Over time as life evolves how should your life insurance coverage and policies evolve with it, I've got that scenario and more coming up my name is Mike Bernard I'm the host of the wise money show I'm also one of the certified financial planners right here at coehorn Financial Group.

Button alright so as I'm recording this right now life insurance Awareness Month there's a month and a day for everything but this is a good nudge to talk about something that might be uncomfortable half of the American adults don't have life insurance and those that do say they believe the coverage they have is inadequate they're not confident it's the right amount of coverage so my question is how should your life insurance your needs and the coverage

That you have to evolve over time or is it just well I have an event you know I need life insurance and I go get some and that's it you know if that was the case then I don't think there'd be as many people surveyed that are unsure whether they have the right amount of coverage I think if they or you are working with a certified financial planner and every so often you don't like to talk about this you don't like to talk about it but every so often

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You just tune in and say well okay do you have enough coverage here's what would happen blah blah blah has anything changed and just make sure that would give you a little bit more clarity and confidence which is really what your certified financial planner should be delivering and so a basic scenario kind of a basic plain vanilla life scenario how should your life insurance needs and coverages evolve over time all right so if we start this scenario where

You're just graduating college or entering your career do you need life insurance at that point well typically if you're single and you don't have any kids even though you're making some money no one else is dependent upon you financially now if they are then you've got a unique or a different situation but in this base sort of plain vanilla scenario you enter your career you're making money now so if you passed away you wouldn't be able to make that money

How Life Insurance Needs to Change Over Time

But no one's financially dependent on that income that you have and so if you own a house your parents or someone could sell the house and pay off the mortgage or if you have a car and there's a car loan that could sell the car pay off the car loan whatever so no one's really dependent on you financially so even though you're young and hopefully healthy and it might be appealing to get life insurance in place you don't really don't have to you know

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No one's really financially dependent on you so you really don't have an insurable interest sorry I hesitated because it's a geeky term but you probably don't need knife insurance at that point unless you just wanted to say hey I'm young and healthy I want to lock something in place right now but typically not married no kids even though you are starting your career probably don't need life insurance now when you get married to start having kids

That's typically the time so typically when you get married okay if that's the order in this base vanilla scenario that's the time when Maybe not immediately don't talk about it on your honeymoon if so that's creepy and you might want to call the cops but uh but in the first year or two as you're working with your Certified Financial planner to say okay financially we want to build our life together and these are our goals as that

You know as we can Envision them right now and these are the things that come in our financial life and that's a great time to work with a certified financial planner and get going on the right steps and in the right direction life insurance should be one of those this those decisions and discussions and at that point, you're still young and I would hope healthy so you're going to be able to get life insurance really really cheap maybe you're in your late 20s

The early 30s or something like that I know people are you know getting married at different ages now and but I'm going to stick with this plain vanilla scenario and you're going to do a needs analysis with your certified financial planner life insurance needs analysis and basically, it's not going to be fun but you're going to role play and the role play is going to be something like this you know so um you know so husband if something

Happens to your spouse you know would you continue working would you know what would your lifestyle be would you want to sell the house would you want to move back home maybe you guys relocated something like that would you want to move back home would you know in the way you envision your life you know would you have a couple of kids would you still you know want to cover college and help with college for them blah blah and then vice versa rules reverse so you

Know you know so wife if you passed away a husband would you continue working the same job would you move back home would you and yeah amen it's not fun right and your cfp is going to kind of ease through all those emotions and sort of try to get to just objective answers and from there can sort of piece together this needs analysis which determines well how much Gap is there how much life insurance would you need and is that a permanent need or a temporary need and

How Life Insurance Needs to Change Over Time

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Base vanilla scenarios probably temporary need so you're getting a 30-year term policy Dave Ramsey says you need a 20-year Term Policy well listen if you're in your late 20s a 20-year Term Policy is only going to get you to your late 40s you're still going to have a need for life insurance at that point locking in 30 years while you're young and healthy lock in that coverage for as long as possible so that price is protected okay so at that point you're

Probably getting a 30-year 30-year life insurance policy but that's likely not the last time you're going to need to revisit this so life rolls around along you married have kids and as you start having kids and those kids start growing you likely need a little more space so you probably now have a bigger house with a bigger mortgage maybe you've had to relocate a little bit for jobs and that resets the mortgage or you know

Elevates and increases that mortgage you might have some other debt as well because get listen you know life's messy and gets complicated and hopefully you've been saving up for your financial goals and sort of getting self-insured but you might not be on saving as much as you would want um and you know and so it one of you you know maybe has seen some job growth and some income growth along with that comes lifestyle growth so maybe

Originally you thought yeah we could live on this or if one of something happened to one of us I could live on this much income and now it might need to be more one of you might have had a job change where you're working less to stay home with kids whatever so you're going to want to tune into this plan and take a look and say well does the life insurance that we have that we originally got in place does it still fit our situation and I'm

Telling you a lot of times it doesn't five-ten years later after that original policy in your late 20s or early 30s Five Ten Years Later you might realize we've got a gap and when that happens you don't likely scrap the old policy and just cancel it and get a new one what you do is you'd update that life insurance needs analysis to see how much that Gap is Quantified have that discussion with your certified financial planner and then you likely add on a new

Policy so laddering your policies you add on a new policy that's either 30 years because you're going to get a sense you're going to have a better sense around 40 as to whether you're going to work until 65 or whether you're on track to retire early or you know it's not going to be perfectly clear but you'll have a vision and at that time you'll say yeah let's get a 30-year policy or a 20-year policy and you'll keep that 30-year policy that you had in

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Place originally because you were young and healthy and even though you're around 40 or late 30s or early 40s you're still pretty young you're not as young and hopefully, you're still really healthy but odds are you're not as healthy and so instead of canceling the original policy and replacing it keep that other policy in place and just add a new policy that fills in the Gap and so I'll just throw some numbers at you if that original 30-year policy

Was a million dollars and that sounded like so much way back when you were 28 or 31 you might now be adding in half million dollar policy on top of that or another million dollar policy on top of that so therefore while you've got that bigger mortgage than what you thought and lifestyle is expensive because you got the kids and college you know the kids aren't through college at you're going to have extra coverage while those things are still in place and those

Aren't completed yet but then as you kind of approach retirement that's sort of this third stage and as you're getting close to retirement hopefully those kids are off the payroll right they've graduated college so that expense has been covered by your income because you didn't pass away you're able to afford to get them through college and uh and they're no longer dependents and they're out on their own and that's great and hopefully

Aren't completed yet but then as you kind of approach retirement that's sort of this third stage and as you're getting close to retirement hopefully those kids are off the payroll right they've graduated college so that expense has been covered by your income because you didn't pass away you're able to afford to get them through college and uh and they're no longer dependents and they're out on their own and that's great and hopefully

That mortgage that you know grew you've been paying it down and while you're closer to retirement that mortgage is either paid off or it's close or you've been building up retirement resource resources also you know not an or it's an and or you've been building up retirement resources were pretty soon you're going to be able to walk away from that paycheck and live off of your Social Security and other income sources in your Investments

How Life Insurance Needs to Change Over Time

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At that time if you don't have any permanent life insurance need or you're not using life insurance to help manage long-term care risk and other things then it's possible you're self-insured at that point and by the time you reach retirement or thereabouts and again in this base plain vanilla scenario you may not need life insurance so that that first term policy that you've got in your late 20s or early 30s by the time you're 60 that's matured and you're

Probably okay with that and you step down and you still have that coverage that you got in place in your early 40s but you'll keep that around until maybe you retire and at that point, you say all right we're going to stop paying this thing we're going to cancel it and you might then once you get to retirement say I'm self-insured from a life insurance standpoint and that's the case again playing finale for many people okay and then the final stage of

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Life insurance needs come May maybe in your mid-70s or late 70s and it's not really life insurance per se but it's planning for final expenses and when you do that oftentimes we're taking a look with folks and say well you've got enough resources saved up that the final expenses are covered for because of the IRA and 401ks that you've rolled into that and all of that that you've built up but as you pre-plan in your late 70s or whatever you might be enticed to

Prepay as well though over those final expenses and if you do that essentially you're working with a funeral home and you you don't they might not even say this but you're actually buying a life insurance policy through them that says I'm prepaying I'm going to give you a chunk of money right now and whether I pass away in five months five years ten years or whatever there's a life insurance policy that the funeral home will receive and that will cover the

Cost of providing all the arrangements that you've made and so in a plain vanilla scenario for many many of us that's the life insurance kind of evolution of what your needs are going to be with life insurance and coverage and everything throughout your life now does that fit in your situation it might and it might not and so if it does still work with that certified financial planner they've got to be doing

Comprehensive financial planning otherwise they're not going to know how much life insurance you need they really really won't they'll just be making it up or they'll be trying to sell you something if they do comprehensive financial planning they're your cfp they're going to go through that needs analysis life insurance needs analysis process with you and help you get the right amount of coverage at the right time and then every few years again not

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Every year not certainly not every meeting no one wants to talk about their mortality every couple of years he'll tune in and say is this still the right coverage let's update things and so on and they'll be able to adapt with the times, okay but if you're in the maybe 50 or this plain vanilla scenario doesn't work because your financial life is as unique to you and your needs are different because you maybe have a special needs child or maybe you've got

Lifelong income and you are going to need some permanent life insurance or maybe there's some health history that you that's unique to you and your family you've got to protect against that's where also you need to be working with that certified financial planner to talk through those unique circumstances and craft a life insurance strategy that's appropriate for you all of this centers around working with a cfp that's doing comprehensive financial planning.