Five steps to getting the right coverage

Tanya Gail Taylor, CPA
Published 4.7.2020

The role of women over the past few decades has changed significantly. Today’s reality is that many women are entrepreneurs, executives in their respective fields, and are the primary breadwinner of the family. We are also seeing many women heading up households as a single parent. There is no question that with these increased responsibilities comes the need to ensure adequate life insurance coverage for your loved ones.

Life insurance is an immediate way to provide peace of mind to your family in the event of an unexpected death. According to LIMRA’s 2019 Insurance Barometer Study, about fifty-seven percent of all people in the United States were protected by some type of life insurance, with term life being the most popular product purchased.

Purchasing life insurance should be considered in conjunction with your overall financial planning needs. It is important, however, to have some level of coverage.

Here are the five steps to help you get the right coverage

  1. Assess your current coverage.
  2. Determine your total expected needs.
  3. Define you Coverage Period.
  4. What is your Total Expected Income?
  5. Determine the Type and Amount of Policy.

Assessing your Current Coverage

Review all existing policies, including employer-provided coverage. Do you already have coverage? Do not rely solely on insurance from your employer, since you can lose it if you depart your place of employment.

Determining your Total Expected Needs

At a minimum, you need to ensure that the coverage plus any additional source of income will cover your current contribution to your family’s finances. Each situation will vary depending on your family circumstance, but you must determine if you want your family to continue to live the lifestyle they are currently living or better.

Related article: How Does Low Credit Score Affect Your Finance?

Take an inventory of all expenses you are currently paying and expense the family may incur if you are no longer around. The immediate cost would include childcare and extracurricular activities, medical fees paid by your employer, and paying off your mortgage(s). Longer-term expenses include college tuition, and whether you have a favourite charity you want to donate to.

Other overlooked considerations include whether you have outstanding debt, including any liability that someone has co-signed on. Do you have elderly parents or any other dependent that you would need to consider?

If you are married, also perform the same exercise for your spouse, even if your spouse is not in the workforce. This is important because you would need to consider how your life would change if that spouse is no longer around. For example, would you need to stay at home for a while? Don’t forget to include final burial expenses.

Define you Coverage Period

It will be totally up to you to decide over what period of time you would want to extend that benefit.   Is it when your youngest child turns 18, or 25, or when your spouse retires or some other time frame.

What is your Total Expected Income

Take an inventory of current assets and any other potential source of income or benefits. How much is your current pension plan? Do you already have a college savings account or trust for your children? What about other assets, such as investment portfolios or real estate or savings, including an emergency fund.

How much social security survivor benefits will your children receive? How much insurance coverage do you have from your employer? Always keep in mind that employer-sponsored life insurance policies are temporary, and can quickly disappear if you lose your job.

Determine the Type & Amount of Policy

As discussed above, the most popular insurance policies purchased in the United States in 2019 are term life policies. There are, however, many different types of insurance policies. Using your wealth roadmap, you would need to determine what policy or combination of policies would best suit your needs. Is it term, or whole life, or a combination of both.

There are many types of Insurance policies, to fit each individual needs. There is no one right answer.

What’s Next?

Shop around for a reputable company with excellent customer service, and one that you feel most comfortable with.   Rating agencies such as Moody’s, Fitch, and A.M. Best are excellent resources for published ratings.

One of the most important consideration in all your decision making, is ensuring that you can afford the premiums. You do not want to purchase a policy that is outside your reach and then have it lapse.

Make an effort to understand your policy and the consequences of not paying.  Similar to your will and estate plans, buying life insurance requires you to review your policies as your life situation changes.

About Tanya

Tanya Taylor, CPA, MBA is the founder and CEO of Grow Your Wealth.  Her mission is to help professionals and business owners ditch bad debt and create a 6 or 7-figure retirement income by learning how money works in 6 steps so that they can build a legacy without feeling stuck.

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