When you're starting out - new careers, new location, new relationships - you probably get lots of advice about planning for your future. Sure, you're fully engaged in budgeting your income and thinking about lifestyle priorities. Still, it's a good idea to start working with a financial advisor to develop your long-term financial plan.
A good accountant or financial advisor will help you develop a comprehensive personal financial plan, which will include, at the least, savings and investment, an emergency fund, debt elimination (student loans), retirement, and income protection (life insurance).
The main reason for you to buy life insurance is to make sure that your family will avoid drastic changes in lifestyle in the event of your death. Life insurance needs differ at different times in life.
Dependent family members
- When your children are young, you will need more insurance than when they are older, because they will be dependents for a longer time.
- If you and your spouse both earn for the family, you should both be insured in proportion to your incomes.
- If you have a spouse your children are adults, or you have no children, you can choose to have less coverage. Most individuals in this situation maintain enough insurance to provide for a spouse, to cover their burial expenses, and to settle any accumulated debts.
- If you don't have children or a spouse, you can get by with just enough insurance to cover your burial expenses.
What Amount of Life Insurance Should I Have?
To determine how much insurance you need, you will need to review your current household expenses, debts, assets, and streams of income. Ideally, the amount of money that you want to leave behind for your dependents should allow them to:
- maintain their current standard of living, and
- reinvest another lump sum to ensure that they will be well off in the future.
When attempting to calculate the amount of money that you need to leave behind, be thorough. If you underestimate, your family may not receive the help that they need from the insurance company; and if you overestimate, you will be spending more than necessary in insurance premiums. Your accountant and financial advisor are the best sources of expertise and advice to help with this.
Contact us at Myrick CPA for a financial planning consultation on the best strategies to build wealth for the next generation. We are experts in helping you build peace of mind for your loved ones.