Broker Check

How Much Life Insurance Is Enough?

July 25, 2018

Last week’s schedule happened to involve more travel than usual. In the span of five days I found myself in Omaha (at home), Des Moines, New York, Chicago, and Denver. On each of those days I followed my usual routine of waking up early to get in a workout and watch the local news. By the fourth or fifth day, something stood out to me. In each city, each morning, the local news reported the unexpected death of someone in the community. A drunk driver took the life of a 36-year-old father and his son, leaving a mother and two children. A small plane crashed in Chicago, taking the life of a 51-year-old business executive. In another city a young police officer was gunned down in the line of duty.

Each of these incidents abruptly altered the lives of people whom the deceased loved very much. In most of these circumstances family and friends had set up GoFundMe pages to raise money to help the family get through the difficult time. One fund had raised $12,000. Although I am certain the families appreciate the effort, the money will do little to ease the emotional burden they are suffering. Even worse, as the family begins to cope with their loss emotionally, they will realize that those well-intended donations have done little to lighten the tremendous financial burden of losing a breadwinner.

Maybe some of the people in these horrible accidents had life insurance policies in place. If the statistics are accurate, however, most were either uninsured or underinsured. Even if they did have life insurance policies, they probably had far too little coverage to provide their families with a financially secure future. I am sure that every one of these people knew a financial advisor. They knew property and casualty agents. They knew health insurance agents. They knew people who could have helped to lighten the financial burden on the bereaved but likely did nothing to help.

I would ask that you begin to be the exception to the rule. Life insurance is much easier to obtain today than it was in the past. This is especially true of term life insurance.

How much coverage will be enough? You can figure out the number quite easily. I recommend using the following simple three-step formula that I developed to determine the amount of term insurance I currently own. First, if I die I would prefer that any debt that I have be paid off to relieve my wife of the burden of future payments, so I added up the balances on the mortgage, the car loans, and any other payments that could become a burden. Second, I want to ensure that both my kids can go to college. Although they have college funds in place, I added a death benefit to get them a lump sum to cover college. Third, I want my wife to receive the equivalent of 10 years of my income to help her finish raising our children.

Obtaining the right amount of term life insurance is easy, but the results are profound. I know that if I die unexpectedly, my family will live in our home, paid for. My wife will have transportation, paid for. My children will get a quality education, paid for. My wife will have an income stream for a decade, paid for. The most amazing part is that I am spending less per month for that coverage than the cost of taking my family out to a great restaurant when we’re on vacation.

If your loved ones would be financially devastated by your untimely death, ask your financial advisor to about obtaining coverage.