No one wants to think about the possibility of a spouse passing away. But neglecting to prepare for that possibility makes life all the more difficult if it happens.
A NerdWallet survey of more than 2,000 married adults found that roughly one in three couples doesn’t have life insurance. And of those adults who do have life insurance, 43% say they would not be financially prepared if they lost their spouse.
Taking some basic steps now provides security for your family, whatever the future brings. Here are five things you can do to prepare.
1. Determine how much life insurance you and your family need.
“Most people default to whatever life insurance their employer provides,” says Delia Fernandez, a financial planner based in Los Alamitos, California. But that’s usually not enough coverage for families, and you’re likely to lose the policy if you change jobs.
To estimate the right amount, add up your long-term financial obligations, such as your mortgage and other debts; child-related expenses, such as daycare costs and college tuition; and your annual income, multiplied by the number of years you want to replace it. Then subtract any assets, such as savings and current life insurance coverage, if you have any. NerdWallet’s life insurance comparison tool can help you get started.
Both parents should have some life insurance, even if one of you stays at home. You need to cover the costs of replacing the services that a spouse provides to the family, such as child care.
2. Understand the details of your spouse’s life insurance policy.
Even if you tend to leave financial management to your husband or wife, you should know the basics about his or her life insurance coverage. NerdWallet’s survey found that married adults with children were less likely than those without children to have a handle on policy details like amount and length. Fifty-eight percent of those with children knew these details, compared to 67% of married adults without children.
Among married adults with or without children, women are less likely than men to know the terms of their spouse’s policy. Fifty-seven percent of women felt confident about the details, compared to 69% of men.
Bennett Keller, an estate attorney and partner at Lathrop & Gage, LLP, in St. Louis, Missouri, says you should know:
- The company that holds the policy
- Why it was purchased
- How much coverage it provides
- How much it costs
- When the term expires, assuming it’s a term life insurance policy
- The deadline for converting term coverage to permanent life insurance, if the policy allows conversion
Review life insurance coverage annually to make sure policies still meet your needs, and double-check that the beneficiaries are still correct, Keller advises.
“I call it personal financial hygiene,” he says.
3. Write a will.
A will is a legal document in which you designate who gets your belongings and assets after you die. You also name an executor or personal representative to manage your estate, and you can name a guardian for your children. If you don’t have a will, your estate is settled according to your state inheritance laws.
A will is a must, especially for parents. But in a 2013 Harris Interactive poll for Rocket Lawyer, 70% of adults with children under 18 living with them said they didn’t have one.
Do-it-yourself software and self-help books on writing wills are available, but it’s a good idea to consult with an estate attorney. He or she can help you with other critical estate-planning tasks, such as setting up trusts and completing financial and health care powers of attorney documents.
4. Keep all your financial records in a secure place where you and your spouse can find them.
NerdWallet’s survey found that 30% of married adults with children and 23% of those without kids don’t know how to access all of their family’s financial records.
“Twenty to 40% of what I do after someone has died is navigational work to figure out where everything is,” Keller says. “It becomes a scavenger hunt.”
Keep important financial documents and emergency contacts in a safe place, and make sure you both know where it is.
Fernandez suggests creating a one-page, quick-start guide that provides information about bank accounts, life insurance companies and policy numbers, and locations of important documents.
Sitting across the desk from a client who recently lost a spouse is hard enough, says Carrie Houchins-Witt, a financial planner in Coralville, Iowa. “When they are dealing with so many emotions and logistical issues, tracking down policy numbers is the last thing we want to be doing.”
5. Talk to your spouse about final wishes.
The NerdWallet survey found that married adults with children were less likely than adults without children (55% vs. 73%) to know their spouses’ final wishes, including preferences about burial and cremation.
And some people have very specific wishes. “I’ve had people tell me what suit they wanted to be buried in and put that in the estate plan documents,” Keller says.
The problem is that families usually don’t look at estate documents until after the funeral.
Written instructions are especially important for blended families, Keller says. Conflicts can arise between children from different marriages if there’s uncertainty about what a parent wanted.
Ask your spouse to write down final wishes, and know where the instructions are kept.
Talking about the end of life may not be fun, but it should be a top personal finance priority. The time you spend preparing for a family financial emergency now can save your loved ones from additional heartbreak if something does happen.
“One of the best gifts you can give your family is a sense of security,” Houchins-Witt says.
This article also appears on USAToday.com.
Image via iStock.