Two Financial Priorities the Parents Must Consider

While not considered as a form of savings, there are two other financial "priorities" parents should always consider: Life insurance and debt reduction.

• Life insurance is really only necessary if you need to "leave behind" income if you die prematurely. Ask yourself the following question: If (heaven forbid) I were to die tomorrow, with the loss of my current income would those who are financially dependent on me be able to continue to afford to pay for those things they’ll need to pay for (housing, medical insurance, general living expenses, college education, etc.)? If the answer is no, they couldn’t afford to pay for what they’ll need to pay for, then you need life insurance. If the answer is yes, they could afford to pay for what they’ll need to pay for, then you don’t need life insurance.

Remember that while life insurance is a necessity for many people, it is not a good investment vehicle. So, if you do buy life insurance to replace income in the case of your death, don’t buy whole, variable or other forms of "cash value" life insurance. Instead, buy level (preferably 30-year level) term insurance.

Be debt-free (especially on your home) by the time you reach retirement. Indeed, paying down the mortgage on your primary residence can – technically – be considered to be a form of retirement savings, because the less debt you have, the lower your cash flow needs. And the lower your cash flow needs (at all times, but especially in retirement), the lower your retirement portfolio – and the amount of income that portfolio must generate – needs to be.

Return to: Setting Your Investment Priorities

How Much Life Insurance Do You Need?
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Rick Shaffer is an attorney, writer and host of "The Money Show,"
a call-in radio show that airs on WTKK, 96.9 FM, in Boston, Saturdays, noon to 3 p.m., and Sundays, 10 a.m. to 1 p.m.