How does life insurance fit in the budget?
by Jerry Ricketts 04/13/2011
It seems that for many families there is too much of the month left at the end of the money. So, where does all our money go? A typical families biggest expense would probably be Housing. This would include the mortgage/rent payment along with all household expenses such as electricity, gas, water trash, cable and repairs. Other categories would include transportation, insurance, food, personal care, pets, entertainment, loans, legal and taxes. Savings and retirement plans would round out the budget considerations. Recently, I had a couple of friends die. They both were in their prime and the main bread winner for their family. It is a sobering thought to think what would happen if you or I were to die prematurely?
Like you, I care about my family’s future! No matter how financially challenging things are for you today… what would happen to your family if you were to die next week or next year? Would your loved ones be able to simply maintain their same standard of living? Because of medical advancements and the fact that people are living longer than ever, life insurance rates have been going down the last 25 years. Buying the right type of life insurance is important but equally important is having enough insurance to cover the most important budget categories thus making sure that your families dreams don’t die with you.
I just finished my 35th year in the insurance business. In our offices, I have witnessed the deaths of dozens of clients. I can confidently say that most surviving spouses have the same concerns. After the initial “shock” of experiencing the unexpected death of a spouse that surviving spouse faces countless emotional and financial decisions. A spouse has never said to me that she/he was left with too much insurance! By the time people reach retirement they are either very glad the purchased life insurance or very sorry they didn’t. Life insurance in the only thing that will guarantee you a known sum of money at an “unknown time”. None of us know when our time is up…that “unknown time”. This then is the reason why people purchase life insurance. What financial concerns need to be covered by life insurance? Of course, every very family/individual situation is different.
Immediate cash requirements should include the following: First, having cash reserves equal to six months of income. This allows the surviving family members to grieve your loss. Second, other final expenses including funeral costs and possible medical/hospital bills. Next, having enough money to pay of the mortgage (1st and 2nd) or a lump sum to purchase a home. Remember, with the loss of your income what are the chances of your family being able to buy a future home? You may also want to consider having money set aside for an emergency fund. Additionally, if you have children that have not finished their education, then a fund should be set up for this purpose. I know this sounds like a lot to consider but remember…when considering the above needs most investments ask for dollars and promise pennies; life insurance asks for pennies and promises dollars so be liberal with your amounts
The second pool of money concerns the continuing income requirement of your family. The home might be paid off but all the other bills keep rolling in. How much of your lost income needs to be replaced? The typical bread winner uses approximately 20% of his/her income on personal expenses. How much of your income was used for the house payment? With prior planning, these two major expenses are no longer needed. There are formulas to figure the remaining monthly income needs that take into account such things as survivor/social security benefits and whether or not the surviving spouse will work outside the home.
Where will this money come from? It either comes from capital you have already accumulated and/or life insurance proceeds. I know that many people spend more time each year planning their vacations then figuring out and securing their families financial future. I spent my entire adult life helping families realize that most other insurance is “if” insurance but that life insurance is “when” insurance. I can be reached through this web site.
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