This past weekend our neighborhood had a pretty big tragedy. One of our neighbors was in an accident, and was killed, leaving behind a young wife and two small children (1 and 3 years old). The entire neighborhood has taken to the family and is doing everything that we can do to help the family cope with their loss. It brings back memories of my Grandpa’s family and him losing his mom at 12 years old. He frequently talked about how all the neighbors and family would split up taking care of the eight kids left behind, making meals, doing laundry, and just helping out with chores.
As this family goes through a though time, I can’t help but think of my own family. Do I have my family affairs in order if I die? Do I have my wife’s in order too? Would me or the other spouse be able to get along financially if the other passed away. Although finances are the least of your worries initially, it is an important part of what happens to your long term financial outlook. Here are a few things to consider to prepare for an untimely death:
How much debt do you have?
Am I drowning in debt? Do I have my house paid off? What are my total monthly obligations that my family would need to fulfill if my spouse and I are gone? In order to be prepared, add up your total monthly obligations and see how long your life insurance would cover those fixed debt expenses. At a minimum your life insurance should be able to sustain you for at least two years of fixed expenses. This will help you make sure you can have time to recover from your loss and get a start on life post your spouse loss.
How much do you have saved in cash?
As you look at getting your financial house in order one of the questions you need to ask is, “how much cash do I have on hand?” Your active cash can play into paying your burial, and helping you pay your fixed expenses. If you can supplement with a large cash reserve, then that’ll free up how much you’ll need in life insurance. Again, another great reason to have a large cash reserve. :)
How old are your kids?
Do you have young kids? How long can your family go without a primary or secondary income source? As a rule of thumb from going through the Dave Ramsey financial course, you should have about 10X your yearly income in life insurance. If you have young kids then do everything you can go get them to college with little burden on your family, and give them the financial peace of not having to worry about money.
Do you own your own business?
If you own a business, like my neighbor did, then it is extremely important to have a definite strategy of what you want to happen with your business. In addition, if you are under water, then do everything you can to ensure that your insurance payout will cover your business and more. With a good strategy and adequate insurance, then it’ll make it a lot easier on those having to handle your business wishes.
Are you the sole bread winner?
In my family, I feel a lot of pressure, because I’m the sole bread winner. If I’m gone, then my wife and kids have only our savings to live off. If our savings won’t cover them for a number of years, then that’ll leave a lot of stress on them. I can’t emphasis enough the importance of sole bread winners having adequate life insurance. Do your due dilligence and figure out how much coverage your need and get it. Don’t only rely on your employer for your life insurance too, but make sure you get a portion of it on your own. This way your rate won’t go up if you get laid off and you’ll still have some coverage.
Well, as I’ve watch my neighbors go through this untimely death, it really had me thinking about how important insurance is in a family’s financial picture. What kind of legacy are you going to leave?