Sidetracked.
It happens to all of us. That's true, whether you are on a quest to accomplish tasks at work or home. I'd venture to say that we have all reached the end of a day and wondered, "What happened? I got nothing on my list accomplished."
Unfortunately, this phenomenon can negatively impact your family's finances, as well as your productivity at work or on the home front.
Life insurance is a great example. Discussions and plans related to this touchy subject are easily sidetracked because of its perceived complexity or a general discomfort surrounding the topic. With that in mind, 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. 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, it's likely there would 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. The VA has one. There is an easy-to-use calculator at lifehappens.org. 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. First, for those in uniform, you likely have $400,000 of Servicemembers' Group Life Insurance (SGLI), the military's group term life insurance. Spouses may have Family SGLI coverage of up to $100,000. Employers outside the military typically provide group coverage as well. In or out of the military, you can see how a job change could impact your life insurance coverage. 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? In general, there are two broad types of coverage, term or 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 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-year period) 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, new house, divorce or a job change are all examples of common 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.
Get the Coverage Your Family Needs
FSGLI, TSGLI, VGLI, SGLI ... the long list of acronyms and bare minimums may not be enough to cover your family's needs. Explore life insurance options with our free tool, which compares rates and matches you to the coverage you want.
