So now that you’ve had a week to think through this thing called Life Insurance, what do you think?
Hopefully, after gathering the three items from last week’s blog and studying them, you realize that it is now time to secure life insurance outside of employer provided life insurance coverage.
Let’s get started. How much employer provided coverage do you have? How much non-employer coverage do you have? Gleaning from your bank statements, highlight non-monthly expenses. This could be property taxes, car insurance, homeowner’s or umbrella policy insurance. If PITI is included in your mortgage payment, then go with that. Take an average of monthly expenses after backing out the above non-recurring items. Your spreadsheet could look something like this.
|Life Insurance-Employer provided (1 times annual salary)
|Life Insurance-Term life policy (non-employer provided)
|Monthly expenses (excluding non-recurring charges)
|Non-recurring annual charges
Here’s what I glean from this analysis: If you die tomorrow, you owe $330,000 in debts, your annual expenses are $48,000 ($4,000 x 12) annually with non-recurring annual charges of another $5,500. Your family is left with the surviving spouse’s salary (if they even work) and $50,000 in life insurance to pick up and make something of their lives. Essentially, that glorious employer provided coverage gives your beneficiaries one year’s worth of expenses and nothing towards the debts that you owe. This is a very typical scenario and as you can see it is not going to work.
So do something that is going to work. The above matrix is overly simplified for purposes of one thing: Getting the point across. The number crunching should be much more extensive. Google “Life Insurance calculators” for good examples. What I generally find when I scrub the numbers are things I wouldn’t have normally thought of if I didn’t scrub the numbers. Do the right thing for your beneficiaries and scrub the numbers. Pay attention to the details.
Here are a couple of options:
- Buy more employer provided coverage, especially if its portable. Buy enough to start closing the gap.
- Secure your own life insurance policy outside of your employer’s. This could be in the form of a longer term “term” life policy based upon the ages of your beneficiaries (children).
- Meet with an insurance advisor (fee only) and pay them to do the above analysis on a more extensive basis. Discuss other forms of life insurance and their applicability to your circumstances.
Here’s why you buy life insurance:
- To provide continuing income for your family members
- To pay off debts you leave behind
- To pay final expenses and taxes
- To provide an estate for your loved ones
- To leave money to charity
Do this now! Because it’s about life and how you live it!
In the spirit of financial well-being,
As Open Enrollment season approaches, you might have the option to choose employer provided life insurance. Generally, most companies offer a no-cost group life insurance option limited to one- or two-times your annual salary. Needless to say, this is not an employee benefit option that anyone should pass up.
Here are some things to consider this open enrollment season when evaluating your benefits plan for 2015. If you are in any of the following categories, you MUST consider electing this coverage: Continue reading
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