Whether you’re young or old, whether you have been married for 20 days or 20 years, we know talking about the possibility of dying and leaving your loved one isn’t a welcome subject, but it’s an extremely important one. Taking some basic steps now can save time, money, and additional heartache in the event of the premature death of a spouse.
The following are basic estate planning steps you can take now. Work with a financial planner to determine if you have more in-depth estate planning needs.
1. Determine your family’s life insurance needs.
Married couples, especially if you have or plan on having children, have the greatest need for life insurance. Many of us know someone whose spouse passed away unexpectedly without life insurance. The death of a loved one is emotionally draining, but to add financial devastation on top is overwhelming.
Many people assume that only the primary breadwinner in a family needs life insurance. In most cases, both parents need life insurance even if one is a stay-at-home parent. If the stay-at-home parent were to die, the life insurance death benefit would cover the costs to replace the responsibilities that parent did in and outside the home each day, such as child care.
To estimate how much life insurance you should have add together the following amounts:
- Long-term financial obligations (such as your mortgage)
- All child-related expenses (include college tuition if you wish to provide for this)
- Your annual income, multiplied by the number of years you wish to replace it for.
Next subtract any assets such as savings and any current life insurance coverage you may have. This final number is how much life insurance you need. Keep in mind this is only how much you should be insured for; your spouse should also do this calculation.
|$||137,000||($125,000 mortgage + $10,000 car loan + $2,000 credit card debt)|
|+ $||98,000||($50,000 for child expenses + $48,000 for college)|
|+ $||500,000||(annual salary of $50,000 multiplied by 10 years of replacement)|
|– $||150,000||(checking, savings, and retirement accounts)|
In regards to the example above, a $600,000 term life insurance policy with a term length of 20 years (long enough to put your child through college!) can be as little as $25 per month for a healthy 30-year old male. Term life insurance is very affordable and can be a life saver. Without needing to enter any contact information, get a term life insurance quote and see how little it would cost you to financially protect your family.
2. Understand each other’s life insurance policies.
Once you and your spouse have life insurance, be sure to make an effort to understand the basics of the policies.
Things to know include:
- The contact information of the agent
- The company that insures the policy
- How much coverage is provides
- When the term expires (assuming it’s a term policy and not permanent)
- The deadline for converting the term to a permanent policy
If the unfortunate event of a spouse occurs, knowing this information will make it much easier to file a claim.
3. Write a will.
A will is a legal document in which you designate who gets your belongings and assets after you die. In the document you can also name who you want to manage your estate and who you would like as guardian of your minor children. A will is a must, especially for parents. Without a will, the state decides how to distribute your assets to your beneficiaries according to its laws. The results may not be what you would have wanted, so be sure to draft a will that reflects your wishes.
4. Keep your financial records in a secure place that you both know.
In the event of your death, the last thing your loved ones need to worry about is struggling to locate your life insurance policy and other financial records. Tell your spouse and another trusted adult (in case both you and your spouse die at the same time) where to locate your important financial documents. Write down account numbers, passwords, life insurance information, etc. on a sheet of paper and keep it in a secure place such as a fireproof safe.
Another option is to store your information securely online. There are a number of secure online sites that enable you to store important information all in one place to make it easier on your family. As an example, there is a web service called LegacyShield which is a cloud-based platform that securely stores all documentation and information your family will need to know when you are gone. Once you pass away, your family can easily access bank accounts, credit cards, life insurance benefits, and even digital assets like music, social media accounts, and any other online subscriptions.
5. Talk to your spouse about final wishes.
Do you have a specific idea in mind for your funeral service? Do you wish to be cremated? These are things your spouse should know. Written instructions are best in case there are any disagreements between family members.
You and your spouse support each other through many obstacles, and you should plan ahead to continue supporting each other even if one of you is gone. Being open with each other about estate planning and life insurance is important and necessary. Don’t put it off until tomorrow.
Photo credit to: Nadine Heidrich
What is a Will?, Fidelity.com
5 Ways Couples Can Tackle Estate Planning Now, NerdWallet.com