Why High Networth Parents Need Life Insurance
Lets review some key differences in policy types to make sure your loved ones are taken care of after you're gone.
Starting a family is a joyous occasion and it’s understandable if you’re focused on the here and now and not what may or may not happen in the future. That being said, it’s important to pause and consider your options for providing your family with financial support in the event of your passing.
Life insurance can give you and your family some much needed peace of mind while you’re alive and the financial support they need when you’re no longer with them.
Let’s take a look at why all parents need to consider taking out a life insurance policy and what type of policy parents may benefit from most.
Why Life Insurance Matters
If you’re young and healthy, life insurance may seem like an unnecessary addition to your monthly budget. Having a life insurance policy in place can help you plan for whatever the future may hold. If you pass sooner than expected, your family may need help covering the following costs:
Daily living expenses
College and other education expenses
Mortgage payments and home maintenance
Your partner’s retirement
Some of these expenses (like food and housing) may stretch over decades and with the right life insurance policy and death benefit amount, you can provide your family with enough financial support to get by without your salary.
If you’re a high networth individual, your family is likely accustomed to a certain style of living that your surviving partner may not be able to provide on their own. A life insurance policy can help ease the financial strain that may be caused by your passing.
Choose the right amount of death benefit amount
Simply having a life insurance policy isn’t enough, you need to choose the right amount of death benefit (the amount that will be paid out upon your death). This isn’t something you should guess at. Sit down and calculate how much money your family would need to survive until your children are old enough to support themselves. You may also want to purchase enough coverage to pay for them to go to college or for them to have a nice wedding. If you have very young children, don’t forget to account for the fact that housing, education, food, and many other expenses will rise over the next decade or two.
Find the right policy
There are two main types of life insurance policy that parents tend to choose—a permanent life insurance policy and a term life insurance policy.
Term life insurance policies are tempting as they are the most affordable way to get your hands on a large death benefit. We generally advise choosing a term policy or a laddered term policy.
A term life insurance policy is purchased for a certain amount of time such as 15 or 30 years. Once that term is over, if you haven’t passed your family won’t get any money for the policy you paid for. A permanent life insurance policy is more expensive, but it pays out a death benefit no matter what age you die at. A permanent life insurance policy can also accumulate a cash value that you can access if needed when alive, whereas a term policy doesn’t accumulate any cash value.
If you choose not to have a permanent life insurance policy right away, some parents will buy a small amount of permanent coverage and a larger amount of term coverage until they can afford to convert their term policy into a permanent policy one day. Some even buy this for their children to give them the benefit without having to go through any underwriting when they’re older.