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That’s because life insurance (and other appropriate forms of insurance) serves as the “fail-safe” that provides the funding needed to carry out the financial plan in the event of an unexpected death. Without this fundamental pillar of protection, any financial plan is at best a “cross your fingers and hope” wishlist.
Simply put, life insurance is like an American Express card — you should never leave home without it.
In my many years of having the life insurance discussion, I have come to identify five primary types of people who need life insurance the most:
- Individuals with financial dependents
- Individuals who have entered into joint financial obligations with others
- Individuals who have financial plans in place for the benefit others
- Individuals who have a predisposition to adverse health conditions (due to heredity or genetics)
- Individuals with dangerous jobs
Individuals with financial dependents
The first category of people who absolutely need life insurance are those with dependents of any kind. This includes some of your usual actors — married couples where one spouse is the breadwinner, or a single parent.
Another typical but less known candidate includes homemakers, as their untimely death can create unforeseen costs for childcare. Other candidates can be married or single family members who support elderly parents or other loved ones.
Lastly, candidates can include benefactors who consistently and significantly support causes and organizations that are dear to them.
Individuals with joint financial obligations
Joint debts entered into by spouses are a prime example here. If you and your partner own a home together, get life insurance — it will cover your housing costs in the event of your partner’s untimely death.
Individuals in this category can also include unmarried couples who jointly enter into leases, car financing arrangements, and even mortgages on a home or income-generating rental property. This same type of arrangement can also exist between a parent and a child, siblings, or close friends.
You should also get life insurance if you’ve cosigned for some other types of debt, like a student loan or consumer credit debt, to protect your cosigner from having to foot the whole bill.
Lastly, business loans personally guaranteed by an individual or among business partners can create joint liabilities.
Individuals who have financial plans for the benefit of others
This is where the concept of life insurance being utilized to “complete the plan” comes into play.
For example, when I sit down with clients to discuss college planning for their children, we’ll discuss amongst other things the types of schools that the family is considering, the funds available for college saving, the investment vehicles available to execute the strategy (i.e. 529 plans, after-tax investments, etc.), and the timeline for investment. Then, we’ll evaluate scenarios to determine the efficacy of one strategy versus another and choose a course of action.
Just when the client thinks that we’re all set, I will bring up life insurance mainly to ensure that there’s adequate coverage in place to fund the plan. If one or both of my clients die next week, life insurance means there will be funds forthcoming to ensure that college is paid for — or, in other words, the plan is completed.
The same deal would be contemplated with respect to retirement planning between spouses. The point is that if you have a financial plan that is for the benefit of someone other than yourself, having adequate insurance to fulfill your contributions to that goal is prudent to ensure that the plan is executed in the event of your untimely death.
Individuals who have an adverse genetic predisposition
Not mentioned often, but with a genetic counselor for a wife, I am “gently nudged” to make inquiries about the general health profile of not only the client, but their immediate family within one degree (i.e. children, siblings, and parents).
If certain illnesses, such as certain cancers (e.g. breast, ovarian, prostate) or medical conditions (hypertension, high cholesterol, or diabetes) are raised, I initiate a discussion about life insurance not only to address need, but also for the purposes of securing the client’s “insurability,” or ability to get and keep affordable insurance while they are healthy or haven’t manifested any potential symptoms that may be indicative of such illnesses or conditions being inherited.
Individuals who have an inherently risky occupation
It should seem obvious, but it is way too often that I walk into the homes of police officers, firefighters, corrections officers, and emergency responders only to find that many of them are sorely underinsured. They perform extremely dangerous jobs where the prospect of not coming home at the end of a shift is very real. Having adequate coverage brings more peace of mind to not only the client as he or she walks out the door, but their family as well.
Sharif Muhammad, MBA, CPA, MST, CFP, is the founder and CEO of Unlimited Financial Services LLC, a certified public accounting firm in New Jersey.