A friend of mine died recently and was survived by his wife and four children. Fortunately, they had taken steps to insure that the family’s financial needs would be taken care of. It has been a wake-up call for me because my wife and I haven’t done anything from a financial standpoint to prepare for an early death and we have three children. What steps should we take?

Before discussing the financial aspects of estate planning, I’d like to point out that the most important aspect of any plan is that we die in a state of sanctifying grace so we can enjoy eternity with our Lord. Are we living in such a manner as to remain in a state of grace by actively participating in the sacramental life of the Church?

Beyond our spiritual health, there are a number of steps every family should take to prepare financially for an unexpected death of one or both spouses. From life insurance to a will and other estate plans, taking the time now to get your financial house in order will make the transition as easy as possible for surviving family members.

How to Navigate the Life Insurance Maze
Purchasing life insurance is a little like undergoing a root canal—we don’t like it, but we know it’s something we need to deal with! While Scripture doesn’t specifically address life insurance, it does tell us about our responsibility to provide for our family. In 1 Timothy 5:8, we read, "If anyone does not provide for his own relatives and especially for members of his immediate family, he has denied the faith; he is worse than an unbeliever." Insurance is a tool to help us meet this need.

What Type of Policy Makes Sense?
Before you can make an informed purchase, it’s important for you to understand the different policy types and why you are buying insurance in the first place. In addition to offering basic life insurance, the industry has evolved to offer products geared to investors and estate planners, making decisions for the consumer much more complicated.

Life insurance comes in two basic forms: term and cash-value. Term insurance is basic insurance with the sole purpose of providing a fixed benefit in the event of the death of the insured. Cash-value (included in this category are whole life, adjustable life, universal life and variable life) combines insurance, investment and, sometimes, estate planning objectives.

Since most families are concerned with having insurance coverage during the child rearing years, term insurance ends up being the preferred option because of its relative affordability. If you want to use insurance as a method of investment, or think you have a need for insurance coverage during your retirement years and want to consider a cash-value policy, it would be a good idea to visit with your insurance agent and your financial planner.

How Much Is Enough?
Another key question is determining how much insurance you need. No one answer fits every situation. You’ll want to take into account your ongoing expenses and future major expenditures such as debt repayment, college tuition or the purchase of a new car. By comparing these needs to your existing resources, you can better understand how much insurance is right for you. If you’d like help with this, we have developed a simple worksheet that will assist you with these calculations.

Shopping Can Save A Bundle
Remember that there are scores of companies which sell life insurance. While price is certainly important, you’ll also want to consider the financial strength of the company you are dealing with (look for a rating of A or better from A.M. Best, a company that rates the financial strength of insurance companies). As with any purchase, comparison shopping results in great savings. It would be a good idea to obtain a number of quotes before making a decision. There are also a number of consumer organizations (we’d be happy to send you a list) which you can contact for additional helpful information, including quotes.

A Will is the Foundation of Your Estate Plan
A will is a written document which provides instructions on your final desires in a number of areas. How will your estate be distributed? Who will care for your children if both you and your wife are killed in an accident? By assigning guardians in your will, you can be sure that your children are cared for by relatives or friends who share your faith and basic values. If you don’t provide these instructions in the form of a will, you are, by default, asking the state to make the decision for you.

The preparation of an appropriate estate plan requires assessing your situation legally and financially, and encompasses a broad range of technical issues that are beyond the scope of this column. If you don’t have a plan in place, I would encourage you to locate professionals such as a tax attorney, financial planner and life insurance agent in your area who can assist you with developing one. If you have a plan, but haven’t reviewed it lately, it would be a good idea to visit these same professionals to make sure it is properly updated.

Preparing Your Spouse
Typically, either husband or wife takes primary responsibility for managing the day to day finances. If that spouse were to die, would the other one have the knowledge to take over these duties immediately? In addition, are your records organized so as to make this transition as simple as possible?

Even though I handle the regular financial duties, my wife Chelsey has a working knowledge of our budget, and all of our records (budget, bank statements, insurance and estate planning information) are kept in a binder so that if something happened to me, she would know exactly where to go. We have also prepared a list of steps that should be taken in the event one or both of us were to die. This includes the names and phone numbers of important people to call (attorney, insurance agents and other professionals). At a time of emotional distress, having these instructions will make the transition a little easier. God love you!

Philip Lenahan is the founder and president of Financial Foundations for the Family. Phil and his wife, Chelsey, have been married for thirteen years and are the parents of five children.