SOME KEY LIFE EVENTS are a bigger financial priority than others.
Take, for example, a married couple who has their first child, or hitting retirement. Both life events should trigger a close examination of your life insurance needs – and they're certainly not the only life events that require an insurance reset.
Divorce, a traumatic injury, buying a house or car, opening a small business, losing a job – all are life events that could, directly or indirectly, impact your insurance planning needs.
In that regard, the experiences we have in life – the bigger, the more important – turns the conventional household insurance mindset on its head. Insurance, after all, really isn't static – it's dynamic and fluid, and any household insurance plan needs to be crafted and shaped with change in mind, experts say.
"We see quite a few events with our clients that should trigger a life insurance review," says Adam Hyers, founder of Hyers and Associates in Columbus, Ohio. "Certainly there are the obvious ones like getting married or having children. It's especially true if one spouse is leaving the workforce to raise a child, for example. Any time there is only one primary breadwinner, that is also a very appropriate time to review your life insurance planning."
Most importantly, you have to look at all of these insurance items while you are in good health, Hyers says.
"Whether it's term life while raising a family or wealth transfer strategies when nearing retirement, life insurance is an invaluable tool for financial planning due to the tax-advantages it provides, and should be utilized," he says.
So, what are the most common life events, and how should you leverage your insurance options when they occur? Here's a handy list, along with some sage advice from financial industry professionals.
Marriage. Many couples wait to explore life insurance options until they have children or purchase a home, says Divam Mehta, founder of Mehta Financial Group in Glen Allen, Virginia. "While those are the standard benchmarks, I recommend searching for appropriate life insurance solutions as soon as marriage for a myriad of reasons," Mehta says. "First, the foundation of any financial plan should be insurance. Second, when individuals enter marriage, they are not only forming a union of the souls, but also a union of finances, most notably debt. Many young couples will have student loan debt, car loans and or credit card debt that lenders can possibly go after. The third and most important reason that marriage is an appropriate moment for life insurance is that that it the sooner you start, the more affordable it is, and the more time you have to accumulate cash value if it is a permanent policy."
Children. Having children is another benchmark that individuals will begin exploring life insurance options, Mehta says. "When there is a child involved, it's paramount to have proper insurance in place that will ensure the future liabilities are covered," he says. "Since one of the most important aspects of life insurance is income replacement, life insurance becomes invaluable to cover future education expenses of the child if the primary income earner in the family is no more."
Home purchase. It's "staggering" to discover how many individuals and couples don't look into life insurance when there is a home purchase, Mehta says. "You have just acquired a major liability, and you need to ensure the insurance at least offsets the mortgage amount. Without proper insurance planning, the family could potentially lose the home, face major setbacks in their credit and deal with major financial hurdles on the road to recovery."
Starting a business. Hanging an "open for business" sign on the door falls into what Hyers calls a "debt issue. Anytime you are taking on significant debt, that's a big deal," he says. "There is usually a debt stage in life for most people and it's often an overlooked time because the last thing someone wants to do when they are taking on debt is add an additional expense in the way of life insurance premiums." However, a life policy can prove invaluable in the event of an untimely demise, especially when you have dependents, Hyers adds. "When a business owner passes away prematurely, and there is no life insurance, it can oftentimes sink the business," he says. "There are no immediate assets to keep it going and too often there is not a succession plan."
Retirement. Hyers says that retirement is a good time to pull back on life insurance. "There may be little need for a large universal or whole life plan," he says. "Some of our clients are out of the debt phase at this point and have no dependents and possess significant assets. These folks might roll their cash value into a paid-up policy in order to eliminate future premiums, which can free up income."
Getting a pet. Adopting or getting a new pet is a big event for any family and pet insurance is often overlooked, says Nick Braun, founder of PetInsuranceQutes.com, in Columbus, Ohio. "However, the best time to invest in pet health insurance is when you first get your pet," he says. "Owning a dog or cat is a long-term commitment that can cost thousands of dollars over time, and making sure you have coverage in case of a major illness or accident is a key part of the equation of responsible pet ownership."
Hitting 50. In the early stages of a family's life, your biggest asset is your ability to earn income, which your family needs for both immediate and long-term goals, says Jeremy Torgerson, chief executive officer at nVest Advisors near Denver. "Life insurance is obviously very important at this stage, as is disability, since we are far more likely to be injured and unable to work than to die prematurely," he says. "People need more life insurance than they think when they're young and just starting families, so this is usually my recommendation." However, as people get older, their insurance needs change from needing protection against premature death to protection against costs for care, Torgerson says. "When I have clients in their late 40s through about 60, we often talk about long-term care insurance needs, especially for the wives," he adds. "The last statistic I heard from an LTC insurance carrier was that we will spend the last four years of our lives, on average, needing some sort of care to help us with activities of daily living. You'll need to prepare for that."