Photo: J Nyberg, Denmark
Most of us know that life insurance is the most basic and essential of estate planning tools. It serves 2 fundamental purposes we face with end of life issues: (1) not leaving our loved ones with hefty funeral or memorial service bills and (2) replacing income if we were the primary wage earner or part of an even wage-earning team. So, most individuals who are employed have some type of life insurance.
As discussed in a former blog post, it is further understood that life insurance can not only afford relatives a certain solace during their grieving period, but it also affords benefits before the end of life, i.e., during retirement. However, when using life insurance for its additional benefits, individuals should be careful not to overdo it or you might end up losing money instead of earning a return on your investment.
Let’s visit the Petry’s, a small family of 3. Robbie is in her mid-30s and works as a middle manager for a high end office furniture sales company. Jerri is in her early 30s and works at a lucrative nail salon. Robbie and Jerri have one son, Ritchie, who is in his terrible twos. Robbie and Jerri each bought life insurance policies providing $500,000 of death benefits in the event one dies. That would provide about 7 years of replacement income. They also bought another $500,000 as retirement income, which will begin to earn value in about 10 years. Ritchie is so cute they thought he might one day be in movies, perhaps another McCaulay Culkin. So Robbie and Jerri also took out a $200,000 policy on Ritchie. Other investments include their home, which was left to Jerri by Aunt Sally, and is now paid for and valued at $200,000; and about $400,000 in other retirement planning instruments.
By now you have probably identified a number of issues involving Robbie and Jerri’s insurance decisions but I’ll point out a few basic points:
- If your family can move to 90210 or 60043 after you’ve departed, when before they lived in an area that didn’t consider dogs as purse accessories, that’s not a good sign.
- If you’re empty nesters, plan to stay that way.
- If the kid hasn’t been discovered by e-Trade yet, don’t put your money on it. Millions of really cute kids never make it to either screen – the big one or the little one.
BUT what you need to do is talk to your team – your estate planner, your financial planner, and your CPA. Talking shouldn’t cost, initially, and this discussion should give you a good idea of how much insurance you need to purchase in the event of premature loss. You’ll also know how much will be needed to keep the nest strong, sans the birdies in the event your retirement years are lengthy.
Money saver tip: Bundle your insurance like your family cell phone plans.
