Insurance coverage: Four life stages you need to prepare for

Family finances

The need for financial coverage in the event of a premature death is very real. Do you have adequate coverage to meet your family's long-term needs?


Planning for the future means focusing on the dreams and goals important to you and your family. In the years to come, you’ll put great effort into saving what you can and investing it wisely in order to make those aspirations a reality.

What many people forget, however, is to make sure they’re putting at least a little time and effort into protecting what they’ve worked so hard to build. Despite your best efforts, you can’t predict what unexpected events might alter the course of your best-laid plans. What you can do is make sure you and your family are prepared.

From establishing an emergency fund to ensuring your investments are suitable for the phase of life you’re in, there are many ways you can and should protect your assets. For most of us, the biggest concern from a protection standpoint is to have sufficient financial coverage in place for our families in the event of premature death. And that’s the box most people forget to check.

The need for financial coverage in the event of a premature death is very real. According to a study by financial services trade group LIMRA, 44 percent of U.S. households would feel adverse financial impacts within six months if a primary wage earner died.

Now may be a good time to consider where you stand in terms of protection strategy. Is your coverage adequate to meet your family’s long-term needs? Will it fulfill not only their current income needs, but also the ability to continue to pursue their own goals and dreams, such as a secure retirement or college education for their children?

It’s also important to stay up-to-date with coverage. “Your protection needs will evolve over time,” says Carol Goetsch, senior product manager, annuities and insurance, at RBC Wealth Management-U.S. “What works in your younger working years may not be sufficient as you grow older.” She suggests regularly reviewing your existing insurance coverage and making adjustments in accordance with changes in your own life.

“It’s important to recognize that life moves through stages, and your protection strategies should reflect that,” she adds.

Here are some of the issues to consider as you move through different stages of your life.

1. Ages 20-29 – entering the working world

Statistically speaking, young adults generally face a low death rate, but there is still a need to plan for the unexpected.

At younger ages, relatively inexpensive options for life insurance coverage, namely term insurance, may be an appropriate option. According to research by LIMRA, 43 percent of millennials overestimate the cost of life insurance by as much as three times the actual amount. As a general rule, the younger you are when you purchase life insurance, the lower the premiums will be.

The other reality for this group is that financial obligations may be limited and there may be few or no dependents. Yet, in the case of the unexpected, financial commitments could become someone else’s responsibility if you don’t have some form of life insurance coverage in place. These may include:

• Mortgage or rent payments

• Debt obligations such as credit cards and auto loans

• Education and childcare expenses for children or siblings

• Final expenses

2. Ages 30-49 – becoming established

“The real trigger for a life insurance need is when someone else is financially dependent on you,” says Steve Mangine, insurance consultant with RBC Wealth Management-U.S. “This could be when you marry, have a domestic partner and/or become parents.” If you’re no longer in the picture, Mangine says, that creates a real financial gap for those who depend on you.

At this point in life, your earnings from work are likely to grow significantly, and your life is likely to get more expensive. Financial obligations are growing and long-term financial goals are becoming better defined. “A good rule of thumb,” Goetsch says, “is to have sufficient protection in place to cover 10 to 15 times your annual income if you are married and/or have children.” Your specific requirements may vary, but think about how much potential future income would be lost if you were no longer around. Key expenses to cover include:

• The full balance of a mortgage or auto payment

• Regular living costs to maintain your family’s current lifestyle

• Funding a stay-at-home parent/partner who relies on your income

• Children’s expenses, from daycare to college costs

• Medical bills or any final expenses

• Ongoing contributions to achieve key financial goals

While the primary purpose of life insurance is to provide financial protection for survivors in the event of your death, you might consider another opportunity at this point in life. “You can diversify your retirement income strategy by funding a permanent life insurance policy,” suggests Mangine. “This can create an extra bucket of future income that may be accessed in a tax-advantaged way to go along with a robust workplace savings plan and IRA.” For example, you can supplement your retirement income stream by taking tax-free withdrawals or loans from a permanent life insurance policy. Keep in mind that doing so reduces the policy’s death benefit.

3. Ages 50-59 – solidifying your financial future

This is the stage of life where most people enter their peak earning years. You’re likely to be able to set aside larger sums of money to meet your most important life goals. An unexpected death at a time like this could be particularly detrimental to the financial security of your survivors. According to Goetsch, “Even if there are fewer financial dependents under your roof, you still want to leave sufficient coverage to deal with expenses and continue to fund goals.” This is important because you want to be sure survivors, namely a spouse or domestic partner, can avoid having to liquidate assets in an untimely manner to meet their own day-to-day living expenses. Consider coverage for:

• Any remaining mortgage balance(s) or other debts and unpaid bills

• Protecting a non-working spouse from loss of income or assistance to parents or in-laws

• Keeping a retirement plan on track

• Health care and long-term care costs, along with any final expenses

• Ongoing care for special needs situations

• Creating a legacy or financial cushion for beneficiaries

An additional consideration beyond life insurance is to explore options for long-term care coverage. “You need to be concerned not just about premature death, but protecting against living longer and needing care later in life,” Mangine says. Traditional long-term care coverage is an option, but he suggests individuals also explore life insurance policies that may include long-term care income benefits. The advantage, says Mangine, is that you aren’t putting money in a “use it or lose it” policy. “Now you can look at a policy and know that somebody you care about will receive a benefit from it – either you for long-term care needs, or heirs receiving a death benefit.”

4. Ages 60 and over – protecting retirement and your legacy

Although you may be winding down or have completed the phase of life where you earn income from work, life insurance still matters. In this stage, you want to consider ways to protect the cash flow needs of a surviving spouse. As Goetsch points out, “Many retired couples depend on Social Security and pensions as their primary retirement income, but when a spouse dies, those payments may be reduced even though living expenses don’t change dramatically.”

Another consideration is to pay attention to your legacy plan.

“Permanent life insurance can be a tax-efficient tool for passing on wealth to the next generation,” Mangine says. He says you may want to consider buying a life insurance policy with money intended for beneficiaries. When you die, the named beneficiaries would receive policy proceeds tax free (though the value of the death benefit may still apply toward the gross value of the estate for estate tax purposes).

In this later stage in life, your strategy should be adjusted to protect:

• A desired lifestyle in retirement

• Ongoing cash flow needs

• Paying off mortgages and other remaining debts

• Potential costs of long-term care for a surviving spouse or family member

• Taxes that may apply to assets inherited or passed to heirs

• Charitable intentions

• Other estate planning considerations

Put your house in order and revisit regularly

Your unexpected death could leave a void in many ways. But ensuring your loved ones are financially prepared can help them through challenges that might await if you’re no longer on the scene.

Reviewing your protection strategy on a regular basis, at least every few years, can help you be as prepared as possible, Goetsch says.

“You want to make sure the coverage you have in place is suitable for where you are in life and where you intend to go,” she adds.

RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

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