$1.5 million is a LOT of money. So when I tell people that’s how much life insurance I have on myself, I can almost hear their eyes pop. It’s especially crazy when you consider that my wife and I only have one child and no real debt to speak of (a total of about $16,000 between a car loan and student loans). So what’s the story? Did I get screwed by a sleazy life insurance agent? Did my wife get greedy? Is there some sort of murder plot in the works?
The thing is, the majority of people vastly underestimate the amount of life insurance they need to take care of their families. I’d go so far to argue that if you’re married and have one child, $1 million is the starting point. Add more kids into the mix, add more life insurance (By the way, if you’re just married with no kids, or single, there’s still a case for you get life insurance).
Don’t make future decisions now
Cost is a major factor in deciding on how much coverage to get, but rationalizing a low benefit because of the cost can be to the severe detriment of your loved ones. In order to save a few bucks, you may think, “Oh, my wife stays at home, so I’ll just keep working.” Well guess what, according to Salary.com, a stay-at-home mom is worth about $110k a year. Or here’s another one: “I’ll just get enough to keep the family on their feet for a few years, then life will go back to normal.” Those of you who have lost a spouse, especially those with children, know that life will never go back to normal. This isn’t just about financial security, but emotional safety.
The fact is, no one knows exactly what our needs will be when a loved one passes away. If something were to happen to my wife, I don’t know if I would have the motivation to continue working, at least not for a long time. And if something happens to me, I don’t want her to feel constrained by some arbitrary timeline. I want her and my son to be taken care of for as long as they need it, and I’d rather leave them with too much than too little.
The future is bright—don’t kill it
The majority of life insurance tends to be used for immediate and short-term needs: paying off the mortgage and other debt, covering funeral expenses, and giving the family a little buffer time to get things in order. But why stop there? I mean, that’s certainly not what your focus is normally. What about saving for college costs? What about retirement? What about all the traveling you wanted to do with your spouse? All that still matters to them after you’re gone. You should be just as concerned about your family’s future quality of life when you’re alive as when you’re dead.
What are you buying instead?
One of the biggest rationalities I’ve heard is “I can’t afford it.” But if you can’t afford it, what are you buying instead? Snacks? Movie tickets? Beer? Coffee? I understand that the likelihood of any healthy person kicking the bucket is remarkably low. But it happens, and if you’re unprepared when it does, your family’s suffering will be immeasurable. For my $1.5 million policy, I pay about $60 a month. That’s really not a lot, considering I pay more for my car insurance, which has a max payout of $100,000. Sure, the likelihood of me getting in a car accident is greater than me dying, but still. If I can afford to insure my car, why can’t I afford to insure my life? So if you don’t think you can afford life insurance, take a look at what you’re buying instead. Is it really more important?
Also, if you legitimately worry that you can’t afford it, it’s a lot cheaper than you think. For example, you can start with a small policy around $100,000 for around $10/month.
Beware of employer coverage
As a side note, be wary of putting all your eggs in the employer basket, even if they’re willing to cover you for pennies. The reason is that as soon as you leave that job, your coverage is gone. And if, for some reason, you have to quit your job because you have cancer, or your health changes drastically in some other way, not only is it gone, but now it’s a lot more expensive, and you may not even be able to get it at all. Personally, I take all the free life insurance my employer will give me, and then I take care of the rest myself. Because why would I put my family’s entire future in the hands of someone else?
Why I have $1.5 million in life insurance
No, I wasn’t screwed by an insurance agent. In fact, I sold the policy to myself when I was selling insurance, so I got paid on it 🙂 And my wife wasn’t greedy. In fact, she gets mad at me every time I tell her that my death will make her a millionaire. I actually got the policy before my wife was even pregnant, because I wanted to lock in the rate based on my age and health (FYI if I would’ve waited, the rate would be 50% higher because I’ve gained some weight in the last couple of years). On top of that, though, my concern is to take care of my wife and son for as long as they need it. Could it be that my wife gets remarried a few years down the road (better not be sooner than that) and is taken care of moving forward? Sure. But why would I gamble on that? My job as a father is to take care of my family, now and in the future. Saving is great, but if I can’t protect their future (at least financially), I’m not doing my job.
Do you feel like you have enough life insurance coverage?