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J.J. Montanaro,
Here's an easy-to-implement, four-step process for your family to tackle life insurance.
1. Determine the right amount of coverage
Begin with the end in mind. Literally. They were figuring out what you will need, given your unique situation, if something happened to you or your significant other is a key step in making family decisions about life insurance. Yes, there would likely be major financial implications for your family if either of you passed away. Things like paying off debts, covering final expenses, raising kids and then sending them off to college, replacing lost income, and giving you or your spouse time to get back on your feet if something happened to the other can come with a significant price tag.
There are online calculators to help you figure out what you need. There is an easy-to-use calculator at lifehappens. And, of course, an insurance agent could help you find the answer.
2. Analyze what you have.
Once you know what you need, it's time to stack that up against what you have. That's one reason why it can make sense to diversify the sources of your life insurance coverage.
And that's where things can get more complicated. You must choose the type of coverage. What's the right type of insurance? Generally, there are two broad types of coverage, term and permanent.
Temporary needs -- those that go away, like mortgages and raising kids -- are nicely covered by term insurance. For example, if you have a couple of kids, ages 3 and 5, you could buy a 20-year level term policy (this type of policy has a level premium and death benefit throughout the 20 years) that would provide coverage until your kids are out on their own -- knock on wood.
On the other hand, for a policy that you intend to have "forever," a permanent policy might make sense. For example, there may be a sum of money you want your spouse or family to have when you're gone or life insurance that is part of complex estate plans or a special needs situation.
Now that you've determined what you need and closely examined what you have, it's time to …
3. Fill the gaps
If you've crunched the numbers and there are no gaps -- in either amount or source -- your work is complete for now. On the other hand, if you need additional coverage, it's time to shop.
A few things to keep top of mind as you do so: First, big coverage needs don't necessarily mean big premium payments. Life insurance can be surprisingly inexpensive. Second, as I noted earlier, align the type of coverage you shop for with the reason for the coverage. Finally, it's getting easier and more convenient to buy life insurance. Digital applications, automated underwriting, and technology and data are making it easier and quicker to acquire life insurance. Don't let fear of the process get you sidetracked.
4. Rinse, wash and repeat
The ability to set and forget a strategy or process is nice. Unfortunately, life insurance isn't suited for that type of approach. A new baby, a new house, a divorce, or a job change are all examples of everyday life events that could change your life insurance situation. Keep that in mind and, when those types of things happen, make sure to revisit your life insurance coverage with these easy steps.
