Term Life Insurance

sunsetWhat’s the difference between an “I love you” note and an inheritance?  One “tells” how you feel, and the other “shows” how you plan to provide comfort, support, food, shelter, education, transportation–and anything else that money can buy—to those who now depend on you.

So what might cost as little as $25 a month and would provide a guaranteed benefit to your family in case of your untimely passing?  If you guessed ‘term life insurance,’ you nailed it.  Because I’ve heard countless sad stories of yet another widow (or widower) left with only an “I love you note,” it bothers me that this form of insurance isn’t used more frequently to help protect those things (aka your wife, husband, kids, etc.) that count the most.

Why is it then that some people insure their car, house, boat, airplane, wedding ring, motorcycle, bicycle, health, and sometimes even their retirement income (aka: an annuity), but not their own life for the protection of their surviving family members?  Is a ring or bike really worth more than the assurance that their kids or surviving spouse will be able to continue living in their own home?

In creating a financial plan, what good is a side savings account with $50,000 or retirement plan with $300,000 if your family isn’t adequately protected in case you are not here to support them?  Life insurance can help you to fill that need by leveraging a relatively small amount of money into a large amount—many multiples of what you actually put in.  And there’s a few different ways to find out how much life insurance you may need to protect those you care about.

One quick way used to assess an insurance amount is to use a multiplier of annual earned income.  As an example, if the bread winner of a family earns $150,000 a year, an adequate amount might be a multiple of 8 – 15 times income.  That would mean a death benefit of somewhere between $1,200,000 and $2,250,000.

A lot of financial planners like to assume that you will invest in a moderate mix of stocks, bonds, and alternative investments, and withdraw between 5 – 7% of the account value each year.  Some other methods try to determine an actual insurance need by tabulating the costs of final medical bills, funeral costs, kids’ education, annual income supplement needs, etc.  The benefits received from the policy payout might last 20-years or more if structured properly with a financial planner.

Secondly, you’ll need to identify how long you will need to be covered by this amount.  Do you still need insurance once the house is paid off, or the kids graduate college and (hopefully) move out?  Maybe.  But making sure that your “critical needs years” are covered is paramount to building a sound financial plan that won’t necessarily topple should one spouse suddenly meet their demise.

Regardless of the method used to determine a suitable amount and length of coverage, I am sure there has rarely been a time when a surviving family member thought they were left with too much money from the death benefit.  In fact, I’m fairly certain it has most likely been to the contrary!

Do yourself and your family the favor of planning ahead, and call my office to discuss your options.  Because its affordable, you should consider this important aspect of a sound financial plan.  It’s one of those things that cannot be purchased once it is really needed!