As the saying goes, there are only two certainties in life: death and taxes. In this article, we’ll talk about the former. In particular, the cost associated with dying like burial and paying off debt.
Nobody knows when their number is up. That’s why it’s so important to prepare ahead of time. With that in mind, we’ll start by discussing ways to prepare yourself financially for death. After that, we’ll address what to do if the death of a loved one has left you struggling financially.
There have been far too many stories where people end up in trouble financially because a loved one died and left a mess for those they left behind. Whether it was credit card debt, not leaving money to put towards final expenses or, estate issues. We’ll discuss how to handle those situations.
How to prepare financially for your own death
You know that you and your loved ones will pass away eventually. Here are some ways to prepare for that eventual day whenever it happens.
Review your life insurance and get more
Having sufficient life insurance coverage is perhaps the best way to prepare yourself. Many people make the mistake of assuming the coverage offered by their workplace insurance plan is sufficient, when that may not be the case. It’s important to review your workplace life insurance policy to see if your coverage would be enough in a worst-case scenario. If it won’t be, that’s when you’ll want to self-insure by buying additional life insurance coverage.
Not all life insurance policies are created equal. Take time to sit down and read the fine print of your workplace life insurance policy. You’ll want to make sure it will be enough for your loved ones to cover the cost of your funeral and burial. It should also be sufficient to pay off any existing debts you might have, such as your mortgage or credit card debt.
Types of life insurance
Not all life insurance is the same. There are two main types of life insurance products: term and permanent (usually called universal or whole life). Understanding the difference between them will be key to choosing the right life insurance plan for you.
Term insurance can be thought of as renting life insurance. Term insurance protects you for the length of time (or “term”) of your choosing. Typical term policy lengths are anywhere between five and 30 years. Once your term is over, your coverage ends. This makes term insurance ideal for the most expensive years of your life. This is usually your 30s and 40s when you buy your first home, get married, and have kids. Having term insurance throughout this period will give your family peace of mind knowing they will be well taken care of if you were ever gone early.
Permanent life insurance is slightly different than term insurance. Sure, both policies provide coverage and can help your family cover unexpected expenses like burial and funeral costs. However, unlike term insurance, permanent life insurance goes on indefinitely until you pass away. Or you stop paying your premiums.
Typically, because you’re covered over a longer period of time, permanent life insurance cost more than term.
Which policy is right for you? It depends on many things: your financial debt obligations, your family’s financial resources, and how much you can afford. If you can afford permanent insurance, it can be a great way to both protect your loved ones and build wealth. If you can’t afford permanent, that’s when you might want to consider term. Generally, 20 years is usually enough if you have young kids.
Critical illness insurance
Life insurance isn’t the only insurance you might need. It’s also good to consider critical illness insurance. Critical illness insurance will pay you out a lump sum if you become seriously ill. The illnesses typically covered include heart attacks, strokes, loss of limbs, cancer, Multiple Sclerosis, and Parkinson’s disease.
Critical illness shouldn’t be bought instead of life insurance. It compliments it by covering unexpected situations not covered by life insurance. With life insurance, insurance companies pay out a benefit if you pass away. With critical illness, you can receive a payout if you become seriously ill, but are still alive and unable to work.
What to do if the death of a loved one has left you struggling
A loved one suddenly passes away and you’re left not only grieving but drowning in debt. Sadly, it happens far too often. Here’s what to do if you find yourself in this situation.
Speak with a financial advisor
If the death of a loved one has left you financially struggling, one of the best things you can do is speak with a financial advisor. They can review your current financial situation and offer suggestions to get your finances back on track. This may be lifestyle habits you cut back on or ways to re-organize your debt load so it’s more manageable.
Losing a loved one is a traumatizing experience. That being said, with your loved one having passed, there may be inapparent expenses you can cut back on to save money. A financial advisor can review your finances to look out for those things and provide you with an unbiased opinion.
Consider debt consolidation
If a loved one left you with a bunch of debts to settle, you may be wondering how to handle it. It might be worthwhile considering debt consolidation.
Debt consolidation is when you take out a loan to pay off existing debts. There are two big benefits to a consolidation loan. By only having one payment to worry about going forward, it simplifies your finance. It can also help you save money.
How does a consolidation loan save you money? Most often, it’s by way of a lower interest rate. Unsecured debt, debt not secured by an asset, tends to cost more because they have higher a interest rate. By paying off unsecured debt with secured debt, you could greatly reduce your cost of borrowing. By using your home to secure the debt you will, likely, also lower your mortgage payment at the same time.
You could use an unsecured debt consolidation loan, but you might not save much money. If you own real estate, that’s when you might roll that debt into your mortgage or use a Home Equity Line of Credit (HELOC) to pay it off.
Not leaving money to put towards a funeral or cremation
Funerals can be expensive. Ideally, your relative has left money to put towards the cost of a funeral. However, if they didn’t and you can’t afford one, that’s when it’s time to make some important and sometimes difficult decisions. As much as you’d like to honour them with an extravagant funeral, is that for the best? Think of it this way, they probably wouldn’t like to see you struggle for years trying to pay for it if you don’t have the money.
Consider something more modest like a cremation and keeping the guest list short. The funeral will be more intimate, and you won’t end up with a mountain of debt after.
If there are any estate issues, hiring a good estate lawyer that you know and trust is worth the cost. They can resolve complicated and sensitive issues in a timely manner and keep things moving along.
Death is never a fun topic to discuss, but it’s vital that you talk about it before you or your loved ones pass away. By openly discussing it, you can help avoid any financial surprises later.
The best way to prepare yourself is by making sure you’re adequately protected while you’re still living. If you’re left struggling once your loved one passes away, don’t be afraid to seek out help. The sooner you do, the sooner you can be on the way to improving your financial situation.