Before the paperwork actually gets done, you have a lot of big decisions to make. These three tasks will help you get started with the decision-making and the details.
- Decide who will be guardians for your children and make your will.
Choosing a guardian is an enormous decision and is often the reason people don't get their wills written. Make a short list of possible candidates then use these questions to make the job easier. I recommend naming a single person, not a couple who could possible split up in the future.
- Does this person have time to take care of my children?
- Does he or she share my values about what's important in life?
- Is this person young enough and in good enough health?
- Does this person have the resources necessary? (Or, will I be leaving enough life insurance and other assets so that money is not an issue?)
- Is he or she willing to do it?
Remember, it's not only parents that need wills. Anyone who wants to know what will happen to their money, possessions and even their debts needs a will. If you don't have a will, a judge will make those decisions based on the rules in your state.
How much you'll pay for a will depends on how complicated it is. Many attorneys will draw up a basic plan, for $500 to $1,000. Or you can go the do-it-yourself route with one of the many will-writing software programs available for around $60. If you decide to use software, find a lawyer who will, for $100 or so, take a look at your final product before you sign it. To find a list of lawyers in your area who specialize in estate planning, go to www.findlaw.com. Or better yet, ask friends and family members who they've used and trust.
- Figure out your living will and healthcare proxy.
Use the Money Group questions to help you think about whether you want life support and other extreme measures and who you want to make medical decisions on your behalf if you are incapacitated. A lawyer can help you draw up the proper paperwork for both documents. Or, you can find the forms via the website for your state's bar association. Fill out the forms and sign them in front of two disinterested witnesses. (Note: If you split your time between two or more states, it's a good idea to fill out the forms for each state—just make sure your wishes are consistent.) Another good source is "The Five Wishes Living Will" at www.agingwithdignity.org. Check to see if it's accepted in your state.
- Learn more about life and disability insurance.
Life insurance basically comes in two forms—term and cash value (also known as whole life universal life and variable life). Term insurance provides a death benefit if you die within a specified period of time, which could be anywhere from one year to 30 years. You pay premiums every year to keep the policy in place. If you don't die before the term is up, the policy expires. Term insurance is the less costly option and is often the only way people can afford to buy as much insurance as they need.
Cash-value insurance combines the death benefit with an investment account. The premiums are much higher but the policy builds value over time and it doesn't expire. When you die, it pays your beneficiaries the predetermined death benefit plus any cash value your account has accrued.
If you decide on term insurance there are several Internet search engines that make the job easy. Cash value insurance should be purchased through a trusted agent. Always check to make sure the insurance carrier you're buying from is rated "A" or better by the rating service A.M. Best (www.ambest.com).
For disability insurance, you want coverage that provides about 60 percent of your total salary and benefits and you want to be sure the policy lasts until you are age 65 or 67, when Social Security will kick in at an acceptable rate. You also want a policy that will adjust for inflation and cover you for your specific occupation, not just any kind of work. Your life insurance agent can help you choose the right disability coverage as well.