Most
people have a basic understanding of the
core reasons for purchasing term life
insurance or life insurance in general.
The need is pretty apparent if you have
financial needs that would severely go
unfunded were you to pass away. For
most people who barely have rainy day
fund to last a month much less 6 months
or 5 years, the concept of life
insurance is self-evident and if they
deal with it honestly, pretty
important. Going along with this
thought, most people intuitively think
to get life insurance on the primary
earner in a family where one person
earns the vast majority if not all of
the family's income. We can't argue
with this take on life insurance needs
but we want to make sure that people
understand the risk associated with the
non-working spouse passing away without
life insurance. Anecdotes always help
to clarify real-life situations and a
recent client's situation serves pretty
well. Let's look at Matt's situation.
We
received the call on a pretty typical
Wednesday. We had actually helped Matt
almost 5 years back find and purchase a
pretty ideal term life insurance policy
based on his income replacement needs
and financial responsibilities. We
brought up potential coverage for his
non-working spouse but he was adamant
that the need was for him alone. We're
not in the business of selling or
pushing, just guiding about term life
insurance so that was that. The call
indicated why we brought up some level
of coverage on the spouse. It was Matt
and he called to review his term life
coverage in light of the passing of his
wife. granted, he made the majority of
the family's income but that fact was
misleading when looking at the new
financial constraints he was feeling.
He had a house, a self-employed small
business, and 3 children. Obviously,
the family was in a state of emotional
collapse relating to the loss of his
wife but that financial considerations
also became apparent, surprising Matt.
Suddenly, there was a need for childcare
and support at home as his company
typically required 10 to 12 hours days
and any day spent not working meant a
loss of income. He didn't have flex
days as the owner. Those were the
ongoing expenses that we would now need
to deal with and he didn't expect it to
run 1000's of dollars per year until his
younger daughter was 18 (not to mention
college). There were also immediate
expenses which hit hard at exactly the
wrong time financially.
Most
people don't realize that a funeral can
quickly run 10's of thousands of dollars
in immediate expense. Many people end
up putting this expense on credit cards
only to pay them down for years (at
multiple amounts of what the original
cost was thanks to those lovely credit
card interest rates). There was a
significant medical expense as the
result of treatment received prior to
his spouse passing away. When all
combined, he was looking at $45K which
was exactly going to be found in petty
cash from his business. So how do we
address these needs without over
insuring a non-working spouse?
First, make sure to at least cover final
expenses (funeral, medical, transition,
etc) of about $50K. We further
recommend another $50K (since $100K is
not only a nice round number but
typically where the first price breaks
of term life insurance occur) to cover
the long term transition resulting from
a spouse's disappearance from the home.
When we say non-working, we mean for pay
but everyone who has a child knows that
it really is the hardest job to run a
home...much harder than any 9 to 5
you'll every come across. $100 of term
life insurance should be very
inexpensive and a minor footnote to
provide for an all-around approach to
protection....protection from having to
make a call to us like Matt did.
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