To protect your family, you need more than the best intentions; you need the right "paperwork." And you're going to need it during two distinct phases of your life: your working years and your retirement.
Let's take a look at these time periods, along with some of the key documents you may need.
Working years: While you're working, your most valuable asset is your income. Without it, your family might not be able to pay off the mortgage or send the kids to college. That's why you need to put the appropriate insurance and protection policies to work.
You can typically purchase a surprising amount of term insurance, which, as the name suggests, covers you for a specified number of years for relatively modest premiums. In fact, due to longer life expectancies and other factors, term insurance premiums, in general, have actually gone down in recent years.
Most term insurance policies offer only a death benefit with no cash value. So, if you don't die before your policy expires, you will get nothing back from the premiums you paid in. However, when you buy "permanent" insurance, such as whole life, universal life or variable universal life, your premiums pay for both a death benefit and an investment component. Any earnings have the potential to grow on a tax-deferred basis.
Apart from life insurance, you may need another important document, a disability insurance policy. An injury or illness that prevents you from working can seriously erode your savings and investments, so you'll want to protect your income. Your employer may offer some type of group disability plan, but if this plan doesn't pay at least 60 percent of your income, doesn't pay benefits to age 65 and has a waiting period longer than your savings can last, you may need to look at supplemental private disability insurance.
Retirement years: When you retire, you'll still need to protect your family, but at this stage of your life, your focus may be on leaving a legacy. Toward that goal, you will have some estate planning considerations. Estate plans can be complex, so you will need to work with an attorney.
Of course, everyone's situation is unique, but here are two of the most common documents associated with estate planning:
Will: If you don't have a will, your wishes may never be fully honored, because state law will dictate how your assets are divided. If you have no living relatives and you die intestate (without a will), your estate will go to the state.
Living trust: If you only have a will, your assets may have to pass through probate, which can be time-consuming and expensive. But with a properly established living trust, your assets can pass directly to your beneficiaries, without court interference, legal fees, lengthy delays and public disclosure.
Also, a living trust can give you more precise control over how and when you want your assets distributed. You could, for example, have money distributed to your children or grandchildren in installments over a period of years.
As you can see, you need to have your "papers" in order to properly take care of your family - no matter where you are on life's journey.
Deborah Alonzo is a financial advisor with Edward Jones, 413 Canal St., New Smyrna Beach. She can be reached at (386) 423-3400.