Hamilton Herald Masthead


Front Page - Friday, September 25, 2015

Act soon to close your ‘Insurance Gap’

Financial Focus

Stan Russell

If you work for a fairly sizable company, you may be entering your open enrollment season, when you can add or adjust your employer-sponsored benefits. While you probably should review all your benefits, you may want to pay special attention to your life insurance to determine if you and your family are adequately protected. 

How much life insurance do you need? You may hear that you require anywhere from seven to 10 times your annual income in life insurance coverage, but this rule of thumb might not be appropriate for everyone; the amount of insurance you need will depend on your individual situation. 

To help determine if a “gap” exists between the amount of insurance you have from your employer and the amount you need, your first step is to identify all those expenses that your family would face alone if you were gone. Here are some to consider:

Ongoing income replacement needs and living expenses – If you were to pass away, and your paychecks were to stop, it would likely create a gigantic hole in your family’s finances. Adequate life insurance is necessary to replace the loss of your future salary and cover ongoing living expenses. 

Mortgage – If you weren’t around, and your income were to disappear, would your family still be able to remain in their home? Factor in your mortgage in any calculation of life insurance needs. 

Debts – Apart from your mortgage, what other debts do you have? Car loan? Credit cards? Perhaps even some old student loans? Even if you pass away, these debts won’t all disappear, especially if some of them are in the names of you and your spouse. Determine how much you pay each month on all these debts and include this figure in your life insurance estimate.

Education – As you know, higher education comes with some high expenses: Four years at an in-state public school can easily cost upwards of $80,000, while the price tag can be twice as much for private schools. And these costs may continue rising. So, if you’ve always planned to send your children to college, you’d better pencil in some big figures for your life insurance calculations.

Emergency funds – It’s a good idea for most people to maintain an emergency fund containing six to 12 months’ worth of living expenses, with the money kept in a liquid account. This fund can help with unexpected doctor’s bills, costly auto repairs and so on. If you weren’t there, could your family afford to contribute to such a fund? Again, it’s something to think about when you estimate your insurance needs.

Surviving spouse’s retirement – If you’re married, your income may contribute to your spouse’s ability to put money away in a retirement account, such as an IRA or 401(k). If you’re gone, your surviving spouse might well have to redirect those funds to the day-to-day costs of running a household. Therefore, include “surviving spouse’s retirement funds” as one more item on your insurance estimate worksheet.

As you can see, your absence can jeopardize your family’s ability to maintain both their current lifestyle and their aspirations for the future. So, take the time to figure out just how much of an “insurance gap” you face, and then consider options for filling it. It will be time well spent. 

 This article was written by Edward Jones for use by your local Edward Jones Financial Advisor (member SIPC). Contact Stan at Stan.Russell@edwardjones.com.