30-year-old women and 5% of men won’t make it to their 50th birthdays. Among 50-year-olds, 8% of women and 13% of men won’t live to 65.
Perhaps you’ve lost a friend or relative early in their lives or contributed to a GoFundMe campaign for a family in this situation. You’ve probably heard about a bad automobile crash with fatalities. You shudder, right? It’s scary. Then you think, “Oh, that could never happen to me.” It’s human nature. Nobody likes to dwell on unpleasant possibilities.
Stay with me a minute, though. Suppose you did die before anyone expected. How would your family manage without your income, your guidance and your emotional support?
Dealing with a tragic loss is always going to be hard. But you can do three things now that will help your family cope with the terrible impact of losing you.
Get Enough Life Insurance
The loss of a parent could be financially and emotionally devastating. Whether both parents worked, one stayed home, or there was only one parent, the family will experience grief and a potential financial crisis. It’s easy to measure the reduction in earnings when a breadwinner dies. Add up the after-tax earnings from now through retirement (life insurance benefits are tax-free). For the parent working in the home, the financial impact is harder to quantify. You can project childcare costs from now until the children no longer need it, but it is also likely that the other parent’s earnings would decrease because they would have expanded duties at home.
Each parent needs enough life insurance to keep the family financially whole in case the unimaginable happens. For almost everyone, term life insurance – which guarantees a death benefit for a specific time period or “term” – is an excellent choice. Whole life insurance bundles insurance and savings. It’s more complicated and expensive than term and most people fare better using retirement savings plans and bank savings accounts.
Online calculators can help you figure out how much coverage you need, and many insurance companies offer quotes online, too. Life insurance is a competitive market. It’s wise to get quotes from several companies and pick the one that offers you the best combination of price and quality. You can find independent insurance company ratings at AM Best or ask an independent insurance broker to help you.
Make an Estate Plan
Creating an estate plan enables you to control who inherits your assets and takes care of your children if you die. If you don’t make a written estate plan, the courts will distribute your assets and assign guardianship for your children based on your state laws. Guess what? The courts may not make the same decisions you would.
An estate plan consists of a will and/or trusts, and very importantly, the beneficiary designations on your retirement accounts and life insurance. You can hire a lawyer to help develop your estate plan, or use online resources such as legalzoom or Nolo. Each state has different estate requirements, so be sure to follow local laws when drafting any legal documents. If your situation is simple, the online approach may work for you and legalzoom offers access to attorney reviews of the documents you create).
Estate planning isn’t fun – it requires thinking about your own death – but it provides essential protection for your family. It’s first class adulting.
Organize and Communicate
If something happens to you, will your surviving family know what to do?
Don’t keep your plans a secret. Talk with the people you’ve chosen to help your family if tragedy strikes. Tell them where your important documents are (especially your estate plan). Make your wishes clear. This is an especially important conversation to have with your children’s guardian.
Make sure your financial accounts are easy to locate. Make a list of your accounts and financial institutions. Keep the list with your important documents. The list can be electronic, but a will must still be on paper in most states. Make sure the people who will need access to your accounts have the list and your passwords.
Life insurance helps your family replace your income and care for your children if you die. Your estate plan makes sure that your assets will support your family as you wish, and that your preferred guardian will take responsibility for your children. Organizing your assets and your estate plan and telling your designees about both will make a seemingly impossible situation much easier for your family to navigate.
This article originally appeared in Forbes.com.