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Covering Your Bases with Life Insurance
The advent of the 21st century has brought more than a new millennium to worry about. Over the last two decades, inflation has outpaced wage increases, creating a decline in the purchasing power of your dollars. As a result, you need more dollars each year to purchase the same items. If inflationary trends continue, your financial and estate plan probably needs to take into consideration that some of your priorities may be subject to inflationary pressures. Here's a closer look at three estate-planning needs commonly affected by inflation:
- Spousal income replacement. In recent decades, dual income households seem to dot the landscape. For some, higher levels of household income have permitted better lifestyles. For others, two incomes are required just to make ends meet. If your budget and lifestyle are dependent on two incomes, you should review your life insurance coverage. You, your spouse, and your family may be in financial jeopardy if your insurance plan has not been recently updated.
- Purchasing a new home with a mortgage. From 1970 to 1995, the median sales price of new, privately-owned, one-family houses sold in the United States increased almost 475 percent. In fact, according to the National Association of Realtors, in 1996 the median price of an existing single-family home was $118,000.
Today, many homes are often purchased with a substantial mortgage. If you or your spouse suffered an untimely death, would your current life insurance be able to cover your mortgage indebtedness? It's important to make sure your life insurance policy's death benefit provides sufficient funds to accomplish your goals-protecting your family's lifestyle.
- College education costs. If you have college education plans for your children, you may be concerned about the rising costs of higher education. In 1977, the annual cost at Harvard University was $7,060. Twenty years later, you would have to pay $30,074-an increase of approximately 325 percent (Figures from Forbes, Nov. 1, 1977, compared to the Harvard Admissions Office, 1998). Putting money aside for your child's education requires a long-term financial commitment and a disciplined approach to saving. However, it also requires a contingency plan in the event of an untimely death. For this reason, you may want to include all or part of the projected education costs in your insurance plan.
Keep in mind that life insurance planning doesn't end with these three scenarios. In fact, you may have additional goals you want to cover in the event you or your spouse suffers an untimely death. It is therefore important that your life insurance coverage is adjusted for inflation to ensure your wishes will be fulfilled in the future.
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