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Musings with Muscat: Are you prepared?

Looking back, 2011 seems to have been a year where many of us lost loved ones.

Whether it’s just our age group, or life slapping us in the face, it seems to be happening all around us.
What if you were to die today?

I know it's not a fun topic, but it's a necessary conversation to have.

Many individuals recognize the benefits of planning for the future.  Such efforts often uncover problems and frequently provide the motivation to make needed changes. 

For the most part, the issues involved are positive and enjoyable (i.e. retirement, well–educated children, etc.).

However, planning for the unexpected –- known as risk management -- can be less pleasant. 

A key part of risk management is answering the question, "What if I were to die today?"

Preparing for an untimely death is often referred to as "survivor benefit planning." 

A subset of estate planning, survivor benefit planning addresses the need to keep one’s family in their current world, financially.

Understandably, no one likes to contemplate his or her own demise.  For some, death seems like a distant-future event.  Others are simply "too busy" to take the time to think about it. 

Whatever the reason, delaying this important part of your long term financial planning can result in expensive, unintended, and even tragic, consequences.
Survivor Benefit Needs

The ultimate purpose of survivor benefit planning is twofold: (1) to ensure that the ongoing income needs of the survivor(s) are met, and (2) to provide for immediate lump-sum cash needs.

  • Income needs: How much income will the survivors need, now and in the future, to cover the following:
    • Household living expenses: Will the family stay in the same house?  Can they afford to? Do they want to? Will they have the option?
    • Additional childcare: Will there be a need for more help with young children?
    • Educational expense: Will there be enough money for the children to go to college?
  • Lump sum needs: How much will the survivors need immediately and in cash?  Consider the following:
    • Final expenses: More than the funeral, this includes unpaid medical bills, which, after a long illness, can be substantial.
    • Estate settlement costs: Probate expenses, attorney’s fees, death taxes, etc.
    • Mortgage payoff and debt reduction: Will it be important to provide a paid-off house? Are there any debts that should be retired?

One final Question: If you died today, would your plan be ready?
David Muscat (License No. 0E85160) is a State Farm agent, offering expert advice on all forms of insurance and financial planning. In his personal time, he is extremely involved with the community and non-profits, serving on the board of Mama’s Kitchen, The Center’s MARYAH group supporting the Youth Housing Project, and as president of North Park Main Street. To contact David, visit his website, call him at (619) 795-3853 or write to him at David@davidmuscat.com.