If you are not married and don’t have any children, deciding how much insurance
coverage to buy may be a bit simpler than for people with large families. Whatever
your circumstances, though, it is important that you consider carefully what might
happen and what kinds of financial resources you’d like to have available.
Here are some things to keep in mind:
Loss of income.
If you become disabled and cannot work, you will need to
replace your salary. Your employer may provide some disability insurance coverage,
but you should make sure that you know exactly how much coverage you have and what
limitations apply. Many disability insurance policies provide you with about 60%
of your current gross annual salary in case of a disability – in part because most
disability payments are not taxed. Be sure the amount of coverage is enough for
your needs. If it isn’t, you may want to purchase additional disability coverage.
Look carefully, too, at the policy’s definition of disability and the timing of
payments – do they start right away, or is there a waiting period?
Your health.
In order to take the best possible care of yourself, it is critical
that you have health care coverage that allows you to see the best doctors and provides
access to any medications you might need. Be sure to have basic health coverage,
either through a Health Maintenance Organization (HMO) or through a hospital indemnity
policy that provides coverage for hospitalization and other health emergencies.
And it may be appropriate to take advantage of supplementary health insurance policies
such as vision and dental care insurance. Prescription drug coverage is important,
and may be available as part of an HMO policy, or it can be purchased separately.
In addition, there are also specialized types of health insurance coverage available,
such as catastrophic risk coverage for serious health crises such as cancer.
Another excellent tool for setting aside money to cover health care costs is the
Medical Savings Account (MSA). A fairly new option, this account allows people to
set aside money on a federally tax-deductible basis. Money left in the account at
year-end can be rolled over and used in the next year, or left in the account until
age 65 and withdrawn without penalty.
Other people who rely on you.
Do you care for an elderly relative? Are you
financially supporting a family member? If so, who will provide for them when you
are gone? If this kind of situation is a concern for you, it may make sense to leave
some money to provide care for these relatives.
One way to do this is to buy life insurance and to designate the people you care
for as the beneficiaries of the policy (or policies). When you are gone, the policy
would pay your beneficiaries in one lump sum or in the form of an annuity, which
would provide income over a period of time. Another option is to purchase an annuity
directly for them while you are still alive. If the people you care for are not
able to manage their finances, you may want to consider establishing a trust, where
professionals manage the money you leave for the benefit of the people you designate
as beneficiaries.
Charities or religious institutions you support.
Perhaps you are active in
your church or volunteer in your community. These organizations will certainly miss
your contributions of time and personal energy, but they will be grateful for the
financial support you can provide in your absence by making them beneficiaries of
your life insurance.
Repayment of debt.
Perhaps you have a mortgage or college loan. These are
your responsibilities, and life insurance can repay these commitments even after
you are gone. Be sure to purchase enough insurance coverage to repay the current
balance on your loans.
Final expenses.
Death is a natural part of life. You will, of course, want
your family to be in a position to make thoughtful, comfortable final arrangements
for you. Consider owning enough life insurance to ease the burden during what will
be a difficult time for those who care about you the most.