Many people don’t think about buying life insurance until they have children. But far too many people — having a child or not — put off the purchase entirely. According to the non-profit Life Happens, 71 percent of people say they need life insurance, but LIMRA estimates that only 57 percent have some sort of coverage.
While big life events might prompt you to consider life insurance, other less prominent milestones may offer good cause to consider this boost to your financial foundation.
- Your children are in elementary school. Hopefully you added a life insurance policy when you added a child to your family. But elementary school is a good time to reconsider if those life insurance policies are robust enough to cover expenses decades in the future, such as college costs. Take this example: It will cost today’s five-year-olds about $175,000 to attend a four-year, in-state, public institution.
- You got married and have joint debt. Many people use marriage as a prompt to obtain life insurance. And they benefit from generally lower premiums for younger people. However, it may be critical to either add or increase life insurance coverage based on how much joint credit debt, including mortgage and credit card, you have. The average new mortgage balance is over $260,000, totaling a hefty sum for any newly widowed spouse.
- Someone co-signs a loan for you or you co-sign a loan for someone else. If your death would cause financial consequences for anyone, you should consider covering yourself. For example, if your parents co-signed your car loan and you die without life insurance, they may be responsible for paying back your debt. If you co-signed a loan for someone else and are helping them pay it back, they may not have the resources to cover the payment.
- You switch jobs. Some people think they don’t need to buy life insurance because they already have coverage through their employer. But often, these policies are for just $50,000 or $100,000 — nowhere near enough to raise one child to adulthood, let alone a larger family. Some people aim for life insurance coverage equal to ten times their annual income. Others tabulate their total financial obligations from now until their children reach adulthood (including mortgage payments and college tuitions) and aim to cover that full amount. If your current policy doesn’t at least come close to meeting one of these rules of thumb, you may need more coverage.
- You’re completing an estate plan. Many adults with older children consider letting their life insurance policies lapse since they don’t need to provide day-to-day income coverage anymore. Life insurance, when used properly, can be a great way to leave a legacy for beneficiaries while avoiding probate and retaining privacy.