Schools back in session and cooler weather on the way! I hope you’re having a good start to your fall.
This month’s newsletter focuses on a topic that deserves consideration for most people, life insurance. Life insurance and its options to give you peace of mind. That peace of mind comes from knowing that income can be replaced, protection for retirement funds or supporting a growing family.
The financial challenges young adults face can be overwhelming. Many people have to figure out how to pay off college loans, save to buy a home or start a family, and sock away money for retirement. Given these hurdles, it’s no wonder that life insurance as a financial asset gets little to no attention. There are many life events where life insurance at a relatively young age makes sense, but I’ll mention just a few common ones.
As a young adult, you become more independent and self-sufficient. While you no longer depend on others for your financial well-being, your death might still create a financial hardship for those you leave behind.
You may have debts such as a mortgage or student loans that are jointly held with another person. Or you may be paying your parents for loans they took out (ex., direct PLUS loans) to help pay for your education. Your untimely death would leave others responsible for some or all of these debts. You might consider purchasing enough life insurance to cover your financial obligations so others don’t have to.
Premiums for life insurance are based on many factors, including age and health. Certainly, the younger and presumably healthier you are, the less your coverage will cost. This is especially true if you are at a high risk for developing a medical condition later in life.
Someone may be relying on your income for financial support. For instance, you may be providing for a family member such as a parent, grandparent, or sibling. In each of these instances, how would your income be replaced if you died? The death benefit from life insurance can help replace your income after you’re gone.
As your family grows, so do your financial responsibilities. There is likely a hefty mortgage to pay. And there are costs associated with young children. If you died without life insurance, how would the mortgage get paid? Could your surviving spouse or partner cover the costs of day care and housekeeping?
And there are events you should plan for now that won’t happen until several years in the future. Maybe you’ll begin saving for your kids’ college education while trying to save as much as you can for your retirement. Over the next several decades, think about how much you could set aside for these expenses. If you are no longer around to make these contributions, life insurance can help fund these future accumulations.
You may have a job with an employer that sponsors group life insurance. Hopefully, you take advantage of that program, but is it enough coverage to meet your needs now and in the future? Your insurance needs may change with time, although your employer’s coverage may not. Also, most employer-sponsored life insurance programs are effective only while you remain an employee. If you change jobs or are unable to work due to illness or disability, you may lose your employer’s coverage. That’s why it’s a good idea to consider buying your own life insurance.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
If any of this is worth checking out, feel free to get in touch with me and we’ll discuss your options and find a proper solution.
Talking about life events for the children in your family can include building their life skills. Financial literacy is a way to help prepare your children or those close to you to meet their future with confidence.
What could be a life event for a teenager? It could involve saving for an important purchase like a car or learning how to use their first credit card responsibly. It is important for the middle-schooler or high schooler to have a basic understanding of financial literacy concepts in order to manage his or her finances more effectively.
While financial literacy offerings in schools have increased in popularity, a recent study by the Council for Economic Education reported that only 17 states require high school students to take a personal finance course before they graduate.
Here are some ways you can teach high school students the importance of financial literacy.
Advocate saving. Encourage your children to set aside a portion of any money they receive from an allowance, gift, or job. Be sure to talk about goals that require a financial commitment, such as a car, college, and travel. As an added incentive, consider matching the funds they save for a worthy purpose.
Show them the numbers. Use an online calculator to demonstrate the concept of long-term investing and the power of compound interest. Your children may be surprised to see how fast invested funds can accumulate, especially when you match or contribute an additional amount each month.
Let them practice. Let older teens become responsible for paying certain expenses (ex., clothing and entertainment). The possibility of running out of their own money might make them think more carefully about their spending habits and choices. It may also encourage them to budget their money more effectively. What’s a need for the teen and what’s a want?
Cover the basics. By the time your children graduate from high school, they should at least understand the basic concepts of financial literacy. This includes saving, investing, using credit responsibly, debt management, and protection planning with insurance.
With all that’s going on this fall, take some time to review your preparation for life events. Contact me with any questions you may have. Enjoy the turning of this time of year and let’s see if the Chicago Bears can make another big push this season!