Preparing for the Unthinkable: Life Insurance for Those in Their Prime

funeral of motherOn Father's Day, a 27-year-old Ohio woman died in a car accident, leaving behind a husband and three young children. In April, a 37-year-old Illinois man drowned in a kayaking accident, leaving behind a wife and two young children.

The unexpected deaths of people in the prime of life age are tragic on their own. But these individuals also died without any life insurance, leaving their families facing financial hardship on top of their grief.

It's easy to assume that if you're young and healthy, you'll be alive next year and the year after that. It's probably true, too. But there are many grieving widows, widowers, relatives, and friends out there who will remind you that the unexpected does happen, and it can leave all kinds of chaos in its wake.

No matter your age or wealth or health, you can spare your loved ones a lot of trouble -- and even save them some money.

Do You Need Life Insurance?

Life insurance actually isn't right for everyone. If no one else is depending on your income, it's not a must-have for you (though a little could help pay for your funeral expenses). But if you help support a household or have dependents, you probably need coverage.

One surprising set of life insurance candidates: college students racking up heavy student loan debts. While they are very unlikely to die young, but one does, his family might end up plagued by debt collectors, as has happened. Federal student loan debt is forgiven when the borrower dies, but some private lenders don't follow the same rule.

The good news is that if you're young and healthy, insurance shouldn't be too onerous an expense. If you're a 40-year-old nonsmoking man, for example, you might be able to buy a 20-year-term life policy that costs you around $30 to $40 per month and pays $500,000 if you die. That's an expense of less than $500 per year.

You Do Need Papers and Plans

If you die without a will, your loved ones may wish you'd had one. It's different from state to state, but your state may end up deciding how your property is distributed. For example, if you're in a committed relationship with someone but are not married, that person may not receive what you would have wanted him or her to get.

A will lets you specify who gets what. You can name your preferred executor, too, so that your most trusted and capable loved one handles your affairs.

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If you have children, you'll also want to be sure to draft legal papers specifying who will be their guardian should their parents die. Failing to do so can leave the decision to default standards -- and your children to someone you may not have chosen.

Gather critical information for your loved ones, too. If you should perish, they'll need to know about the various financial and personal accounts you have, and giving them access to passwords and account numbers can make things easier, as well. (Just make sure these are kept secure.) You'd do well to jot down your funeral and burial preferences, too, so that if the unthinkable happens, they won't have to wonder whether you wanted to be cremated or what kind of casket you prefer.

There are a host of vital documents that most or all of us should have. Living wills and advance health-care directives can specify your preferences should you end up incapacitated and leave loved ones guessing what you would want. (At what point, for example, would you want to be taken off life support? This is another thing no one wants to think about, but it can really happen -- and does, to some.) Trusts and other financial arrangements can be set up to make the most of your money for your future and your loved ones' futures.

Take Action: Here's Help

The kinds of headaches above needn't happen to you or your loved ones if you take a little time to learn more about estate planning and get your financial ducks in a row.

The 10 Must-Have Documents
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Preparing for the Unthinkable: Life Insurance for Those in Their Prime

These are two different forms, but they serve similar purposes. A living will expresses your preferences about treatments should you be unable to communicate with your family and doctors. If you'd rather not be kept alive by extraordinary means for more than a month, for example, you can make those wishes known. Contrariwise, if you want your life prolonged by any means available, for as long as possible, no matter what your condition, you can make that clear, too.

A health care proxy gives someone else the power to make health care decisions for you if you become incapacitated. Many hospitals provide these forms free of charge.

Unless you want the state you live in deciding what happens to your possessions, it's important to have a will. If your situation is fairly straightforward, you might be able to create one quickly and inexpensively with software such as Quicken's WillMaker Plus. However, it's often smarter to consult a professional about your situation to ensure that all of your wishes are addressed and that your will conforms with your state's laws. A lawyer can easily prepare a will for you, often for just a few hundred dollars.

This authorizes someone you trust to make financial and legal decisions for you if you can't make them for yourself. Taking this step can be critical, even if you're just unconscious temporarily (say for a few weeks) because of a post-surgery complication. You may need someone to close on a home you're selling, or deal with a credit card company. The paperwork involved is minimal, and the potential value of having this document in place is significant.

It's not just the rich who need estate plans -- anyone who has assets that they hope to pass on to their heirs needs one. It's a matter of figuring out how to structure and arrange those  assets so that you can leave your loved ones as much as possible, on your own terms.

You probably know that you need homeowner's insurance if you own a home. But you may not realize that you can -- and should -- get insurance even if you rent. If your apartment is flooded, for example, your landlord isn't likely to reimburse you for damaged books and musical instruments.

Even if you have insurance on your home, don't be complacent. Check it every year or two. Is the amount you're covered for still reasonable? If materials costs have soared, it may cost a lot more than you and your insurer originally expected to rebuild your home if necessary. Also, if you've made major home improvements, you may want to increase your coverage.

We include brokerage statements here because at The Motley Fool, we believe most Americans should be invested in the stock market to some degree. You needn't have all your net worth tied up in stocks, but compared to most other alternatives, stocks have proven to be a good way to build long-term wealth.

With Americans using credit cards more than ever, it's critical to maintain a good credit history. Sometimes, though, credit reports contain errors -- and it's within your power to get them fixed. But if you don't make sure your credit report is accurate, you may lose out on the best available interest rate on a mortgage or a car loan, a mistake which could cost you thousands of dollars. Poor credit scores are even costing people job offers -- some  employers are now checking applicants' credit histories.

If you're in a committed relationship, you need to have a financial heart-to-heart with your partner. Too many couples avoid these conversations and end up in trouble.

Get your plan on paper (here's how to do it together -- and painlessly) and the next time you feel a money tiff coming on, remind yourselves that you really are a great team by reviewing the life goals you set together.

When it comes to  retirement, too many people are just crossing their fingers and hoping for the best. But most of us still have a fighting chance at making our golden years secure -- if we plan and take action now.

This last item may seem corny, but if you fail to pay attention to what you'd really like to do in life, you may find yourself one day on your deathbed, full of regrets. This list will be a lot more fun to compile than a collection of hymns for your funeral, or how you might like your obituary to read. Think about the  accomplishments you'd like to check off your bucket list, and start working on it right away.

One resource you might want to tap is a free copy of If Something Should Happen: How to Organize Your Financial and Legal Affairs, a 44-page guide put out by the American Institute for Economic Research (AIER). The AIER is offering 10,000 hard copies to the public for free and is offering unlimited free digital copies. Click over to its website for the booklet.

Leaving things up to chance is gambling with your life and your loved ones' futures.

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