Life Insurance Is Critical When You Have Dependants
Saturday, June 7th, 2008Lately I have been reviewing my investment portfolio in light of the new addition to may family and have discovered a few minor things that needed tweaking.
I mentioned in an earlier post that my wife and I have purchased additional life insurance through my employer’s group plan. This plan offers a heckuva great deal on life insurance if you are a younger, non-smoking employee or spouse.
The Cost of Life Insurance
My wife’s additional life insurance of $200,000 costs us $4.10/month.
My additional life insurance of $200,000 costs us $7.90/month.
For those of you unfamiliar with Life Insurance, females are proven to be less of an insurance risk with their typically longer life spans and lower frequency of accidental death. Therefore, it is usually very inexpensive to purchase term life insurance for a female in her twenties.
I really couldn’t believe how cheap a good life insurance policy can be. If you’d like to check it out for yourself you can click here to get a free life insurance quote.
Employer Sponsored Life Insurance Benefits
Like many employers, both my wife’s employer and mine offer life insurance as part of a paid employee benefit package. Our employer paid plans are quite different and it is fairly typical that not all plans are created equal.
My wife’s employer sponsored life insurance plan offers her a flat benefit (as of her union’s last contract) of $177,000. This equates to approximately 3X her annual gross salary at this time. However, her life insurance benefit is not indexed to inflation (except when a new bargaining agreement is reached) and is not derived as a function of her salary. As such, when her salary increases as it does annually, her life insurance benefit remains at $177,000.
My employer sponsored life insurance plan, on the other hand, is derived as a function of my salary. It is in fact 3X my gross earnings (not including commissions and bonuses). My employer sponsored life insurance is now $186,000.
How Much Life Insurance Should I Have?
There are many, many schools of thought on life insurance and I am certainly not an expert in the field. However, I do feel that my wife and I are adequately insured.
Because our only debt is our mortgage at about $175,000, my $386,000 in coverage will more than cover that debt allowing my wife to focus her income solely on the day to day living expenses of the household which would obviously decrease if I am not around to eat 90% of the groceries, take long hot showers, and leave the TV on all night!
This would also leave my wife with $211,000 tax free dollars to invest for my daughter’s future and take care of any unexpected expenditures that may arise in the future.
If the life insurance proceeds invested in a basket of dividend growing common stocks, this lump sum should provide her with approximately $8,000/year in additional income that is likely to grow at a higher rate than inflation over time.
Do I Really Have Enough?
As mentioned earlier, there are many different schools of thought on the calculations that should be used to determine the “proper” amount of life insurance. Some people would say that I need at least 10X my income; I think that is over-insuring.
I don’t want my wife and daughter to struggle financially, but at the same time I don’t want to spend a lot of money banking on my own demise that I could invest in other assets with current cash flow- like stocks (which would be left to my wife as well) !
There has to be a happy medium and I believe that I am very close to that with my current insurance situation.
Your Take on Life Insurance
Am I missing anything?
How do you calculate your life insurance needs? There are several calculators out there, most online insurance companies have them on their websites. Click here and go to InsureMe.com to use their calculator for your life insurance needs.
I’d love to hear your thoughts in the comments.
