Insurance is one of those things that people don’t want to talk about because it reminds them of death. But you owe it to yourself and your loved ones to get life insurance and the right amount. Cassandra Latsios, an associate advisor with Wipfli Hewins Investment Advisors, in Media, Pa., tells us how to go about this vital task.
A lot of people don’t have good life insurance coverage. In 2015, NerdWallet conducted a survey among consumers; its findings showed surprising areas of weakness regarding preparedness for the unexpected death of a spouse.
Here are the key takeaways from the survey:
i. Only a little more than half (57%) of the women surveyed said they knew the amounts and terms of their spouse’s life insurance policy; conversely, a higher percentage of men (69%) knew the amounts and terms of their spouse’s policy. Only 58% of couples with children knew the amounts and terms of their spouse’s life insurance policy, compared to 67% of those without children.
ii. Almost half (49%) of the women surveyed said their ability to make mortgage payments, save for college tuition and pay bills would be adversely affected by the death of their spouse, compared to 37% of men.
iii. Almost one-third of the women (32%) surveyed said they would be unable to find important financial documents in an emergency, compared to 21% of men. Among couples, 30% of those with children would be unable to find these documents, compared to 23% of those without children.
These statistics are concerning, particularly because the most ill-prepared groups — women and couples with children — are the ones that are more likely to be negatively impacted by a premature death in the family.
Regardless of your current situation or your plans for the future, nobody is free from the unexpected. Therefore, it’s important to educate yourself about life insurance and coverage options now, so you can avert a potential crisis down the road. Let’s take a look at each of the weakness areas outlined above and discuss some ways to improve.
1. Lack of knowledge about life insurance policy terms
Communication is key in any relationship, especially when you’re talking about something that could derail a lifetime of preparation: the premature death of a spouse. Spouses that neglect to discuss and coordinate their life insurance policies are likely to find out that one or both of them don’t have enough coverage until it’s too late to take action. Therefore, you and your spouse should make it a priority to revisit your life insurance coverage and beneficiaries at least once per year, or more often if a significant life event occurs (for instance, a new child, a new home purchase or a salary increase), so you can confirm that the policy details still agree with your estate plan.
2. Inability to cover important expenses upon the death of a spouse
Out of all the issues identified in the NerdWallet survey, this finding is the most concerning: in 2014, the Centers for Disease Control and Prevention (CDC)’s National Center for Health Statistics (NCHS) found that women are living almost five years longer than men, with the majority of women living up to 81.2 years, compared to 76.4 years for men. Still, almost half of the women who responded to the NerdWallet survey said they would not be able to cover necessary life expenses if their spouse passed away.
Life insurance needs vary by couple; however, it is important to consider both spouses’ salaries when determining exactly how much coverage to purchase. Historically, women have earned lower salaries than men, and the trend remains true today — just last year, women made roughly 20% less than their male counterparts. Though this gender wage gap can be attributed to a number of external factors — for instance, many women have fragmented work histories due to child and family-care responsibilities — it has a significant effect on women’s financial health following the death of a spouse. For example, if a higher-earning husband passes away, leaving behind a wife who earns less, she loses a larger percentage of household income and is affected more dramatically, compared to a wife who passes away and leaves behind a higher-earning husband.
In today’s world, it is becoming increasingly common for women to be the primary wage earners in their respective households, despite the wage gap. A record 40% of all households with children under 18 include mothers who are either the sole or primary source of income for the family, compared to only 11% in 1960. Of these breadwinner moms, 5.1 million (37%) are married mothers who have higher incomes than their husbands, and 8.6 million (63%) are single mothers.
This new reality has significant estate planning and insurance implications. Regardless of which spouse has the higher salary, it is especially important for the higher-earning member of the family to have sufficient life insurance coverage, due to the fact that a larger percentage of the couple’s joint income is at risk if he or she passes away. It is also imperative for single parents to have life insurance coverage and to make provisions for child care in the event that they pass away.
by Larry Light | Oct 4, 2016
Author: Larry Light
Source: Forbes Media LLC
Retrieved from: www.forbes.com