The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
No surprise there right? Why would I mind if my wife hit the lottery? She does not play the lottery, so let me explain what I mean. When I was an insurance agent and I was discussing life insurance with my clients, I would frequently hear that phrase. “I don’t want my wife to hit the lottery if I die.” Husbands would be afraid that their wives would receive too much money. That by receiving the life insurance benefits, that their wives would be too well off.
I would try to reason with them as to the amount of coverage that was appropriate, but it was usually to no avail. This is probably why I am no longer an agent. My gut reaction was always, “Who cares, you are no longer around.” What does it matter if you leave your wife in a nice position after you are gone? I am going to discuss the things that I evaluated when I purchased my term-life insurance policy with a death benefit of $2 million. This policy is a 20-year term policy with a premium of $80 a month.
Social Security
Yes, there are survivor benefits. There are separate benefits for the surviving children and spouse that cares for the children. The benefits would only last until the children are 18-years old. When I bought my policy that was basically 18 years, as my youngest was just born. So, how much are the benefits? That depends upon your earnings.
I went onto the Social Security Administrations website and looked up my personal statement. For my family, they would receive basically $3,900 a month. This included benefits for each child and for my wife. The benefits were capped at the $3,900 amount. I then looked at what were the expenses that need to be covered. After eliminating certain expenses associated with just myself, I estimated that my wife would need to cover about $4,800 a month. This amount would allow them to continue living their lives in exactly the same fashion, with no disruption.
Debts
At that point in our lives, we were fortunate to have very little debt. When I took the policy out, we still had some outstanding debt, minor credit card debt (less than $10,000), a car loan, student loans, and a mortgage. With the benefit that I had purchased, my wife could easily eliminate the smaller debts and continue to pay the mortgage. Today, the only debt that is left is the mortgage and car loan. Both of which have very low interest rates. So, in evaluating your coverage amount, take into account whether you need to pay off any outstanding obligations.
Retirement
The retirement plan that my wife and I have worked out, assumes that I will be working for the next 30-years. If that doesn’t happen, my wife would not be able to retire in the manner that we had planned for. So, the reason for the death benefit is largely based upon this need. Since she only needs about $1,000 a month in addition to the Social Security benefit. That represents only 0.6% of the death benefit over a year. The remaining amount can stay invested and grow over time. This will ensure that my wife can retire when she wants to without fears or worries.
Be methodical
In what would certainly be an emotional time for my family, I eliminated any financial concerns. My family can remain in our house and not have their lives disrupted in any other way. When calculating how much you need, you need to decide what it is you are trying to replace. Being the sole income source for my household currently, I need to replicate my income stream. This was done with a combination of Social Security and my life insurance. My family will certainly miss me, but what they won’t miss is my income.
Crystal’s Comments: Readers, how did you figure out how much life insurance to shoot for? My husband and I don’t have kids yet like Mike. We also only have one mortgage left and no other debt. So we only have $250,000 policies - enough to cover the funeral and live like we do now for 3-4 years while the survivor finds their footing again.
That is a horrible way of thinking about your wife if you die. Those men really feel bitter towards their wives because that is not the right way to serve your family if you die. The right way to get insurance is to multiply 10X the income for coverage. if you earn 50k annual income then you need at least 500 thousand 20- year term policy. Thanks for the post.
EL @ MoneyWatch101 recently posted..The Door to Opportunities
Totally agree EL. It was also usually said right in front of their wives too. I didn’t understand it then and still don’t understand it now. That is a decent rule of thumb to use 10x salary, but you want to make sure the amount covers everything that you want it to cover. In my case, I needed around 20x salary to feel comfortable. Everyone’s situation is different.
Totally agree with Mr. El here, thats certainly a very dim view those husbands had of their wives. If I were married and with a family I would surely want the very best for them moreso when am no longer around to take care of them. Infact I think it would be more prudent if fiscally possible to take out a policy that would cater for all their needs and more to cushion them until they re-established their footing.
Simon Elstad recently posted..Lending Club Review - Peer to Peer Lending Platform Review
Simon, maybe it was a way to pay less for the insurance, but it was always an awkward conversation after that. I love my wife and want to make sure that the time after I’m gone is as easy as possible. If that means she hits the lottery with me passing then so what. She’s already gotten a rotten ticket with me passing, why not bring a little joy back into her life.