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Life & Living Benefits

The main point of life insurance is to replace your income if you die so your family doesn’t financially suffer. Your family’s standard of living is provided by your paycheck. If that paycheck were to suddenly disappear, what happens to your family? The rule of thumb is for providers to buy enough life insurance to cover ten times their income. But life insurance is not one-size-fits-all. Ten times your income may not be enough or it may simply be unaffordable for families on a budget. Multiplying your income by ten is a good starting point, however, and you can adjust as necessary from there. For stay-at-home parents that don’t provide a paycheck, think of all the services you provide for your family. How much would it cost to replace these? Your spouse would either need to find time to do it all or hire help like a nanny and a housekeeper. The annual cost to replace a stay-at-home parent’s contribution to a family averages $145,000 across the United States. This shows that parents who work inside the home need life insurance just as much as parents who work outside the home.

Do you have debt that may fall onto your family’s shoulders if you died before it was paid off? Your mortgage is the most important type of debt to consider when buying life insurance. If you died tomorrow, you’d want your family to be able to afford to stay in their home. Selling a home under duress on top of the emotional turmoil of losing a spouse and parent would be devastating.

Do you have student loans that a loved one would become responsible for? If you live in a community-property state, your spouse may become responsible for the balance. If your loans were co-signed, the co-signer would become responsible. Student loan debt can be substantial. Consider this amount when buying life insurance.

Other types of debt to consider when buying life insurance include: car loans, credit card balances, personal loans, and home equity loans.

If you plan on helping your kids out with college tuition, consider this cost when buying life insurance. You can use the estimates below and then multiply the numbers by how many children you have.

These are the average yearly tuition and fees costs for the 2018-2019 school year according to the College Board:

• Public two-year in-district = $3,660 (with room and board = $12,320)
• Public four-year in-state = $10,230 (with room and board = $21,370)
• Public four-year out-of-state = $26,290 (with room and board = $37,430)
• Private nonprofit four-year = $35,830 (with room and board = $48,510)

The amount you have in your savings, investment, and retirement accounts (such as your 401(k) and IRA) can be subtracted from your life insurance needs total. Your loved ones will be able to access these funds when you die. How long it takes for them to gain access will depend on how you set up these accounts. Also, whether you die before or after retirement age will affect your beneficiary’s options in regards to retirement funds and Social Security benefits.

Assuming you name your spouse as the beneficiary on your retirement accounts, he or she will be able to gain control of these funds fairly quick when you die. If your bank accounts are jointly-owned, the co-owner will be given sole ownership and can access the funds. If your bank accounts are in your name only, then the account may have to go through probate to determine who gets access to it (likely your spouse if you’re married).

If you don’t want to add a second owner to your bank accounts but also want them to skip the probate process, you can name someone as the payable-on-death beneficiary. This is a simple form you fill out and submit to your bank. Another option would be to set up a living trust and put your bank account in it. For accounts you use frequently, it may be more convenient to choose the first option and leave the account in your name versus making deposits and withdrawals in the trust’s name.