After everything that has happened this past year, it’s more important than ever to protect your family and finances. Many of us were caught off guard in 2020, and it highlighted our financial blind spots. There are calls to boost emergency savings to a year’s worth of expenses and the importance of paying off debt is clearer than ever. But there are other things you need to do to protect your family and finances that go beyond saving and paying off debt. Here are the top three things you can do to protect your family and finances.
1. Get a life insurance policy
Now is a great time to get a life insurance policy. If you already have one, it’s a good time to review the policy and amount to make sure it’s still a good fit.
Life insurance protects families by providing a payout upon the death of the policyholder. So for example, if the head of household has a one-million-dollar life insurance policy, if he/she passes away, the beneficiary (likely the family) will receive the payout.
You want to get life insurance because it can help recoup the loss of income and cover any costs related to funeral services, paying off debt, etc.
Think about it…if the primary breadwinner in your household passes away and you no longer have that income, how would you feel? Probably a bit panicked. It’s not enjoyable to imagine someone’s death, but it’s important because you never know what will happen.
Grieving a loss is already tough enough. Dealing with financial stress on top of that worrying about how to cover the loss of income or burial costs would only compound the stress.
That’s where getting a life insurance policy can really save you. There are various types of life insurance, but a good place to start is term life insurance.
Term life insurance policies cover you for a specific amount of time with a specific amount for the policy. So for example, you could get a 20-year term for a $500,000 policy.
That means should anything happen to the policyholder within that 20 year period, the beneficiary would get the $500,000. Term life insurance policies have the most affordable premiums. The downside is that if the policyholder outlives the term, you get no payout.
Whole life insurance is another option but is more expensive and should be considered carefully. Do your research on types of life insurance and if you can discuss with a professional what the best option is for you.
2. Create a will
Having a will is a way to protect your finances and make sure your money is handled the way you want after death. Think of all the celebrities like Prince and Aretha Franklin who didn’t have a will and now their large sums of money are in legal limbo.
Using a will can eliminate struggle and confusion for your family. It can also help avoid any issues if there are differing views on where your money should go.
Even if you’re single or don’t have many assets, having a will is a good idea. You can also leave your assets to nonprofits or charities as a way to create a lasting legacy. Imagine the impact of your money impacting others for generations to come, long after you’re gone.
3. Add beneficiaries
One of the most important things to do to protect your family and finances is to add beneficiaries to your financial accounts and insurance policies.
A beneficiary is someone you list on an account that will be legally entitled to the benefits. You’ll want to have beneficiaries on your retirement accounts, checking and savings accounts, and life insurance policies.
Listing a beneficiary is important so your assets will go to the person you want to have them. If you don’t list a beneficiary or you don’t update it from time to time, things could get murky depending on your situation.
For example, if you put your husband as a beneficiary but then ended up divorcing, he’d get your assets. This could be awkward if you have since remarried or if you would have preferred the children get your assets.
That’s why it’s crucial to list a beneficiary and update it from time to time, especially after major life events like divorce and death.
Review and update regularly
Taking these three steps can help protect your family and finances and avoid so much hassle and trouble for those left behind. However, this is not something you want to set and forget. At regular intervals, you want to check in with your policies and will.
After big life changes like marriage, divorce, the birth of children, buying a house, job loss, etc. you want to review your financial protections.
Is your life insurance policy big enough to support your current lifestyle after a big transition? Do you need to update the beneficiaries after divorce or someone passes? Have you had a change of heart and want to update your will?
That’s why all of these things should be part of your yearly financial checkup. That way you can ensure your money will go where you want even after you’re gone. You can do this with your spouse and make sure you’re covered financially as things change.
Be sure to shop for the best life insurance policy rates and understand the differences between types of life insurance. You also want to have your will printed and somewhere people can find it. So put it in a specific place, like a folder, and let your spouse or family member know. Each year, make sure your beneficiaries are still the people you want on your accounts.
Taking these steps will have a great impact on your finances and can help you be prepared, no matter what happens.