As part of the coverage couple’s FAQ series, in this video we’ll be answering the question “How much life insurance do I need”?
As you may have guessed, the answer to this is very similar to the preceding question in our series entitled “How much does life insurance cost”? While this answer is definitely quantifiable, it’s individual. With that said, we can definitely provide you with proven guidelines to ensure you’re neither over nor underinsured. Maybe you’ve heard the phrase “Insurance poor”? What that means, at least traditionally, is having too much insurance to a point where your monthly contribution is a burden on your overall finances. The truth is that definition doesn’t make sense without considering a few factors.
Like so many things, insurance and investments aren’t one-dimensional or one size fits all. We can illustrate this with that phrase, “insurance poor.” The fact is there’s never been a widow or surviving family who sent money back to the insurer, because it was too much. The real reason people with an existing policy (or policies) claim to be “insurance poor” is because they’re either overpaying or underestimating their need. Your life has a very high value, a value that extends far beyond today, long after premature death. In fact, this value is so well known there’s been a calculation called the “Human life value,” (HLV) which industry professionals have used for a long time.
While this value can be accurate for your current and future earning potential, as a general understanding, it can’t account for the goals and gifts you have in store for your family in the future. It also doesn’t account for important factors like career transitions and income changes, which affect quality of life… the same quality of life you’d want to provide to your family even when you’re not there to provide it.
In our experience, this is the #1 consideration when working with you to propose a sound and sensible solution to needs now, and ambitions tomorrow. Math formulas fall short of creating a true-to-life portrayal of your significance. In fact, the top reason, by a LOT, for bankruptcy in America today is unpaid (and unpayable) medical bills due to the loss of income from a deceased mother or father — *irrespective of their income-earning, employment, or health coverage status.
We’re so used to thinking about insurance as a buffer against major loss, we pay a hefty deductible to get a broken arm or wrecked car fixed. The only problem with that is once you’re gone, there’s no repairing you. What studies prove lines up with common sense: Burying the surviving family under enormous debt while they’re burying a loved one, is the perfect storm of disaster. The one-and-ONLY method to make certain that NEVER happens, is through the product of life insurance…which as we cover in other videos should include Living Benefits.
LIFE INSURANCE NEEDS CALCULATION: Here are some wise guidelines to consider when calculating a range of total living/death benefit you’ll need to replace what you provide for your family; leaving them with a legacy of love rather than a disaster of debt. First would be your current annual income, including bonuses and anticipated pay-raises for 5 years. It’s VERY important you DON’T skip this portion if you’re not the primary income earner (or have no income at all). When 1 parent/spouse passes, they’re also passing along double-duty to the other parent/spouse. Second would be to evaluate your total monthly expenses and purchases — ALL banking apps today provide this data, most even give you a color-coded pie chart or bar graph. This would be your mortgage, car payment, and those 20 streaming services you’re subscribed to. Thirdly, take an honest precise look at future goals, whether it’s the cost of vacations your family enjoys, childcare expenses, and/or any children who are within 5 years of applying for college or getting married.
Finally, examine the type of life and lifestyle you’d like your family to have secured (and for how long), in the event you didn’t make it home tomorrow. Remember, most American’s don’t even have enough to cover a minimal funeral, let alone manage a mountain of debt while grieving. At a bare minimum, every married person, parent, and grandparent should have a non-negotiable baseline of 1 year of obligations secured in the lockbox of insurance. While this is a minimal approach, it would at least allow your loved ones breathing room, after you take your last breath. They can take their time honoring your memory, and tending to those looming concerns like the funeral, extended unpaid leave from work, the sale of the home and so forth — without rushing into poor choices under the pressure of a ticking clock.
That’s the most loving thing you can do for your family, when you’re no longer with them. Giving them the gift of a soft landing and the assurance that they won’t lose everything at the same time they lost the person who meant everything to them!
While a 5-year reserve might not sound like much, it’s truly the best hybrid of great cost-effectiveness, and verified success in real life. As we’ve discussed in other videos and articles on our Blog, Facebook, Instagram, and YouTube channel, more than 90% of consumers surveyed greatly exaggerated the actual cost of a life insurance policy with Living Benefits (like the many we compare at The Coverage Couple). Sadly, most people let this imagined unaffordability keep them from even looking into the facts with a simple consultation and quote.
We commit to conducting deep investigative research for you, and would like for you to reserve time with us, without any cost or obligation. We’ll carefully listen, and then follow up with a proven, practical, custom proposal for your review. HERE is our official invitation to take part in The Coverage Couple Challenge, where EVERYONE WINS. Visit the Scheduling Page at thecoveragecouple.com to see how much we can save you on your existing coverage, or provide a financial risk assessment and needs analysis for your review if you’re unprotected and univested. We hope to hear from you soon, because your life is worth the investment! -Aaron & Sarah, The Coverage Couple