‘Til death do us part.

I know I’m going to get a lot of flack from some life insurance agents on this, but I might as well get this out of the way up front.
Life insurance is just that – it is ensurance that your family can continue on living their lives in the event of your death. Insurance is not an investment. I have seen too many instances where people are spending too much money for too little coverage.

Here’s an actual case that happened into my office one day:
A young woman came in with a box of papers and a lot of tears. She was in her late 30’s with two sons and a deceased husband, who died about three months earlier from a brain tumor. He was an assistant manager at a local store, and she was not working outside the home. The box contained what she termed, “our financial stuff.” Her husband had handled everything, and she had no idea what they had or what they owed even though she had been paying bills as they came in. She needed help because the checking account was starting to run low, and she didn’t know where to go or even if there was money somewhere.
The next morning, I cleared my table, put of my reading glasses, and started sorting through the box.
I first came across a benefits package from his employer. The package included a 401(k) with about $50,000, family medical benefits that could carry forward if the spouse paid the premiums, and a life insurance policy for 1½ times his annual salary, which ended up being approximately $115,000. After digging a little more, I found a whole life insurance policy with a $25,000 death benefit and a cash value of $3,200.

Unfortunately, I also found a mortgage statement that showed a $350,000 balance, an auto loan that still had $5,500 outstanding and a couple of credit card statements that had balances totaling $7,500.

When we met again, I explained my findings to her. She looked at the papers and asked, “How am I going to get through the rest of my life with this? I can get a job, but probably won’t make anywhere near what he was making. After the mortgage payment, there may not be much left. What about college for my boys?”

Her financial future wasn’t what she had thought because they had an inappropriate life insurance coverage for their specific needs. With only the amount from his job and the small whole life policy, there wasn’t enough to even get her out of debt, much less provide her with a monthly income supplement or provide funds for the boy’s college.

Here is what you can take away from this example: Not having the right amount of life insurance is a financial mistake that will affect your survivor’s financial future. This is not a ‘someday’ conversation. This needs to be a ‘now’ conversation. When looking at life insurance, as a couple, you need to determine what you want to happen in the event of the other’s death. I have outlined where I would recommend you start (or revisit) this process:

1) Ask yourselves some difficult questions such as:
Liabilities: Do you want the mortgage and all other debts to be paid off?
Income: Do you need money to supplement your income in the event of the other’s death?
Final Expenses: Do you have final expenses, such as a funeral, paid for?
Education: Do you want any post-high school education for any children covered in the event of the other’s death?

2) Assign a dollar value to any questions you answered ‘yes’ to.

3) Add the costs up and you will be close to your life insurance needs.

4) Discuss appropriate coverage options and policies with your trusted financial advisor and make a plan to get these policies in place.

5) Once these policies are active, have a clear payment plan for your premiums.

6) Store these policies securely and keep your files up to date.

7) Revisit periodically to make sure the coverage is still appropriate for you (examples of what may change your needed amount: cost of living may go up, a child may receive a full-ride scholarship, you may pay off a major debt like your home mortgage, etc.)