Life insurance is one of those things no one really wants to talk about. I don’t like to talk about it. It’s not something that makes me feel comfortable or good in any way. In fact, it makes me feel slightly depressed. Life insurance has a way of reminding us of our mortality and the fact that we won’t make it out of this life alive. While I’m fine with that since I know death is inevitable, I don’t care to think of it. I have four small kids and a husband whom I love more than anyone, and the thought of not being here with them kills me. We have to discuss life insurance, since it’s what we need in case anything ever happens to my husband or to me, but it’s not a conversation we enjoy having.
Unfortunately, it’s something my husband and I had to discuss recently. It was our eleventh wedding anniversary over the weekend. Once we were married, we went to our insurance company and we had to update policies and we had to create life insurance policies. Every year, we get a call from our agent telling us it’s time to re-evaluate our insurance policy and our beneficiaries and the terms. Do we have more kids? Do we have a new house? Do we have more income or debt or anything that might affect the type of life insurance policies we need?
For a while, we didn’t know really how much life insurance we actually needed. We always assumed my husband was the one who needed it and that for me it was a mere option. Our agent was very helpful in teaching us that things are a bit more complicated than that. With that in mind, and with the recent phone call to see if we want to leave our life insurance policies as is or if we want to make any changes, I thought it might be helpful to remind you of a few important aspects of life insurance that surprised when I was creating my policy so many years ago.
Stay-at-home parents should have policies
Something that really surprised me when I was first a stay-at-home parents before I was a work-at-home parent is that I, too, needed a life insurance policy. It never crossed my mind. I’d considered cancelling my policy and saving that monthly premium payment until our agent reminded me that even though I might not be financially contributing to the family at that point in time, I actually was.
She reminded me that by being home with our kids, I was saving my husband’s income by not paying daycare costs, among other things. I was home to do the laundry and to take the kids to practices and to grocery shop and keep the house in order, effectively saving money that my husband would be required to spend on things like daycare, babysitters, gas and even cleaning people if I were not around to do those things.
Even though I wasn’t working at that point, I was still contributing to my family in a financial sense. If something happened to me, would my husband be able to afford daycare and other costs associated with having kids and no other parent home with them throughout the day? Keep that in mind, parents.
Replacing Lost Income
This is one of those situations you have to consider when someone in your family works. How much money does your spouse make? If something happened to him or her, could your job support your current lifestyle without any additional income? Life insurance should help you to replace the income you lose if one spouse dies.
Now we have to get tricky and ask another question; how long should life insurance replace lost income? There is no right or wrong answer to this question. Someone who graduated college and has a high-paying job such as a doctor or an attorney might not need income replacement for more than a year or two to pay off debts and get to work. Someone who is a teacher or works part time at a store might need income replacement for a longer time frame. Are your kids small enough that you need to be home with them for a few more years? Do you home school your kids? Do you have friends and family that can help you out so you don’t have to pay for daycare? There are variables here that personally and individually affect how much income replacement and for how long you need it.
The other most important thing you need to ask yourself is how much debt you have. We are not talking about just credit card debt and other loans; how much do you owe on your homes and cars? These are debts you have to continue to pay even when a spouse is gone. Can you afford to pay them for yourself, or do you need a life insurance policy on your spouse that is big enough to pay these things off so that you can continue to live comfortably without worrying about income?
Life insurance is a depressing conversation to have, but it’s a necessary one to have. Before you decide how much life insurance is right for you, consider your lifestyle and what each person brings to the table. Do some math. Talk it out. The sooner you do it, the sooner you can forget about this depressing conversation. And take a bit of advice from us; do it when the kids are in bed and there is a bottle of wine open in front of you. It makes it a bit less depressing – but not really.