You’ve reached a major milestone in life, arriving at a point where it makes sense to work with a financial advisor. You’ve worked hard, and you want your money to put in an equal amount of elbow grease toward your future. While you’re thinking of the future, you want to make sure you’re well-positioned to take care of your loved ones — whether you’re here to see the fruits of your labor or planting seeds for the future.
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There’s a lot you’ll discuss with your advisor, like goals for education and retirement, not to mention short-term objectives such as buying a home. And, if certain circumstances align, they might also talk to you about life insurance. You might assume that policy you have through your job is enough, but group coverage is often limited (commonly one to two times salary), can change if you leave the employer and may not be portable. Fortunately, it’s your financial advisor’s job to know.
GOBankingRates talked to Dan White, ChFC, CLU, RICP, founder and CEO of Daniel A. White & Associates, and Melissa Murphy Pavone, CFP, CDFA, founder of Mindful Divorce Partners to see when they’d recommend their clients seek out life insurance.
When Your Earning Potential Is High but Assets Are Low
When White is helping clients decide on the financial products that will meet them where they are now, while keeping an eye toward the future, he thinks about their potential — and younger clients are full of it. Their earning potential is high as they rise in their career, but they might still be at the stage where they’re waiting to see the full rewards from all their hard work.
In other words, yes, the earning potential is high, but the assets are still low, comparatively. On top of that, younger, upwardly mobile clients may still be taking on debt for student loans and mortgages as they think about their own children’s futures. In these cases, White points to term life insurance for straightforward, affordable protection that can replace income, cover debts and protect the family’s standard of living if a breadwinner dies.
“Many times, term insurance would be used for circumstances that have a finite length, like a mortgage or to get their children through college,” he said.
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When You’re Concerned About Legacy
Though term insurance can be good for young people who are emerging into their careers or family life, White acknowledges that people often outlive their initial term insurance. When a client is concerned about burial costs or the burden of estate or state inheritance taxes — not to mention leaving an inheritance — White suggests they augment term coverage with some form of permanent life insurance coverage.
“You would have permanent insurance that lasts your lifetime for burial expenses, to pay inheritance taxes, or to leave a tax-free inheritance to loved ones,” he said.
He’s particularly keen on a type of life insurance contract called “second-to-die” (survivorship) life insurance, which insures two people and pays the death benefit after the second insured dies. As he explains it, “the mortality cost is spread over two lives, and you get incredible leverage using the life insurance to pass wealth. You are literally paying cents on the dollar by using this method.”
When You’re Undergoing Major Life Events — Even the Less-Than-Fun Kind
Getting ready to tie the knot? Expecting or adopting a new child? Congratulations! As you’re flipping through bridal books or working with an adoption counselor, you’ll also want to connect with your financial advisor about making life insurance part of your planning.
But just as life insurance can be a part of preparing for the more felicitous moments in life, it’s also part of the planning you’ll have to do when things are a little less than joyous — like when you’re getting a divorce. That’s a situation Pavone is very familiar with. If you’re getting divorced, it’s absolutely essential that you review your life insurance needs — especially if you’re obligated to pay alimony or child support.
“As a CDFA, I routinely advise clients (both the paying and receiving spouses) to have a life insurance policy in place to secure any support obligations,” she said. “If the person paying dies unexpectedly, the receiving spouse and children could be left in a serious bind.”
This need is so intense, and so potentially overlooked, that she said it’s often written into divorce agreements. Courts or settlement agreements may require the paying spouse to maintain coverage and name the appropriate beneficiary for as long as support is owed.
Bottom Line
Everyone’s goals and needs are unique, but there are a few common scenarios where financial advisors worth their salt will encourage you to look into life insurance — major life events (good and bad alike), a desire to leave a legacy and protecting your family during high-earning years. Work with a licensed agent or advisor to compare term and permanent options, set the right coverage amount and confirm whether employer coverage alone is sufficient.
Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 3 Cases Where I Strongly Advise My Clients To Get Life Insurance
