Insuring Your Future
How Your Insurance Needs Change Over Time
March 7, 2014 by Mark Dye
Insurance is something few people want to think about, but that plays a critical role in a solid financial plan. Deciding what types of insurance are needed, and at what levels, tends to change over time and varies from person to person.
The following is a 50,000-foot view of how your insurance needs will change throughout your life.
Young and single
If you’re going to skimp on insurance, now is the time to do it. The problem is that getting life insurance now is much, much less expensive than it will be later in life, which might make it a great opportunity to get affordable coverage.
If you have parents or siblings that are dependent on your income, you’ll certainly need to have enough insurance to help cover as much of their needs as possible.
If you’re a renter, a type of insurance you will most likely need at this point (outside of that for your car) is some sort of renter’s policy. They are very, very affordable and offer some peace of mind that you can get new stuff if yours is damaged, stolen, or destroyed.
Now that you have someone else to think about, you need to consider how much life insurance you’d need for them to pay off debts—from your car, to your student loans, to a house if you have one. Once again, insurance is still relatively affordable at this point in your life. Keep in mind that it will get more expensive as you age, so you won’t want to wait much longer to get coverage if you haven’t already.
This is when life insurance needs can get complicated, as you have a lot of things to consider. What will it take for your family to survive financially if you weren’t there? Do you want to help pay for your kids’ college educations? If a single parent, what would it take for your kids to be financially set if something happened to you?
One thing you don’t necessarily need to do is replace 100% of your income. Instead, experts suggest you have enough to pay some debt, plus enough to cover 50% of your current pre-tax income up until your surviving spouse retires. To figure out what this lump sum would be, take half of your current full income and divide by .05. (For example: half of $100,000 is $50,000; divide by .05 and you get $1,000,000.)
Keep in mind any health issues you or your spouse might have now and that could progress in the future, as that will mean you’ll need more on hand to cover those expenses.
Once your children have gone to college or are starting their own families, your concerns about taking care of them financially dwindle. Sure, you’ll want to ensure you don’t leave them with a pile of debt, but you don’t need to worry about paying their expenses for a number of years, either. So reevaluate the coverage and amounts you have to ensure you can cover things like debts and even funeral expenses (which can range upwards of $20,000 or more).
Also keep in mind that, at this point, any insurance policy you buy now will be a lot more expensive than those bought earlier in life, so you could be out of luck financially speaking. (This is why early planning is so important!)
At this point, your need for insurance might be greatly reduced—but it also might be quite high if you don’t have a lot of assets. If you’re okay financially, you can probably reduce your coverage to funeral expenses, enough for your surviving spouse to live comfortably, and maybe some to leave to the kids or your favorite charity.
General things to consider
No matter where you are in life, there are a few things to keep in mind when thinking about and shopping for insurance:
- Service members can get life insurance relatively cheaply through Servicemembers’ Group Life Insurance, but this won’t change your insurance needs—just where you get it from and the costs.
- While your employer (including the U.S. government) might offer coverage, that coverage usually won’t come with you to a new job, so don’t totally rely on employer-based insurance.
- Not everyone’s situation is the same, so this information is general advice, not hard and fast rules.
- There are different types of life insurance, such as “term” and “whole” and you can read about these basic types of policies at the National Association of Insurance Commissioners’ website.
- Some companies offering insurance have been deceptive in their dealings with military families. If that happens to you, make sure to contact your branch’s JAG and the attorney general for the state in which you live.
- You can get more detailed advice for your situation from your on-post financial advisor or an insurance agent.
The world of insurance can be confusing and even intimidating at times, but don’t let that stop you from getting the coverage you and your family needs. Hopefully, this information has made it a little easier for you to do so.