Over the weekend I learned some devastating news. A friend that I had lost touch with a while back lost her husband Saturday morning. This is a young family with 4 young children. You don’t expect news like this.

Since I had lost touch with this family, I have no idea whether they were prepared for a worst case scenario. I can tell you that I’m not. Oh, I keep meaning to get my affairs in order, but something always comes up, and it gets put off. This is a wakeup call that the worst can happen to anybody, and it’s best to be prepared.

No matter how remote the possibility seems, people…young, healthy people…die every day. Car accidents, cancer diagnoses, complications from the H1N1 virus. These are things you pray don’t happen to you, but really they can happen to anybody.

So what does a person need to do to prepare for the worst? Here are a few things to look at.

Do You Have a Good Life Insurance Policy?

If anyone else in your family relies on your income, you need life insurance. If you are a stay at home mom, and your husband would need to pay for daycare or household help if something were to happen to you, you need life insurance.

Should you get term or permanent life insurance? There are no easy answers. My husband and I went with term, but a case could be made for whole life insurance, too. A comparison between the two is another blog post that I’ll try to write soon.

How much life insurance do you need? That’s a highly individual matter. You need to figure out what you want your insurance to do. Do you want it to provide an income replacement for the long term, so a parent can stay home with the kids? Or do you want it to be a short term buffer, while the surviving spouse is grieving?

Whatever you do, have the conversation with your spouse, decide on how much insurance you need, and make sure you get it.

Do You Have a Will?

If you are a parent, this is especially important. If something were to happen to you and your spouse, what would happen to your children? Who would get custody? If you don’t have a will, the courts get to decide, and they may not make the same decision you would.

Sometimes drawing up a will can be a difficult thing, specifically because of this issue. My husband and I have a will, but it’s terribly outdated. It was drawn up before our son was born. And the only reason we haven’t updated it is that we can’t decide where we want our children to go, should the unthinkable happen to us. It’s stupid reasoning, really, because we probably wouldn’t be happy if the court were to decide where they would go.

The other important reason for a will is to decide where your assets go after you die. Again, if you don’t have a will, the court will decide. If you have everything clearly spelled out, your heirs will know exactly what your intentions were.

While drawing up your will or trust, a good lawyer will be able to advise you whether a will or trust is better in your situation and how to best structure your finances, so your survivors can most easily gain access to their inheritance.

Do You Have a Good Emergency Fund?

No matter how well your will is drawn up or how much life insurance you have, it will take time for your family to gain access to that money after your death. In order to claim insurance, your survivors will need to produce a death certificate and fill out paperwork. Then it will need to be processed, all of which take time.

If you have a good emergency fund that is held jointly with your spouse, your spouse will have money to survive while waiting on life insurance. If your emergency fund is in your name only, it will be unavailable until it clears probate, which will be of no help to your spouse. The exception would be if you had a “Payable on Death” account. But your survivor would still need to produce a death certificate before they gain access to your payable on death bank accounts, so I like to option of a joint account better.

Regardless of what kind of insurance you buy, whether you draw up a will or a trust, or where you park your emergency fund, make sure your family will be taken care of in the event of your death. I know I’m going to be going over my affairs this week.

Are you prepared for the worst?

Photo by Stephen Barnett.