If you have life insurance, you probably sat down at some point and calculated how many years of income your family might need or what costs your death might incur for your loved ones. However, rules of thumb like “10 times your annual salary” or “enough to cover final expenses” might be ignoring a lot of important hidden expenses.
1. Employee Benefits
In addition to your salary, your employer might offer additional benefits like subsidized health insurance, 401(k) matches, and other perks. What would happen to your family’s health insurance bill if you passed away and that subsidy disappeared? Make sure that you consider all forms of compensation in your life insurance calculations.
2. The Value of a Non-Working Spouse
Many people think that life insurance is just for the family’s breadwinner. However, have you considered all the valuable work a non-working or stay-at-home spouse provides? Childcare, housekeeping, transportation, and other important family tasks can all become very expensive when you have to pay someone else. If you don’t currently have a life insurance policy for your spouse, consider the value of the unpaid work he or she provides and think about how you would pay for it in the event of his or her death.
3. Estate Taxes
If you have a sizable estate, your beneficiaries may end up owing taxes on what you leave them, including life insurance proceeds. There are a number of strategies that can help shield insurance payouts from taxes and avoid leaving your heirs with a hefty tax bill. If you expect taxes to be an issue for your family, consult a financial professional who can help you understand your options.
4. Selling Costs
If you’ve accumulated significant assets and don’t have a lot of debts, it might make financial sense to reduce your life insurance coverage. However, it’s very important to consider how easy it will be for your spouse or heirs to access cash after your death. For example, if a significant portion of your net worth is tied up in real estate, your heirs may have to sell the property in order to turn it into cash, potentially incurring fees and other selling costs. If you are including life insurance as part of your estate preparations, consult an insurance expert who can help you understand how issues like liquidity affect the total estate picture.
Have questions about life insurance coverage? Call us today at (518) 581-1642 for a consultation.
& Steve Kamen