Do You Have Enough Life and Disability Insurance?
Many of my clients ask me if they have enough life insurance or how much they should have; not as many ask about disability insurance. However, when you need either, it’s a tremendous comfort to have enough that you or your survivors don’t have to worry or make big changes to your lifestyles.
When discerning how much life and disability insurance you need, reflect on what’s important to you. Do you like to be generous with others? Do you like to travel? What makes life meaningful for you?
Over the past several years, I have worked with several clients who have lost a spouse. I have seen the surviving spouse go through all sorts of different pressures, arising in the midst of their grief. Many of these pressures come from financial changes due to the spouse’s death. Questions arise as to when retirement can now occur given the loss of an income or if the family needs to access funds that had been saved for other goals such as education or recreation. Financial decisions and their impact on the family’s future become harder in grief, without the support of a spouse and often coupled with a decrease in income. When a family is grieving, it’s burdensome to develop new spending habits or give up activities that bring joy to life. It’s difficult to say “no” to a child when you used to be able to say “yes.” This new reality is hard on everyone.
How much life insurance is enough?
Take an inventory of the “extras” that bring joy and create meaning in your life. Perhaps you and your spouse enjoy being generous and giving money away. Do you want to have the means to keep doing that? Consider the person you are and how you want to carry on after your spouse is gone. Build this into the equation when you work with your financial professional to determine how much life insurance you and your spouse need. If your spouse does not work, it is still a good idea to have coverage for that spouse. In the event the one not working dies, the spouse who does work may step back and earn a decreased income for some time in order to take care of the family’s needs and to help everyone process their grief. Work with your financial professional to obtain the appropriate amount of coverage on both you and your spouse.
Write a letter, reminding your spouse of how you made financial choices together and leave this with your Will. Remembering what your husband or wife would have done in a decision, particularly if the deceased spouse had been leaned on to make the strategic and long-term financial determinations, can be exceedingly helpful for the one who is left and is now solely responsible for these concerns. This is an emotional time that may linger for years. Making emotional decisions with money is usually not good. Anything you can do to prepare in a way that brings discipline to the surviving spouse and helps him or her take the emotion out the decision making will help immensely.
I also find many of my clients remain unaware of the importance of protecting their biggest asset---their ability to earn an income with disability insurance. Death is inevitable, becoming disabled is not. So, it’s not something we think about a lot. Yet, people are much more likely to be too sick or injured to work for a period of time than they are to die during their working years.
Many of my clients have long term disability coverage through their employers. When I ask them about the details of this insurance, they often do not know. It’s a wonderful benefit, but it’s important to understand how much protection the benefit offers. Is it enough to allow you and your family to continue in your current lifestyle? Usually, it is not. Most people can’t live on 2/3 or 66% of their income.
Other expenses increase when there is a disability, along with stress. Disability insurance brings a family a sense of security in the midst of the struggle.
How do you know how much you need? Again, look at your current lifestyle and the things that are meaningful to you and your family. Do you want your children to go to private schools? Do you want to stay in your current home? Do your children participate in extra-curricular activities?
Individual disability insurance benefits are determined by your income and your job responsibilities. Your financial professional can help you determine the maximum benefit you qualify for based on your income, profession, and current employer-provided coverage.
When I work with my clients, I listen and ask questions to help them determine how much life and disability insurance they need, not only meet their day-to-day expenses, but also to continue to participate in activities and experiences that bring meaning to their lives.
About the author:
Christin Rose, CFP, Financial Planner
Christin joined Healy Financial in 2003. Her greatest joy in work is getting to know her clients and develop long lasting relationships. She appreciates being able to help them reflect on the larger picture of their finances and how it connects to their life goals. She enjoys teaching financial strategies so her clients can make well-informed choices that help them attain what they want from their financial life.
Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.
Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods.
