Even though it seems intuitive that life insurance is a must, it is not always a top-of-mind strategy. Indeed, it is human nature to shut out thoughts on mortality. What’s more, most people spend more time planning vacations than they do on organizing their finances, particularly determining life insurance needs. For CPAs, the same holds true. Even though they are entrenched in the world of finance, life insurance is not always a CPA’s specialty, making it all the more important that they become informed and tap appropriate resources to ensure that they buy the right type and amount of coverage for their family’s needs.
The first step to determining life insurance needs is taking the time to do independent research. Understand the market, build a list of questions and start to outline a plan. Next, use readily available tools to get a more defined understanding of how much coverage you’ll need. For example, this life insurance needs calculator helps break down life insurance needs based on your individual profile using factors such as income, marital status, number of children, outstanding debts, existing assets and more. And like many things in life, it is best not to leave things until it’s too late. Purchasing life insurance when you are young and healthy allows you to lock in your rate and your insurability.
CPAs may be eligible to purchase life insurance benefits through their employer. The amount of coverage provided is typically a multiple of your income. What’s more, if you leave the employer, you lose the coverage until benefits at your next job kick in, which could leave you uncovered for up to several months. To cover this gap, there are several different types of life insurance policies, each with their own benefits and nuances:
- Term life insurance policy - With this type of policy, you pay a premium to the insurance company to offset your risk of death. In the event of death, the insurance company will pay out the proceeds to your beneficiaries.
- Cash Value life insurance policy - For this type of policy, as you buy life insurance you will pay more upfront but you will get cash back and develop equity in the life insurance plan overtime.
After taking time to celebrate a major life milestone, take a little more time to plan your family’s financial future, in the event something should happen to you. Life insurance is the only financial strategy to provide a large lump sum of cash to your loved ones when they need it most.