A week ago Sunday was a really tough one. As often as we hear about tragedy in the news, the horrific shooting in Las Vegas was shocking and continues to consume most people’s thoughts and prayers. All of us at Cutter Financial Group cannot possibly express in this column how very sorry we all are for every family affected by that violence.
While we all realize that the financial ramifications of this tragedy are obviously not the primary concern right now, at some future date, when the grief is no longer overwhelming, the families of the deceased victims will need to deal with the financial fallout of their situation. For some, this will be very difficult. For others, it may be a bit easier. The difference between the two just might be be the existence of a life insurance policy. Folks, I realize that this is a difficult discussion for you and I to have, but it is a discussion we need to have.
We all hope that we will live long lives, leaving this world only after seeing our children and grandchildren into adulthood. But that does not always happen . . . as we see in the news far too often. Most of us also hope to provide for our families both during our lifetimes and after we are gone. But without proper planning, that does not always happen either. And although nothing can prepare us for something like what happened in Las Vegas, we can all try to prepare financially for the time when we leave this world. One way to do this is by having sufficient life insurance coverage, at least until a certain age or until certain milestones are passed.
In the event of the death of a person during his or her working years, life insurance can be used to replace lost income. Having such coverage can allow the surviving family to maintain their existing lifestyle.
Young families often have two income earners, but sometimes only one. I have found over the years that some of those families with only one income earner are hesitant to get life insurance on that person. The thought is that in the event of the death of the income earner, the other spouse could return to the workforce so the financial situation would not change drastically.
This really assumes a lot! It assumes that the spouse who has been out of the workforce will be able to step right back in – and at a salary high enough to replace the deceased spouse’s salary. Another point to consider is that a spouse who is not working is often caring either for children or an elderly parent and forcing him or her to abandon that decision to stay home, at a time that is already very difficult, can be devastating to an already stressed family.
I have also found that people often overlook the financial contribution that caregivers make to a family and often do not purchase life insurance to replace that person’s contribution. It is important to understand that if your family benefits from a parent who stays home with young children or helps with elderly relatives, replacing those “services” can be costly. Think about how expensive it would be to pay a babysitter, entertainer, chauffer, cook . . . you understand what I am saying!
The industry standard is to have enough life insurance in place to cover ten times the annual salary of the covered person. That is often not feasible because the premiums can be cost prohibitive for some. However, it is my belief that it is better to have some life insurance during your working years, if you have a family that depends on you, than to have none.
Short of replacing a specific number of years of income, life insurance proceeds can be used to pay off a mortgage and any other debt, which can significantly reduce a family’s monthly expenses after the loss of an income earner. It can also be used to pay for a child’s education. By having a plan in place to pay for college, in the event of the death of a parent, the surviving family can focus on everyday expenses, rather than worrying about that significant expense.
If nothing else, a small policy can be used to pay a person’s final expenses. A funeral and burial can easily cost tens of thousands of dollars – especially when someone dies in the prime of their life. Why? Because there is usually an outpouring of people who want to pay their respects for a young person. Those numbers can lead to added expenses when planning services or a gathering to celebrate that person’s life.
Of course, even those families who have significant wealth, whether older or younger, can also benefit from life insurance in some circumstances. If a person’s estate is subject to estate taxes, either at the federal level or at the state level, that tax needs to be paid within nine months of death. Often, real property and other illiquid assets constitute the majority of an estate’s wealth, but cannot be used to pay the estate tax, unless sold. By having a life insurance policy in place, enough to pay an estate tax liability, a family will not be forced to sell assets, just to pay the estate tax.
Life insurance can also be used to equalize inheritances. Often times, a family with multiple children will have only one who is interested in taking over the family business. A life insurance policy in place to benefit the other children can alleviate any concern that one child is inheriting a significant asset while the others are not.
This is not an exhaustive list of the reasons life insurance can be crucial to a family’s financial future. And this is not to say that every family needs life insurance. But just as with every other financial decision, it is important to understand your options, not just the amount of coverage you may need, but the type of coverage as well. Speak to a qualified financial professional who can design a solution with respect to this important decision.
As I sit here trying to write a conclusion to this column, I find myself just emptily staring at my screen praying that I have some words of wisdom to share with you. I just keep going back to how hard to even comprehend why the massacre in Las Vegas happened. I don’t even know how to explain it to my kids, myself, or to you.
But I do ask myself . . . what if?
So, I guess if there are any words of wisdom here for you, it is . . . what if?
Folks, planning for after your death is a difficult discussion to have. I know, I get it. But it is crucial to a sound financial plan for your family and your loved ones.
Please be vigilant and stay alert, because you deserve more.
Our prayers and thoughts are with the victims of the Las Vegas tragedy.
Jeff Cutter, CPA, PFS is President at Cutter Financial Group, LLC, with offices is Falmouth, Plymouth, and Mansfield. Cutter Financial Group provides private wealth and investment management advice incorporating low risk, low volatility financial strategies. Jeff can be reached at firstname.lastname@example.org.
Cutter Financial Group LLC (“Cutter Financial”) is a registered investment advisor.
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