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by Christy Bieber
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Key points
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Making a financial plan is important to ensure you have a secure future. This is especially true if you have people depending on you.
When you make your plan, you need to think long-term and ensure you are comprehensive and consider all contingencies. Sometimes, it can be a challenge to do that, though.
That's why it's so important to listen to finance expert Dave Ramsey's advice on a key component of your long-term plan.
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This advice could help spare your family from financial disaster
According to Ramsey, there's one key thing everyone needs to include in their planning process to make sure their loved ones are taken care of no matter what.
"Life insurance is one of the most vital pieces of your family's long-term financial plan," Ramsey said. He also warned that while getting this kind of coverage is extremely important, it's something many people don't want to think about or talk about.
As Ramsey explained, life insurance is essential because it can spare surviving family members from devastating financial loss if the policyholder passes away while loved ones rely on his income or the services he provides. "Its purpose is simple: to replace your income for your family if you die," Ramsey said.
Life insurance needs to be purchased before the insured has a decline in health because otherwise it becomes prohibitively expensive to pay for policy premiums -- or coverage could be denied entirely for those with serious pre-existing conditions.
Once a policy is in place, a death benefit will be paid out if the policyholder dies during the term of coverage. It will help to ensure surviving family members can pay the bills and avoid a serious decline in their quality of life. Anyone with people depending on them needs coverage, according to Ramsey.
"You need life insurance. When you're gone, those you love will be grieving. This is unavoidable. Leaving them penniless, however, is avoidable. Make sure they'll be financially secure no matter what," he advised.
The good news is, buying life insurance doesn't have to be complicated or expensive so it should be easy to follow Ramsey's advice -- especially for those who take action while they're still young and healthy.
Ramsey recommends term life insurance coverage, which is in effect for a set period such as 20 years or 30 years. This is generally the best option in most cases because it is priced lower than whole-life insurance, which is the alternative to term policies. Whole life insurance offers coverage indefinitely, which most people don't need, and it is much more expensive both because it is permanent insurance and because it has an investment component.
Consumers should shop around with several different insurers to get the best price on a term life policy. And it's important to get a sufficient amount of coverage, which can be determined using the DIME formula. This means buying enough to pay off debt; replace income; cover mortgage payments, and pay for children's education.
Don't skip out on this vitally important component of family financial planning -- follow Ramsey's advice and look for a life insurance policy today.
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