LIFE: An Acronym To Live By

Things To Consider When Calculating Life Insurance Needs

I often joke that I gravitated to the financial services industry when I left active duty because it was the only place I could find as many acronyms.

I know those acronyms can be intimidating for those not on the inside, but recently I was preparing for a media interview regarding life insurance, and a co-worker suggested an acronym that was downright encouraging: LIFE.

I didn’t come up with it, but I like it a lot. Instead of scaring you off, this acronym could give you four ideas to keep in mind when reviewing your own life insurance coverage.

L is for Liabilities

. These are usually at the forefront of a client’s mind. Whether it’s your mortgage, student loans, credit cards or other debts, cleaning the slate of liabilities is typically the first thing you want from your life insurance. Add your debts up and see what needs to be covered if you’re not around.

I Covers Income for Survivors

No big revelation here, but for most families, regular paychecks keep the financial wheels turning. If something happens to your income, would your loved ones be left in the lurch? Social Security and military survivor benefits can help, but they’re probably not enough. I’ve also worked with couples with specific goals, such as enabling a spouse to take a few years off or go back to school. There are rules of thumb out there indicating you should have 10 to 20 times your income in life insurance, but since everyone has different circumstances, I prefer to use a life insurance calculator that captures what you’re trying to accomplish.

F Means Final Expenses

This one is pretty straightforward. Funeral and burial arrangements, final medical bills and legal expenses all fall into this category. Life insurance can provide a timely payout that allows your loved ones to avoid financial headaches. For planning purposes, $10,000 to $20,000 is a reasonable estimate.

E is for Education and Other Goals

Barring any unforeseen movement in Washington, higher education’s elevation to a six-figure endeavor won’t be reversed. College is a common goal during a life insurance review, but it’s likely not your only one. Charitable contributions, business needs and special estate planning objectives all may be part of the mix.

See, that wasn’t intimidating, was it?

Those four factors aren’t the only ones you should consider, but they’re a start. And since term insurance can be surprisingly inexpensive, you may have a low-cost opportunity to fill the gaps as you take a close look at your LIFE.

About the Author

JJ Montanaro
Joseph “J.J.” Mon­ta­naro is a CERTIFIED FINANCIAL PLANNER™ prac­ti­tioner at USAA with more than 19 years of expe­ri­ence in the finan­cial ser­vices indus­try. JJ also served in the U.S. Army for six years on active duty, and in 2009, he retired as a lieu­tenant colonel in the U.S. Army Reserve.