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Let’s Get Morbid for a Minute: What Happens if You Die (Financially, that is)?

What could be more boring than talking about life insurance? The details may be dull, but the substance is crucial to the well being of your family. If you have a child, you MUST have life insurance. That child is economically dependent on you until at least age 18. If you have 2 kids, 2 years apart, you have economic dependence for a minimum of 20 years.

People have children later now and many couples are in their early sixties when their kids are finally economically independent. How will your surviving spouse raise your kids on just one income or what if both of you, unfortunately, pass before the kids are economically independent? You have to have proper life insurance coverage and if you have children, in general, the life insurance provided by your employer is nowhere near enough.

If you have very young children, proper life insurance coverage means TERM LIFE insurance for 20 years (less expensive insurance that pays if you die within the policy TERM). You only need to replace your income while your kids are dependent or up until you retire (if your spouse does not work).

Whole life insurance (or Variable or Universal) is expensive and unnecessary for MOST people (one exception: If you have a disabled child who will always be economically dependent on you). Whole life insurance is expensive. It never runs out and pays whenever you die. It is a big commission for brokers, and they will try to sell it to you.

Here’s the math I like to use with clients:
Spouse 1 makes $50,000/year
Spouse 2 makes $100,000/year

Spouse 1 makes 33% of the household income
Spouse 2 makes 67% of the household income

Spouse 1 coverage should be: $150,000 (total household income) * .33 *20 (years) = $990,000 (rounded to $1m because insurance is sold in round numbers)

Spouse 2 coverage should be: $150,000 * .67 *20 = $2,010,000 (again, round numbers would mean $2m)

If you are in your thirties, and healthy, this kind of term life insurance is not that difficult or expensive to get and you can easily comparison shop online if you don’t mind fielding some calls from sales people.

Yes, your lives and jobs will change, but the key is that you get covered now. If you cover yourself properly, the ones you love can replace your income today and for the foreseeable future. You know your family will not be impoverished should you meet an untimely demise.

Bottom line, get term life insurance now if you have kids or while you’re expecting if you haven’t had kids yet. Do not rely on the one year’s salary or whatever benefit your employer offers. It’s fine to keep that benefit if it’s free to you, but do not rely on it.