Is Life Insurance Enough?
Life Insurance is a vitally important tool to protect your family against the tragedy of an untimely death, but if you need to be convinced, let’s think about it this way. If you are married and have children, especially minor children, it is likely you don’t have much free time or excess cash at the end of every month. Hopefully, if you have been able to save, your savings and investments need time and compound interest to mature and provide the retirement you want, and hopefully one day leave something for your children. You see, if you die, your family’s expenses really don’t go down. Your family will have to make the same mortgage, vehicle, utility, insurance, and credit card payments. There are still groceries, school supplies, shoes, daycare, saving for college, saving for retirement. The time commitment your children require, previously spread between two parents, is now the responsibility of one grieving parent. If your surviving spouse is going to be able to compensate the time you used to give the kids, will he or she need to work less? Of course, no amount of money will ever replace you, but whether you are a single income or dual income family, what would happen to your family if your income disappeared?
If you don’t have enough life insurance, your family will be stuck facing some hard realities. One reality surviving spouses often face is the only ready means he or she has available to replace you and your income, is to re-marry. This may sound harsh, but if you don’t have sufficient life insurance and you die, you may very well be sentencing your spouse to re-marriage, bringing a whole new meaning to “the old ball and chain”, doesn’t it? I am sure that most of us, deep down, want our spouses to be able to move on and love again should we meet an untimely demise, but do you want your spouse to be on-the-clock to re-marry before the money runs out?
So, how much life insurance is enough to ensure that your family’s grief isn’t compounded by financial troubles? Generally speaking, it takes 10-12 times your annual income. Properly invested, 10-12 times your annual income will return your annual income to the surviving spouse. If you make $100,000.00 per year (before taxes) when you die, and your life insurance benefit is 12x that number, your spouse will receive $1.2 million (tax free). Properly invested for an 8-10% return, your spouse will receive $96,000.00 to $120,000.00 of income (before taxes) from that death benefit. The ability to replace your income from a life insurance benefit ensures your family does not face financial hardship when you die. They will be able to grieve your loss without worrying about financial issues.
But wait! Is leaving a substantial sum of money to your spouse and kids outright and unprotected a good idea? For those that have attended one of our firm’s seminars or been following along with our newsletter, know that the answer is ABSOLUTELY NOT! Having adequate life insurance is only step one. Life insurance is a vitally important tool in solving financial issues for your family in the event of your death, but your estate and life insurance proceeds need someplace to land where it can be protected from death probate, conservatorships, guardianships, lawsuits, creditors, predators, medical bills, nursing home costs, gold diggers, fraud, divorce, poor decision making, addiction and the countless other tragedies a grieving family might face. With great estate planning, and a team of trusted professionals, you can ensure the money you sacrificed to save, and the life insurance benefit paid at your death, will be there to protect your family and ensure their future.
If you haven’t already, join Lubnau Law for one of our free Seminars where we provide information on the risks you and your family may face, as well as strategies and tools available to you to protect your family with modern trust planning. Learn more here.
- Nick Norris, Lubnau Law Attorney | Shareholder