Before diving into self-insurance, you need to figure out how much money or assets you’ll need in reserve. This is done by determining the expenses your self-insurance will cover. Below is a list of common uses for life insurance, which can help you estimate your reserve needs:
Burial expenses
Income replacement
Protecting your spouse and children from financial losses
Helping to pay off debts and living expenses
Estate facilitation
Providing an inheritance or gift to charity
Medical or final expenses
Financial protection for a business
Coverage for chronic or terminal illness
Estate planning and tax benefits
These can be grouped into three major categories: Final Expenses, Lifestyle Protection, and Inheritance.
1. Final Expenses The minimum amount you’ll need in reserve should cover funeral costs. In Mississippi, cremations average around $6,750, while traditional funerals can exceed $15,000. Additionally, your estate may incur medical bills or other final expenses. Planning for these costs is essential to avoid burdening your loved ones.
2. Lifestyle Protection If you’re leaving behind a spouse, young children, or elderly family members, you’ll want to set aside enough to protect their lifestyle. This could mean providing for living expenses, covering debts, or maintaining the family’s standard of living. If you don’t have dependents, your focus may shift to your own end-of-life care, such as funding assisted living or nursing home costs.
3. Inheritance How much you leave as an inheritance can vary, depending on how much wealth you want to pass down. Whether it’s a financial gift for your children or a contribution to charity, deciding the size of this legacy is key to planning your self-insurance strategy.
In the next post, we’ll look at the pros of self-insuring and how this approach could work for you.
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