More than 100 million Americans believe they’re living with a life insurance gap1—and 25% say that if their primary wage earner passed, they’d feel the financial impact within just one month.2
As an AICPA member, you have your choice of Life Insurance Plans that offer coverage you can keep—even if you change jobs or retire, as long as you maintain your membership.
This guide is designed to help you think through the factors that can inform your life insurance needs and influence your plan selection. When you’re ready to apply, our downloadable checklist can help make sure you have everything you need in order.
Review your financial responsibilities
The first step in determining your life insurance needs is to complete a thorough assessment of your committed finances—both those that exist today and that are possible in the future.
Current state
Consider your existing financial obligations. This is the amount of debt and/or regular expenses your family would be left to cover in your absence.
- Assess outstanding debts: Review your current financial obligations, such as mortgages, loans, and credit card balances. These can also include debts that are easy for your loved ones to miss should you pass, such as co-signed loans or personal loans to (or from) family or friends.
- Evaluate ongoing expenses: Consider the regular costs that your family incurs, including household expenses, utility bills, and education fees, for example. These ongoing expenses can quickly add up.
Future state
Life insurance isn’t just about covering immediate financial responsibilities—it’s also about helping to protect your family’s future.
- Consider future financial obligations: Think about future expenses such as college tuition, wedding costs, and potential healthcare needs. These can be significant and should factor into your coverage decision.
- Evaluate the impact of inflation: Inflation can erode the value of your coverage over time. Consider how inflation might affect future expenses and ensure your policy can keep up.
- Current stage of life and key life events: Your current life stage and potential key life events, such as having children or buying a new home, influence the type and amount of coverage you may need. Taking steps now to help protect these future events is crucial for long-term financial stability.
Evaluate your existing assets
Do you have retirement savings? Other investments? These assets can be helpful for you and your family no matter what life brings your way, whether it’s to use as planned for a long, healthy future, or to support your dependents after you’re gone.
For example, a savings account could help pay off a mortgage, while other investments could help cover future college tuition for your children. Existing assets could offset some of your financial responsibilities and influence your recommended life insurance coverage amount.
Consider what and who you’d leave behind
One of the biggest reasons to have life insurance is to provide for those you care about should something happen to you. But how much coverage could you need to protect them—and what, exactly, would you leave behind? These answers are important to determining the type of policy you’d like, your coverage amount, and beneficiaries.
Who are you looking to protect?
Life insurance is about providing financial stability for those you care about. Consider who you want to help protect through your policy. For example:
- Children: If you have children, life insurance can help cover their education costs, living expenses, and other needs.
- Spouse/domestic partner: Your spouse or partner may rely on your income for daily living expenses, mortgage payments, and other financial obligations.
- Parents: If you are supporting your parents, life insurance can help ensure they have the financial resources they might need.
- Foundation/philanthropic cause: Even after you pass, you can continue to support causes close to your heart through financial support.
The answer to your “who” can help you choose your beneficiaries and shape decisions around how much coverage you might need and what kind of policy makes the most sense.
How would your passing financially impact your loved ones?
While many life insurance policies issue payments in similar ways, it’s up to those you leave behind to choose how they would use the proceeds. Think through how your loved ones might use the benefit payment:
- Final expenses: Funeral and burial costs may surprise you. While selections like plots, markers, and florals will impact the final price, the median cost of a funeral with cremation in the U.S. increased 8.1% in just two years.3 Life insurance benefit payments can help cover final expenses, easing the immediate financial strain on those you leave behind.
- Pay off debts: Ensure that your family can cover outstanding debts, such as a mortgage or car loan, helping to protect their credit scores and easing financial burden.
- Offset loss of income: If you earn an income, it’s likely a critical part of your family’s financial plan. Life insurance can help replace this income and maintain their standard of living. It can also help offset future expenses to help them adapt to life without you, such as paying for extra care providers (like after-school care or a nanny), home cleaning services, transportation assistance, or meal prep and delivery.
Set your coverage amount
One of the most common life insurance questions is around how much coverage to get. As a general rule, experts recommend having life insurance that equals between 10 to 15 times your gross income.4 However, like many things in life, your “right” answer is unique to you and your circumstances. For an estimate of what might be right for you, try the AICPA Life Needs tool.
Get to know your coverage options
After you’ve thought through your existing assets, financial obligations, and how and who your policy would need to support, you’re ready to consider the life insurance coverage itself.
Explore policies
There are numerous types of Life Insurance Plans available. To help find the right type of plan for you, ask yourself:
- Do you need a plan with investment options? Some life insurance policies offer investment options and the possibility of accumulating cash value. Consider whether these features are important to you and your family’s financial goals.
- For how long do you want coverage? Some plans, like term life insurance, offer coverage for a specific period, known as a term. The premium remains constant throughout the policy's duration. Others, like permanent life insurance, are meant for longer-term coverage.
- What is your budget? Decide how much you are comfortable spending on premiums and review the rate classes available to find a policy that fits your budget. Rate classes are used to categorize the insured’s risk level and determine the premium rates.
Look into options and riders
You might also be interested in optional riders and add-ons to help fit the policy to your needs and gain additional protection. For example:
- Dependent Child Coverage: This coverage can help provide financial protection for your children in the event of their passing. In addition to paying for potential funeral expenses, it can guarantee the child’s ability to purchase a permanent life insurance policy later in life, even if they develop health issues.
- Accelerated Death Benefit Option for Terminal Illnesses: This option allows you to receive a portion of the death benefit if you are diagnosed with a terminal illness. This can help cover medical expenses and provide financial support during a difficult time.
- Accidental Death and Dismemberment (AD&D) Coverage: AD&D coverage provides additional benefits if you die or suffer dismemberment or serious injury as a result of an accident.
- Optional Waiver of Premium: This rider can help prevent your policy from lapsing by continuing to pay your premiums if you become disabled and are unable to work.
Before you move forward with your life insurance application, consider the plan you are interested in and then review the available options and riders to have a comprehensive plan in place.
Prepare for the application
Before you get to the application itself, there are a few questions you’ll likely encounter that take some mental preparation. Here are a few things to be ready for:
- Know the application process and insurability requirements: Some plans and/or coverage amounts may require a medical exam. Consider what level of exam you’re comfortable with and whether you’d be okay with undergoing an exam in either your home or a medical office. This is generally a requirement when applying for coverage, but by knowing the requirements in advance, you can take care to apply for coverage that aligns to your level of comfort.
- Set your budget: Determine how much you are comfortable spending on premiums and then map it to the plan’s posted rates. Doing this before you apply can help you choose a policy that fits your financial situation.
- Know your beneficiary information: Naming your beneficiary/beneficiaries is an important step in helping to protect your loved ones. Have the legal name, address, and contact information for all beneficiaries. Also make sure you know your preferred hierarchy to ensure your primary and secondary beneficiary assignments align with your intentions.
- Have your documents ready: Beyond having your beneficiary information ready, you should also keep key documents, like your identification, insurance cards, and health history nearby.
When you’re ready to take your next step, check out our Life Insurance Checklist. Downloadable and printable, the checklist will help guide you through decision points and give you a rundown of the exact documents and pieces of information you’ll need to complete your application.
Download the checklist here
1 https://www.limra.com/siteassets/newsroom/liam/2024/2024-life-insurance-fact-sheet.pdf
2 https://lifehappens.org/research/they-dont-understand-life-insurance-and-overestimate-its-cost/
3 2023 National Funeral Directors Association’s (NFDA) 2023 Member General Price List Study. https://nfda.org/news/media-center/nfda-news-releases/id/8134/2023-nfda-general-price-list-study-shows-inflation-increasing-faster-than-the-cost-of-a-funeral
4 https://lifehappens.org/life-insurance-101/
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