The underinsured life: 5 red flags you need to address

Life insurance is a crucial safety net for those who want to ensure their loved ones are financially secure when they’re no longer around. However, determining the right amount of coverage can be a complex and often overlooked aspect of life insurance. In this article, we’ll discuss five signs that may indicate you’re underinsured and provide some guidance on how to address these issues.

1. Employer-provided life insurance isn’t enough

While having life insurance coverage through your employer is a good start, it may not be sufficient to meet your family’s long-term financial needs. These policies typically offer limited coverage, usually a year or two of your salary, which may not be enough to cover debts, mortgages, or future expenses such as your children’s college education. Moreover, employer-provided life insurance is often contingent on your employment, meaning you could lose your coverage if you leave your job.

To avoid being underinsured, consider purchasing an individual life insurance policy. This will provide you with access to various types of policies, including permanent life insurance, which offers living benefits you can use while you’re still alive.

2. Increases in income call for more coverage

A raise or an increase in income is generally a positive event, but it can also lead to being underinsured. When your income grows, your lifestyle usually follows suit, and your family may become accustomed to a certain standard of living. If you pass away unexpectedly, your loved ones may struggle to adjust to a lower income. Therefore, it’s essential to review and adjust your life insurance coverage as your income changes.

3. Don’t forget about stay-at-home spouses

Stay-at-home spouses contribute significantly to the household, providing valuable services such as childcare, cooking, and managing the home. If your stay-at-home spouse doesn’t have life insurance, consider getting them a policy. The cost of replacing these services would be substantial, and your family’s financial security could be at risk if something were to happen to your stay-at-home spouse.

4. New additions to the family increase life insurance needs

Having a child is a life-changing event that comes with significant financial responsibilities. According to the U.S. Department of Agriculture, the average cost of raising a child in 2023 is over $21,000 per year. Adding to your family means increased expenses, and your life insurance coverage should reflect this. Make sure you have enough coverage to meet your dependents’ long-term needs, including food, shelter, and education, until they reach adulthood.

5. A new home requires additional coverage

Purchasing a new home often involves taking on a mortgage, which can be a significant financial obligation. If you’ve bought a new home since you first got your life insurance policy, you may need to increase your coverage to ensure your loved ones can continue making mortgage payments in the event of your untimely death. Keep in mind that moving during a difficult time can be emotionally taxing, and having adequate life insurance coverage can help alleviate some of the financial stress.

Staying on top of your life insurance coverage is crucial to ensuring your loved ones’ financial security. By addressing these five red flags, you can help protect your family from potential financial hardships. Life Happens’ Life Insurance Needs Calculator is an excellent resource for estimating the amount of coverage you need. Remember, taking the time to review and adjust your life insurance coverage now can provide you and your loved ones with peace of mind for years to come.

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