A NerdWallet survey of more than 2,000 married
adults found that roughly one in three couples doesn’t have life insurance.
And of those adults who do have life insurance, 43% say they would not be
financially prepared if they lost their spouse. Taking some basic steps now
provides security for your family, whatever the future brings. Here are five
things you can do to prepare.
1. Determine how much
life insurance you and your family need.
To estimate the right amount, add up your long-term
financial obligations, such as your mortgage and other debts; child-related
expenses, such as daycare costs and college tuition; and your annual income,
multiplied by the number of years you want to replace it. Then subtract any
assets, such as savings and current life insurance coverage, if you have any.
NerdWallet’s life insurance comparison tool can help you get started.
Both parents should have some life insurance, even if one of
you stays at home. You need to cover the costs of replacing the services that a
spouse provides to the family, such as child care.
2. Understand the
details of your spouse’s life insurance policy.
Even if you tend to leave financial management to your
husband or wife, you should know the basics about his or her life insurance
coverage. Among married adults with or without children, women are less likely
than men to know the terms of their spouse’s policy. Fifty-seven percent of
women felt confident about the details, compared to 69% of men. Bennett Keller,
an estate attorney and partner at Lathrop & Gage, LLP, in St. Louis,
Missouri, says you should know:
- The company that holds the policy
- Why it was purchased
- How much coverage it provides
- How much it costs
- When the term expires, assuming it’s a term life
- The deadline for converting term coverage to
permanent life insurance, if the policy allows conversion
Review life insurance coverage annually to make sure
policies still meet your needs, and double-check that the beneficiaries are
still correct, Keller advises.
3. Write a will.
A will is a legal document in which you designate who gets
your belongings and assets after you die. You also name an executor or personal
representative to manage your estate, and you can name a guardian for your
children. If you don’t have a will, your estate is settled according to your
state inheritance laws. A will is a must, especially for parents. But in a 2013
Harris Interactive poll for Rocket Lawyer, 70% of adults with children under 18
living with them said they didn’t have one.
Do-it-yourself software and self-help books on writing wills
are available, but it’s a good idea to consult with an estate attorney. He or
she can help you with other critical estate-planning tasks, such as setting up
trusts and completing financial and health care powers of attorney documents.
4. Keep all your
financial records in a secure place where you and your spouse can find them.
NerdWallet’s survey found that 30% of married adults with
children and 23% of those without kids don’t know how to access all of their
family’s financial records. Keep important financial documents and emergency
contacts in a safe place, and make sure you both know where it is. Delia Fernandez,
a financial planner based in Los Alamitos, California, suggests creating a
one-page, quick-start guide that provides information about bank accounts, life
insurance companies and policy numbers, and locations of important documents. Sitting
across the desk from a client who recently lost a spouse is hard enough, says Carrie
Houchins-Witt, a financial planner in Coralville, Iowa.
5. Talk to your
spouse about final wishes.
The NerdWallet survey found that married adults with children
were less likely than adults without children (55% vs. 73%) to know their
spouses’ final wishes, including preferences about burial and cremation. And
some people have very specific wishes. The problem is that families usually
don’t look at estate documents until after the funeral.
Written instructions are especially important for blended
families, Keller says. Conflicts can arise between children from different
marriages if there’s uncertainty about what a parent wanted. Ask your spouse to
write down final wishes, and know where the instructions are kept.
Talking about the end of life may not be fun, but it should
be a top personal finance priority. The time you spend preparing for a family
financial emergency now can save your loved ones from additional heartbreak if
something does happen.
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