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You don't have enough life insurance
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The title may seem like too blanket a statement, but in this case it isn’t. Unless you are in a unique situation, you, like most of us, fall far short in protecting our family against the unthinkable—you not being around to provide for them.
What do you think it will take for your family to maintain their current lifestyle if you’re not there? Most financial experts say you should figure at least 75 percent of your current income in determining this. But that may not factor in some things. Do you have young children who will someday be headed to college? Their tuition, room and board, and expenses will have to be covered. And of course that 75 percent of current income doesn’t take into account the ever present bugaboo—inflation, which right now is running at four percent. If this rate continues, you have to multiply that 75 percent by 1.040 every year that passes. In ten years, a $50,000 need becomes $74,000.
So how much insurance do you need? You probably already have a start with a policy provided by your employer equal to your salary, or perhaps a multiple. And I’ve developed a worksheet for you to determine how much additional insurance you will require to met your family’s needs.
Here’s the worksheet;
1. What is your current gross annual income? -------------------
2. What do you reasonably and realistically expect
your gross income to be in 10 years? (Don’t
wish; be conservative, if anything.) ____________
3. Determine your current total living expenses.
Food ____________
Clothing ____________
(include drycleaning,
repairs, etc.)
Mortgage/ rent __________
Furnishings ___________
Appliances ___________
Child care ___________
Entertainment ___________
Vacations ___________
Unreimbursed
Insurance premiums________
Club dues &
expenses______________
Loans &
Credit cards __________
All taxes __________
Other expenses__________
TOTAL LIVING EXPENSES ___________
4. What do you reasonably and realistically expect
these expense to be in 10 years? ________________
5. What are your current total expenses for auto
Transportation and upkeep? ___________
6. What do you reasonably and realistically expect ____________
these expenses to be in 10 years? (Again, be reasonable;
don’t wish for that Lamborghini.)
7. Total your answers to questions 3 and 5. ____________
8. Multiply the number in question 7 by 1.6 to account ___________
for inflation.
9. Total your answers to questions 4 and 6. ___________
10. Subtract the number in question7 from the number
in question 9. _____________
11. Add the number in question 10 to the number in _____________
question 8.
THIS IS THE AMOUNT OF MONEY YOUR FAMILY WILL NEED
IN TODAY’S DOLLARS JUST TO COVER THEIR CURRENT EXPENSES.
12. If you want to fund your children’s college, record ________________
The current tuition and expenses of the desired
University, or $15000, whichever is greater.
13. Multiply the number in question 12 by 4
(or 5, 6, etc. if you want to fund graduate school). ________________
14. Multiply the number in question 13 by 1.6 to account
for inflation. If you have more than one child, multiply
this by the number of children. ________________
15.Add the number in 14 to the number in 15. _______________
16. If you want to provide all your child’s living
living expenses, add $50,000 for each child in 15. ______________
17. Determine the level of luxury you want to provide
for your family. You can add your current luxury
expenditures from question 3 and multiply them by
1.6, or take 20 percent of the number in question 2. ______________
18. Add the numbers in 11, 16 and 17. _____________
THIS IS THE AMOUNT OF MONEY YOU WOULD NEED TO MAKE
AVAILABLE IF YOU COULD EARN 8 PERCENT ON IT TO MEET
YOUR GOALS FOR YOUR FAMILY IF YOU WEREN’T AROUND.
19. How much free life insurance does your company
provide? ______________
20. What is the current value of your liquid investment
portfolio? ______________
21. What do you reasonably and realistically expect
it to be in 10 years? (If you want to be ultraconservative,
multiply the number in question 20 by 2.2. If you expect to
fund your portfolio at the current level, multiply by 3.3.) _____________
22. Add lines 19 and 21. _____________
23. Subtract line 22 from line 18. _____________
THIS IS THE AMOUNT OF ADDITIONAL INSURANCE YOU
NEED TO MEET YOUR GOALS FOR YOUR FAMILY IF YOU’RE
NOT AROUND.
Scary?
But not to panic. The insurance industry has undergone a major restructuring in recent years, and now offers very affordable life insurance products that can solve that problem quite inexpensively.
These products are term life insurance. In days of yore, the industry offered only whole life—policies that built cash value and you paid on until you were 100. They were very expensive—sometimes as much as $25 per thousand of coverage. Term began to become popular when financial planners and other advisors began to convince clients they should invest that money in stocks and bonds and buy only death coverage. That is term life.
Term insurance does what its’ name implies. It covers you for a certain term of years. Until recently the standard package was 10 year level premium. The level premium means you pay the same amount every year for ten years. After that, the premium goes up, depending on your age, for another ten years.
In just the past couple of years, however, the competition among term providers has increased so greatly that many have developed products with terms of 20 and even 30 years.
And at the same time the premiums have plummeted. For example, a 40 year old non-smoking male in good health can get a 30-year level premium term policy of $500,000 for as little as $545 a year. The younger you are, the less you pay, of course, which is why the new, long term products are perfect for younger people. You can check out these long term policies at http://www.term4sale.com/golong.htm.
If you want to know more:
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