We have reached this all important, crucial, second-half of our Take Back Your Finances 52-Week Challenge. The first half was dealing with immediate issues and start on healthier financial paths. We are going to be spending the next few weeks focusing on the future of our finances and taking crucial steps for a even healthier future.
And the place that we are starting, when it comes to estate issues is life insurance.
We are going to be asking and answering questions like? Is it really necessary? Who in the family needs life insurance? How much should we have? What type do we need? Etc.
We know that this is a topic that no one wants to discuss and wants to think about. We hate thinking about it. But the fact is, once you think about this part (the life insurance). But once you take care of this, you really don’t have to think about what would happen if you died. It is an issue at rest.
Is Life Insurance REALLY Necessary?
The short answer…..yes! We, like Dave Ramsey, believe that life insurance is a must have for all couples and families. You cannot ensure that you will continue to live and provide for your family. In fact to think otherwise is, in all honesty, arrogant and irresponsible. Insurance is intended to be for the unplanned and disastrous situations. No one plans to need insurance of any kind. If you die, what measures are in place for your survivors to keep surviving? If you can provide for them after your dying, life – which will be hard enough dealing with the emotional, mourning and loss alone – will be easier for them instead of having to deal with both your death AND how to continue to live.
In fact, it is so important, that it is not an expense that should wait – even if you have debts to pay off and more. Waiting is gambling and you don’t want to gamble on life. You really need to get something in place ASAP if you have not yet already.
Who In The Family Needs Life Insurance?
The answer we would give is…everybody in the house. Yes, everyone. Including the children. Why? Because funeral expenses alone can cause great financial stress on many families. Funerals are not cheap and you don’t want to be mourning the loss of a child and your savings account at the same time.
How Much Life Insurance Should We Have?
The amounts for each person will vary…GREATLY. For the primary money maker in the house, we agree with Dave Ramsey that at least 8-10x’s the income is needed. The main reason why is that your survivors can invest the money and at a 10% return, replace the income. That is really the minimum needed to maintain the lifestyle at the current rate. Getting even more secures their future even more, but of course, more can be added later too! Please just at least get the minimums!
For the spouse, you can also use the same amount as the primary working spouse because the cost of replacing a stay-at-home parent is often much more than the income of the working spouse! It has been calculated that most stay-at-home moms perform tasks valued at an income of over $100,000 per year. If you are the primary income provider and your spouse dies, what is the cost of childcare, housekeeping, and the many numerous other tasks that a stay-at-home mom does? Not to mention, if your wife is a work-at-home wife, the value of this also.
There are a couple of different methods to figure out how much – you can use the calculation of $50,000 times the number of years your youngest child leaves home. For example, if you have 10 years until the youngest leaves home, you may want a policy valued at $500,000 (10 X$50k).
To simplify even more, Dave Ramsey was asked the same question and he said 10’xs the minimum value of a stay-at-home mom, which is at least $35-40K per year = $350,000 minimum!
Deciding exactly how much to get on a stay-at-home spouse is going to ultimately depend on the cost of the policies and your current budget. But start with at least the minimum and then as your budget becomes more flexible, add more later on.
For children, you really just need enough to cover funeral expenses. Today, the average funeral costs anywhere for $7,000 – $10,000. This is an astronomical expense that you do not want to have to pay for out of your pocket when the cost to insure a child each month is often under $2! It is more than worth it. Let’s just pray and hope none of us ever have to cash in on an insurance policy on our children, but let’s also have peace of mind in this area to be able to grieve without this extra stress.
What Type Of Life Insurances Do We Need?
The final question is what type of life insurances do we need. Again, we agree with Dave Ramsey – Term Life is what you want. Avoid whole life, cash value or universal life. They really are a sham! Dave Ramsey has an article here explaining why these are NOT a good value, nor a good way to go! Also, here’s a couple more articles showing some differences and explanations of the different life insurance policies. First, why whole life is a bad investment for most people. Second, why 90% of financial advisors recommend term life.
This Week’s Task
So now it’s time to get to this week’s task! This task is for EVERYONE, including those that have life insurance already, because you should regularly review your life insurance policies and amounts. In fact, not doing so is one of the 5 Term Life Insurance mistakes that Dave Ramsey refers to.
First, note that oftentimes your employer does provide a little bit of life insurance as one of your benefits. But it’s often not more than 2 or 3x’s your income. This is not enough. But sometimes you can pay extra on your current benefits to increase your life insurance (generally referred to in your benefits as supplemental life insurance) or you can get the additional for an outside source. This process is just going to require a little bit of research and investigating to find the best price and policy – much like shopping around for home, car and other insurance. You just need to get quotes and find out what is going to be best.
Along with checking into adding into your work’s policy by paying a little extra, check with independent life insurance companies to compare, but also bundling with the company that currently provides your home and auto insurance. A likely reason that you are using a certain company for your home and/or auto is because they gave you the best price. The same could also be true of life insurance…and what’s more is that often bundling will give you an even bigger discount.
Don’t forget that in the end, factors like your lifestyle, driving record, credit history (again, another reason to have good credit, even for the debt-free), age and health will play a big role in the prices you can get! Are there things you can start doing or stop doing to get a better rate? Your family would probably appreciate it too. 🙂
Need to catch up? Come join us on this challenge from the very beginning by clicking on the 52-Week Take Back Your Finances Challenge and sign up to start receiving your automated challenge from the very beginning!
One final thing…we also have a Facebook Group where you can engage in discussions, receive encouragement and talk to others that are participating in the challenges too for more ideas! Head to the Be Intentional with The Thrifty Couple Facebook Page HERE and ask to join us there! You can also invite friends and spouses too!
Disclaimer: We are not licensed financial planners. We are only a couple that have been just a hair-breadth away from bankruptcy and found our way out of debt with a goal to now help others. Please make sure to consider any advice given on our site and in this challenge as tips we have used ourselves; they may not work for everyone. If you have questions please make sure to contact a licensed professional.