When the insured breadwinner passes away, life insurance proceeds will provide for the necessary adjustments and expenses. Families, unfortunately, tend to be so consumed with grief that the available cash can be misused easily, which makes proper planning essential.
A clean-up fund, if set up correctly, can cover the principal items or immediate expenses. A financial adviser can assist you during this time, as everything may seem overwhelming.
According to McGill’s Life Insurance, you need to consider the following first:
- Hospital doctors and nurses bills, specific to the insured’s last illness that may not be covered by health insurance
- Funeral costs – including burial as well as gravestones or markers
- Personal obligations including household bills, personal loans and credit card debt and mortgage obligations.
- School and home equity loans, as well as other outstanding debts
- Legal fees and the cost of estate administration including court costs will also be part of a clean-up fund
It is difficult to suggest how much should be available because everyone’s circumstance is different. But, it is important to understand what life insurance can accomplish and what can happen if you do not have a policy or lack adequate coverage.
According to LIMRA’s 2014 Insurance Barometer Study stated in Life Happens, one in four Americans admit that they needed more life insurance.
Other findings from their study include:
- Only 1 person in 10 is very likely to purchase a life insurance policy within the next year
- Sixty-three percent said that they have not purchased more life insurance because they think it is too expensive
- The biggest worry among consumers is not being able to afford a comfortable retirement
- Only 12 percent of Americans own long-term care insurance
- Twenty-nine percent of Americans own disability insurance
One in four adults would prefer to purchase life insurance directly via the Internet, by mail or over the phone. Among people age 25 to 44, 31 percent said they would prefer to buy directly, with three in four of those individuals citing the Internet as their means of buying.
Without life insurance or substantial savings, a clean-up fund is impossible to justify. And this is just one category of life insurance economics. Others include readjustment income, income during dependency period and life income for surviving needs. An insurance needs calculator will give you an idea about exactly the amount of life insurance you need for your own unique financial status.