You are just starting out…no spouse and no kids. Life is fast and fun but you are already thinking about doing the right thing. You had a financial plan created and are working toward things like buying a house and preparing for retirement. You get on track to reach your goals but leaving money behind for others is not even on your radar at this point. You decide not to buy any life insurance, although, you get some free coverage from work. Foolish not to take the free stuff, right?
You now have a spouse and some kids. Life is busier than ever but also very rewarding. Your weekends are spent fixing up your house, planting things in the yard and driving to and from birthday parties. You have updated your financial plan and still feel good about your future. There has been a change though. You now have people depending on your income. You want to make sure that debts are paid, college is funded and cash flow continues so that your family can stay in the house. Your insurance need seems huge at that age but you go ahead and get a policy. You are young and in shape so the cost is still reasonable compared to getting it later.
Birthday parties have turned into soccer tournaments and now you are spending your evenings helping with homework. Promotions and raises have increased your tax bill but you are good with the higher income. You have upgraded homes and your car is tad bit nicer than the one you drove when you graduated from college. You pride yourself at making good financial decisions and based on the last financial plan that you did you are on track for college, retirement and have enough life insurance to protect your family.
But then you are shocked. You update your plan and it shows that now you need to save more to reach your retirement goal and you need more life insurance. How could this be? You bought what you thought was a huge policy and made sure you saved every month toward retirement. I call this success creep. With your rising income came a rising lifestyle. You now spend more money than you did in your 30s and this has caused your retirement goal and your insurance need to become more expensive. It now takes more money to run the house so logically your family might need more money to live on if you died. You decide to increase your life insurance coverage by purchasing a new policy. You now look back at that policy you bought in your 30s and it seems small. You wish you would have purchased more back then since it was cheaper than the same type of policy in your 40s.
You hit the decade that you used to think was old but you don’t feel that way. You are still active but now you are paying college bills. Good thing you saved for this so your cash flow is still pretty good. You experienced more success creep and the past couple of times that you updated your financial plan you ended up needing to increase your savings and bump up your life insurance a bit. However, your life insurance need seems to have plateaued. You figure that your college costs are going away so you don’t need insurance for that anymore and your wealth pile continues to climb so in a way your investments are taking care of the need that insurance provided when you were younger. Your logic is sound but you are starting to think about things a little differently. Wouldn’t it be nice to leave a legacy for your kids? What if I could make a difference in the world by leaving a nice amount of money to a good cause? You will have grandkids one day and you start to think about that too. What if I could keep my insurance and just pass it down to my family? You again wish you bought more when you were in your 20s.
Retirement is on the horizon and your family is growing. Time with the grandkids is precious and family is more important than ever. You did well saving for your retirement and feel that your family would be in good shape financially if you were to pass away. You decide; however, that you like the extra cushion that your life insurance provides. You are thinking about changing the beneficiary on your IRA to your favorite charities and letting the insurance policy replace that wealth to your family. You hope that your insurance policies can help cover some of the anticipated estate tax that you may owe as your wealth increases. You still wish you bought more when you were young.
Again, you wish you would have applied for two to five times the amount that you thought you needed when you were a kid. But you also wish you would have used something other than term insurance for some of your coverage. If you could go back you would split up the coverage using term insurance that is good for a certain number of years and then some kind of permanent policy that has the chance to stay in force longer. Sure, may have been more expensive up front but it could have given you more flexibility and control later in life. You wish someone would have told you what might happen to your need as you got older and that the reason you might want the insurance might change.
No matter what decade you might find yourself in, take time to review your current insurance status. If you have not looked at the numbers in the past three years I suggest setting up some time to have a review. You might be thankful 20 years from now.
FINANCIAL ADVISER WARNING! Are you being ripped off? Call 281-907-5136 to hear the 5 Costly Misconceptions about Financial Planning. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director of United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances. The opinions expressed herein are those of Byron Ellis and not necessarily those of United Capital Financial Advisers, LLC.