How Do You Want Your Survivors To Live? Are You Set Up That Way?

I believe that people often forget the real reason for most life insurance policies which is to provide for your family if you were to prematurely pass away.  With that being said, the next question is “how much” do you want to provide?

I was talking to The Wife recently about my previous upgrade and update of of life insurance and she thought I was overinsured! I couldn’t believe it, because the insurance is for her and my child(ren).  

Regardless of the amount of insurance I purchase my clear goal is not to die early.

What Does My Current Life Insurance Provide if I Die

I currently own:

  • $1,000,000 cheapest 20 year term I could buy
  • $1,000,000 expensive 20 year term from a mutual company that I plan on converting to whole life insurance over the next 10 or so years
  • $100,000 whole life insurance
  • $50,000 a 10 year paid up whole life insurance.  This means that if I pay the premium regardless of what happens my heirs will receive at least (probably more) $50,000 when I die

That leaves us with a death benefit of $2,150,000.  If The Wife decided to stay in our home, she’d pay off that mortgage and be left with around $1,765,000.  If she were able to get 4% net from the remaining amount that would leave her with an income of $5,800/month or so after taxes (with the principal in tact).  Without a mortgage I think nearly $6K of monthly income would be sufficient…but over-insured? No Way. Actually I may argue I am under insured.

Remember How You Want Your Survivors to Live

I will probably pick up more insurance one day when we have another child or life, in general, changes.  Much like my reasoning to buy life insurance on my child, I do not want “need” to determine when or even if The Wife ever has to work.

5 Responses to How Do You Want Your Survivors To Live? Are You Set Up That Way?

  1. Hm. Interesting question.

    Depends on your time of life, I expect.

    While the ex- and I were still married, he carried enough insurance to pay off the house, since there was NO chance I would ever earn enough to cover our mortgage payments. We each had whole life policies — his was larger than mine, as I recall — and we each had term life policies.

    Today the only person I need (or care to) provide for is my son. At this time the whole life policy has him as its beneficiary, but I’ve quit paying premiums on it and taken out the cash value that could be drawn down without tax liability. The death benefit if about twice the amount of the remaining cash value, which I regard as a kind of uber-emergency fund.

    Otherwise, he will inherit a paid-off house in a decent neighborhood, which he can either move into or rent for a respectable income. Unfortunately most of my savings are in a traditional IRA (I rolled over my 403(b) after the layoff/enforced retirement, not quite doubling the existing balance), so he’s going to get soaked for taxes.

    However, even after tax, assuming he keeps working and saving at the rate he does, what he’ll inherit from me combined with his own retirement savings should set him up pretty well for old age. Or, for that matter, if he moved into my house, getting rid of his own mortgage payment, it would allow him to improve his lifestyle and still have extra money from his salary to put into savings. If he sold my house and stayed in his place, he would net about $220,000 after closing costs, which would be enough to pay off his mortgage and then some.

    I’d like to leave him enough that he could live a better lifestyle & travel, or put his kids through college (if he ever has any), or never feel trapped in another job that he hates, or move back to the Bay Area, or have enough in savings to retire comfortably no matter what crazy things happen to Social Security & Medicare. Or…all of the above. :-D

  2. Since my husband and I both work already, the assumption is that we would also be working after such an unfortunate event. We therefore have enough insurance on each of us so that the mortgage would be paid off and then there would be an extra $400K to set aside as needed. Having only one child, we feel this would be enough to help provide for him as he grows (based on our expenses). Sounds like you have the insurance that suits your needs for your situation and that is what’s important!

  3. Hi Evan…just found your fascinating blog as I am also on way to millions!

    I too recently looked into life insurance, and spent the last 6 months reading literally EVERYTHING about life insurance.

    Let’s just say that I doubled my life insurance for this simple reason:
    I love my wife and kids, and I want to give my wife the OPTION of not working in the event of my pre-mature passing, to give her time to grieve and move on with her life. In the future, if she finds another life companion to share her life, that she can do so for love and not for financial support. And my kids…well, more money so they can live the life that I would have provided for them if I were still alive.

    That being said, I ended up buying a superb high cash value Whole Life as well as one of those fancier Indexed Universal Life. In 30 years if I’m not dead, those policies will generate for me lots of tax free income!

    Nguyen

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