Do You Need Insurance?

Napoleon Hill once said: “If you are the bread-winner for your family, then it is up to you to make sure you are adequately insured should you pass, that way they have a down payment on a new spouse.”

I don’t like to think about the final D word. Right now we are in the process of re-evaluating how much insurance we would need should one of us head to that big piggy bank in the sky. There’s a lot of questions around all of this. These are the biggest one’s I keep coming back to and the ones that I need to figure out right away.

How much should we be insured for?

Talking with our insurance agent we were told that the best way to look at insurance for our age was to replace income. So if you are taking home $20,000 and you can get 5% return on investment, you would insure yourself for $400,000. Really you are insuring against loss of income for your spouse should you pass away. Take your amount of annual expenses and divide by the rate you will be able to get.

How to figure out your family insurance needs?

If I am to die unexpectedly, which I’m not planning anytime soon (hence the unexpected part). I want to know that my kids and my wife are taken care of financially. There are a lot of variables, but the best thing to do is to look at your expenses over a year or two and see how much your family needs to live.

New expenses that could come up.

Do you need insurance?Once you know what expenses you have had it’s time to think about the future.

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Will your spouse need daycare before and after school?

Are there other expense that could come up for a single parent that you aren’t thinking about?

Are you doing certain things that are saving the family money (like car repairs for instance) that she won’t be able to do once you are gone and will need to pay for? (FYI I couldn’t change my own oil if my life depended on it. I’ve been shown and honestly it’s not worth my time.) I know for myself that should I lose my loving wife there are a lot of day to day things that I would need hands with (kids activities etc…)

How would I handle those? How much would it cost to handle these instances?

Is there such thing as too much insurance?

In my opinion “Yes”, I believe there is such a thing as too much insurance. If you make $50,000 a year and need to replace that there is no need for a $5,000,000 policy. Unless you are wanting your family to live the life of luxury that you were never able to give them. Personally, I am looking to replace our incomes and that is it. Plus some extra for our kids to go to university should they want to go.

Here’s what your insurance broker won’t tell you…

In some cases, your insurance broker is paid for how much of a policy you sign up for. Often they can get the first year of premiums (or more) paid directly to them plus an annual residual for however long you have your policy. They are supposed to be impartial and find the best solution for your needs, but it’s something you should keep in mind when you are getting told to insure yourself for more than you might need.

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Like every financial decision in life you are responsible for the things you do.

What are we deciding to do?

For now, our employers have a policy that we will provide us some insurance, so that will cut down the costs of what we will need. So our new policy will reflect that. Once this is done, I don’t plan on thinking about death for a long, long time.

What about you? Do you have life insurance? What did you decide to get coverage for when you were getting insurance? Let me know your thoughst on insurance in the comments below

10 thoughts on “Do You Need Insurance?

  • The industry school of thought is typically 10xs your annual salary. This would give your family money for burial and leftover expenses and a few years to get back on their feet OR invest in an income generating account where the principal goes untouched and the income covers their needs.

    I know we are probably underinsured at the moment. When we first got policies we were expecting our first child and *planning* (😂) on just one. We got enough to pay off our mortgage, provide daycare expenses for 13 years, and money to invest for college. Girl number 2 decided she was going to be born just 15 months after her sister. We have a larger mortgage now, our incomes are much higher and there are now two to educate. I’m not sure what my husband would do for care, since he travels frequently. We probably need double our coverage we have currently!

    • Thank you for such a great and insightful comment! 🙂 It seems like you have really thought things through and I found your insights to be a great help. I’m still on the fence about how much we should have. It’s a tricky thing you don’t want to waste money, but the thought of being short of money would put an even bigger burden on my family should something happen.

      • You could have the worst case scenario amount and then decrease coverage as time goes on. Like say for all I mentioned above we need 1.5 million and get a 20 year term. Well in another 6 years daycare won’t be as much of a worry. We could decrease by 100k. 15 years my kids will be done with college and our mortgage balance would be significantly lower and we should have a better investment amount saved so maybe we could drop down 500k for the remaining years to cover mortgage payoff, final expenses and income replacement until coverage runs out. Insurance companies will allow you to lower coverage and cost within the same policy.

        • That is really good to know about the longer term and dropping your insurance down as you go. Makes a lot of sense to lock in for longer when you are younger. Your premiums will be lower and you can get better coverage. Thank you so much for sharing that! You rock!

  • Insurance is a great financial planning tool and a fine way to keep peace of mind. I honestly didn’t look into insurance with any detail until I got married and started having children. Once that happened, we locked in a 20-year term that covers the entire house plus a little extra.

    If both my wife and I were to “leave prematurely”, our children would get close to $1M in benefits to maintain their quality of living and supplement any expenses that their new primary guardian would need to incur.

    It’s not the most pleasant thing to think about, but I’m glad we did. Having that peace of mind is wonderful. 🙂

    • It’s a hard thing to think about but we have known a few others who have “left prematurely” and want to make sure everything will be alright should it happen. I like what you have as a plan. Thanks for sharing it’s a great insight!

  • Hi Andrew,

    Thank you for writing about the importance of having adequate life insurance. I have read Wall Street publications recommending somewhere between 5 to 20 times the annual salary with the norm being 10 times the annual salary. This is very generic and is not the best method to determine if you have adequate coverage.

    The other end of the spectrum is a super complex calculator where just plugging in the information gives you a head ache.

    The method you have suggested here for calculating how much life insurance is needed is pretty solid and straightforward to use.

    One could always compare the results from your suggested approach to the results from a complex calculator that takes a lot of personal savings information to determine next steps.

    Thanks for sharing.


    • Hi Michael! Awesome comment. When it comes to insurance I find it to be very complicated. I like to break it down to the simplest point. Those are some great guidelines with salary. I’ve tried the calculators, they are probably the best but there is a ton of info you have to put in and even with that they are still a best guess. I figure as long as my earnings can be replaced, my family should be good. Fingers crossed they never have to use it 🙂

  • Andrew –

    I’m enjoying your updates and was surprised to see your post on insurance NOT including income protection (for if you DON’T die). I’m going to send you a free copy of my boss’ book on this subject. For LIFE insurance, some good comments are above and I’ll add this unique coverage for your consideration. I own this in addition to other basic term products.

    Keep up the good work!


    • Thank you so much for this Tom! I got the book and will take a look at it. It’s true I haven’t talked about income protection I don’t really know anything about it besides the name. If you would like to share more about it you could do a guest post on the topic.

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