There are more than 2 million marriages and close to 4 million babies born every year in the United States (CDC). What do these statistics mean? With the inception of marriage or the birth of a child, a new family is created; therefore, millions of families are created every year in the United States. However, these families aren’t always informed of certain safeguards they may want to take?
Some families don’t analyze their finances before and after these life-altering events and that is a mistake. Not only is budgeting important; but so is saving for the future, building a net worth, and protecting your assets with insurance.
Most people think of insurance when they think about their cars, their homes, or a boat. However, there’s a type of insurance that isn’t very popular but many people may need it: life insurance. To reiterate, new families need to keep in mind their budgeting, savings, building their net worth, and protecting their assets with life insurance. So what assets are new families protecting when they purchase life insurance? One of their most important assets: their family.
If you are a newlywed or just had a child, how do you think life would go on for your family if you weren’t there anymore? Would your spouse be able to make it without your income? If your spouse also has children to care for, again, would he/ she be able to make it without your income? Or would they have to lower their standard of living? These are critical questions you need to ask yourself. If you answer no to the first two questions, then you should consider protecting your most valuable asset, your family.
Every year, there are close to 2.5 million deaths in the United States (CDC). Of these 2.5 million, roughly 2.5% of them are deaths of individuals in the 25-44 year old range (CIA). The point is not that 2.5% is a small number. The point is: what if you’re part of that 2.5% this year?
Now that I’ve got your attention, let’s talk numbers. If something were to happen to you, you need to feel 100% sure that your family will be OK without you. So how do you get that safe feeling? Take a look at your current net worth. What do you own? What do you owe? Most young people owe much more than they own. With student loans, a car loan, and a home mortgage, among other debts, young people tend to owe a lot of money without much in savings. In addition, with some of these loans held in joint name with their spouse, these loan payments can be devastating if left behind for their family. This is why you need life insurance.
Let’s take a look at a hypothetical example. Brian just got married to Christine a year ago. They both have $30,000 of student loans, $10,000 left on a joint car loan, and $150,000 on a mortgage they just took out a few months ago. Let’s also assume that Brian anticipates that if he were to pass, he would need about $10,000 for funeral expenses and that he would also want to leave his wife, Christine, roughly two years’ salary for an added cushion should he pass. Brian makes $50,000 a year. His employer offers certain benefits, one of which is $50,000 of group life insurance at no cost to him. Finally, let’s also assume that Brian and Christine were lucky enough to have been able to save $25,000 in a joint account.
Using all these numbers, it would be safe to say that Brian may want to purchase around $225,000 of life insurance. Brian would consider paying off the mortgage ($150,000), the car loan ($10,000), Christine’s student loans ($30,000), his expected funeral expenses ($10,000), and providing Christine with two years’ salary upon his death ($100,000). He luckily has $50,000 of life insurance through his employer and they have joint assets of $25,000. So overall, he has $300,000 he would like to leave to Christine on his death but he only has $75,000 that would find its way to Christine should he die. With $225,000 of life insurance, Brian may feel safe that Christine should be OK should something happen to him. Assuming Christine has the same circumstances, she would also want to invest in a $225,000 life insurance policy in order to leave Brian the same amount should something happen to her. With these two life insurance policies in force, they should both feel safe that should anything happen, their family will be OK.
Without these insurance policies in place, should something happen to either Brian or Christine, the other would be left emotionally distressed, with a funeral to plan, and joint debt to pay off with only one income. Although everyone’s situation is different, there are many families in the United States with a similar situation as “Brian” and “Christine.” If this is the case, you should really consider purchasing life insurance.
A final and maybe the most important point: life insurance proceeds are income tax-free to the chosen beneficiary. What’s a better way to protect your family than using life insurance?The preceding example is purely hypothetical and for illustrative purposes only. Please consult your insurance professional before making any decisions.
Financial Executive, Member FPA
Kaufman Financial Services
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