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. If you are looking for a good tool to sort through your insurance options, my friend Chris Huntley has come up with a great interactive tool to help you.
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.
Once you know what expenses you have had it’s time to think about the future.
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.
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
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