Recently, my husband and I met with our financial advisor in Scottsdale regarding life insurance. We needed a professional to advise us on the necessity of life insurance as well as the recommended amount. On both of these topics, my husband and I had differing opinions. After our review, it was evident that life insurance was necessary for our family. Our advisor explained to us, which I will pass on to you, three primary reasons young families in Arizona should have life insurance.
- Replacing lost income – Our advisor reminded us that when the first of us pass away, the survivor will have essentially the same expenses as when both of us were living. Our mortgage will not decrease because one of us passes. Neither will our utilities. This means that the survivor will now have less income each month to pay the same monthly expenses. Brendan and I, after counsel from our advisor, opted to obtain enough life insurance to replace each other’s income for at least 15 years. This way the survivor would not need to move to a less expensive home or change their standard of living when the first of us passes. Your financial advisor is the best person to talk to about how much life insurance a person or couple actually needs.
- Paying off debt – I have several friends who are not concerned about replacing lost income, either because they are not a two income household or because they do not spend both incomes each month. For these individuals, life insurance may still be a smart purchase. Our advisor also talked to us about using life insurance as a way to pay off existing debts such as a home mortgage or student loan. This will reduce monthly expenses to give the surviving spouse more financial freedom.
- Providing for minor children – Our reason for talking to our financial advisor regarding life insurance had to do with providing funds for our minor daughter in the event we both passed away at the same time. This stemmed from the fact that I have clients tell me that they do not need life insurance because if they pass away while their children are minors, their respective parents (the grandparents of the minors) will provide funds to help raise the minors. This statement makes me very uncomfortable. First, it is not the responsibility of the grandparents to provide financial support for their grandchildren. Additionally, there is no guarantee that the grandparents will have the funds necessary to help support their grandchildren. Finally, if occasion arises, the grandparents may not be willing to support the grandchildren, even if they can afford it. A safer way to plan is to obtain life insurance. This is a much simpler way to ensure there are funds for our daughter’s benefit. Our financial advisor played a key role in determining how much life insurance we needed – helping us by identifying what expenses we wanted to cover (such as college).
It is important to receive appropriate counsel from a financial advisor when looking at things such as life insurance. There are many issues that need to be covered, ranging from how much life insurance you need to what type of life insurance to purchase,. If you are in need of guidance, please contact MH Financial at 602-257-0400.
Contributed by MH attorney and partner Katherine A. O’Connell
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This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.