Financial planning is the process of meeting your life goals through the proper management of your finances. It includes elements of protection, wealth creation, planning for contingencies and emergencies, as well as planning for specific milestones in life. But where does life insurance fit in?
The fact is, life insurance is very much a fundamental part of a sound financial plan. And as you age, get married, buy a home, build a family, and plan for retirement, life insurance becomes more important. The following are four common areas in which life insurance can play an integral part of your financial plan:
- Paying off a mortgage
Payments, taxes, insurance and interest. For most people, a mortgage is one of their largest expenses. For this reason, most couples shoulder this long-term financial commitment together. But if you were gone tomorrow, could your family afford such a large expense without your income? A life insurance policy can help provide your family with a lump sum of money to pay off mortgage debt, eliminating this large financial stress, as well as the possibility of a loan default or eventual foreclosure.
- A lump sum of cash for final expenses
According to the National Funeral Directors Association, the national median cost of a funeral with viewing and burial is $7,848.1 If you were to die tomorrow, would your family have the immediate funds to cover your final expenses? Having enough life insurance in your financial plan can cover these costs, preventing your family from having to drain their emergency savings, tap into a retirement account, or being forced to take out a loan at this very difficult time.
- Funding for college
According to the American College Board, the average cost (tuition and fees, room and board, allowances for books and supplies, transportation and other personal expenses) at an in-state public college for the 2023-2024 academic year averaged $28,840. A moderate budget at a private college averaged $60,420.2 If you find that you're struggling to set aside money for your child's education while you're alive, how would your spouse manage if you were suddenly gone? You can leave your children the gift of education by factoring educational expenses into your life insurance policy's death benefit. This can help relieve the burden of growing college costs, ensuring the necessary funds for college and helping secure a brighter future for your child.
- Caring for a special needs child or aging parents
Life insurance plays a critical role in a financial plan if you have a special needs child or ageing parents that depend on your for financial support. Without the resources to provide for their continual care, family members will be forced to take on a stressful and lifelong financial burden. Life insurance proceeds can provide the financial support needed for these special individuals in your life.