Monday, March 22, 2010

A break-down of life insurance needs. Now with 30% less boring!


What would happen to my family?

In the last month I've been on airplanes 4 times. Each time there comes a moment as we taxi towards our takeoff that I find myself thinking "What if we crash?" I wonder how I would act - knowing I'd probably scream like an 8 year old girl. But after that I wonder "What would happen to my family?"

Would they have enough to get by? Would my boys be able to follow their dreams? Could my wife afford college again? Would she want to go back to work? Do I have enough life insurance coverage?

There are thousands of websites and tens of thousands of agents all dedicated to making sure you have adequate coverage. Some keep things pretty simple, and some go into great detail about "needs analysis" and "survivor's needs."

Let's see if we can simplify it a little.

You need as much life insurance on your spouse as it takes to let you live without them.

Let that sink in a little. Think about that. What would you be experiencing in life without your spouse there? How would it feel and what would you do? Try and visualize. It's not just a "back to life as usual" kind of situation, is it.

Now think about how much income you have right now. If your spouse passed away, would that change? If your husband brings in $50,000 per year, how long would $100,000 of life insurance last you? 2 years. If your wife brings in $20,000 how long would $200,000 last you? Probably about 10 years.

Yes we can calculate for inflation, taxes, final expenses, and all that. But what I've found is that most of the time a simple calculation based on income and aid to the family comes out within a few bucks of the detailed, hour long analysis. Add on a little extra for those final expenses and any emergencies associated with the passing of a loved one and you're pretty decently covered.

So do the math in your head. Have insurance through work? $200,000? If you're bringing home $40,000 per year, how long would that big chunk of change really last your family? At best, 4.5 years. None of us want to leave our family destitute. As bad as it was thinking about your life without your spouse, think about how your spouse would feel without you and without enough money to get by.

Life insurance is love insurance. I'm a firm believer. When you get on that airplane you're going to have a few moments of pre-flight angst, like everyone. But when you start to wonder "where would they be without me?" if you have sufficient life insurance you'll feel good.