BY: DAVID RUSSELL, CFP®, CSA® – Vice President & Trust Officer
(6115) 385-2345 email@example.com
A few years ago, our family inherited a treasure trove of old National Geographic magazines from a neighbor who moved away. Some date to the 1930’s and I love them as much for their advertisements as for the articles. These ads were made before the days of Madison Avenue “Madmen” and I love them for their raw emotional honesty. Many of the advertisers were insurance companies – most of which are still around today. These ads remind me of what a miracle product life insurance is, and despite all the bells and whistles, what its primary reason for existence was and still is: to safeguard a family and build guaranteed equity for the future. Where else could an individual pay such small amounts for such a large benefit that pays off at a guaranteed event?
Many individuals recognize the benefits of planning for the future. Such efforts often uncover problems and frequently provide the motivation to make needed changes. For the most part, the issues involved are positive and enjoyable (e.g., retirement, a new business opportunity, vacation home, or well-educated children).
However, planning for the unexpected – known as risk management – can be less pleasant. A key part of risk management is answering the question, “What if I were to die today?” Preparing for an untimely death is often referred to as “survivor benefit planning.” A subset of estate planning, it addresses the need to keep one’s family in their current world, financially. Understandably, no one likes to contemplate his or her own demise. For some, death seems a distant, future event. Others are simply too “busy.” Whatever the reason, delaying this part of planning can result in expensive, unintended, even tragic consequences. The ultimate purpose of survivor benefit planning is twofold: (1) to ensure that the ongoing income needs of the survivor(s) are met, and (2) to provide for immediate lump-sum cash needs.
Income needs: How much income will the survivors need, now and in the future?
- • Household living expenses: Will the family stay in the same house? Can they afford to? Do they want to? Will they have the option?
- • Additional childcare: Will there be a need for more help with young children?
- • Educational expenses: Will there be enough money for the children to go to college or to maintain private education options?
- • How long should a secure income be provided to a surviving spouse? Until retirement, remarriage, or for life?
Lump-sum needs: How much will the survivors need immediately and in cash?
- • Final expenses: More than the funeral, this includes unpaid medical bills, which, after a long illness, can be substantial.
- • Estate settlement costs: Probate expenses, attorney’s fees, death taxes, etc.
- • Mortgage payoff and debt reduction: Will it be important to provide a paid-off house? Are there debts that should be retired?
These and other questions about life after we are gone make us uncomfortable which explains the old saying that “life insurance is sold, not purchased.” We will analyze any other decision for days, weeks, or months before making a purchase, comparing ratings of one product vs another, but we’ll often buy life insurance just to get the agent off our back. A true, needs-based analysis however can remove some of the negative emotion from the process and at least help answer how much insurance is enough. From there, it’s working with a professional with no axe to grind or gain to make other than helping you select the coverage that’s right for you.
One Final Question: If you died today, would your plan be ready? Call us if you’re ready to contemplate this question, review your current coverage, and use realistic assumptions to help determine whether you have enough of this miracle product.
David Russell is Vice President and Trust Officer with Argent Trust in Nashville, Tennessee. He has over 34 years of experience advising individuals and families as a Certified Financial Planner. In 2017, David earned his Certified Senior Advisor designation in order to better serve families facing age transitions.
In 2012, David authored his first book titled What You Need to Know: The Adult Child’s Guide to Being a Financial Caregiver. The book is aimed at the growing numbers of people in the “sandwich generation” who are providing emotional, physical, or financial support to aging parents, while balancing the demands of their own career and family.