Does My Family Need Life Insurance?

Does My Family Need Life Insurance?

July 30, 2015

This is a bit of a trick question.

There is no such thing as a life insurance policy for your family.

Your family doesn't need life insurance, you need life insurance because you have a family.

A life insurance policy is only sold individually to one person at a time.

Meaning you and your spouse would need to each buy your own separate policy.

What Type of Life Insurance Should I Buy for My Family?

Listen, this question can be loaded many different ways but really only comes down to one unpleasant result.

Your life insurance is meant to keep things as normal as possible if you die before you or your family are ready.

Let's be honest, you and your family are probably never ready for that to happen.

But, your goal is to have enough life insurance, to allow for that to happen.

The most practical and affordable option is likely term life insurance. This type of insurance is going to be the answer to that question nine times out of 10.

The other types of life insurance you might also come across are Whole and Universal Life insurance.

Because you are just at the beginning stages of understanding your life insurance options, we are going to focus the majority of this conversation on term life insurance.

We can come back later and see if it makes sense to mix in one of the other options.

A Very Real Life Insurance Example

Because I like to be as open and honest with you as possible I'm going to use my family as an example.

I live in Streetsboro, OH with my wife who's 31 (same age as me) and two kids ages two and four. We built a house a little over three years ago that cost $178,000.

We have around $15,000 in student loan debt that needs paid back.

If we wanted to make sure all that debt was taken care of and wanted to provide our surviving spouse with the same amount of money we would make for an extra 17 years after our unexpected death? We each would need around a million dollar policy.

The reality, I have a $1,000,000, 20-year term policy I purchased four years ago. She has a $500,000 30-year term policy she purchased two years ago. We also have a couple hundred thousand dollars in Universal Life Insurance.

That means, if my wife were to keep working during that time - she is actually underinsured. Obviously we were aware of this, but her rates were a little higher than mine so we bought as much as we could afford.

We pay a little under $100 a month for both policies.

That's not a terrible thing to do, as long as you're truly honest about what you can afford. If you have a decent job and tell me you can't afford $15 or $20 a month you're lying or have more immediate money issues to look at.

Also, at the end of the day as long as the policy is more than $50,000 or $100,000 that money will go a long way to making a bad situation better.

How Does Term Life Insurance Work?

It's pretty simple, you buy a policy for a specific number of years. If you die during that time, it will pay you the amount of money you choose, the fancy insurance word is face amount.

If not, tough luck. Which is actually good luck, because you'll still be alive.

But since these expenses your are trying to project won't last forever, having that much life insurance forever doesn't make sense.

Your kids will grow up and hopefully start careers and families of their own, that they will need to protect with life insurance.

You will, hopefully, at some point pay off your mortgage and the rest of your debts. That means your overall need for life insurance from a dollar amount perceptive will dramatically go down.

What about Savings for College?

This use to be an automatic number included in your life insurance calculation, but I'm going to share a progressive idea that is nothing more than a prediction, but I'm fairly confident will prove true over the next 15-20 years.

Big time college and university tuitions are dramatically outpacing their value and overall usefulness.

Costly infrastructure, slow outdated coursework and disconnected curriculums will have an increasingly harder time completing in the real time world of online learning.

How much specific stuff did you have to learn for your job that you never came close to learning in college?

If you think I'm making this up, the social network LinkedIn bought one of, if not the biggest online eduction sites for $1.5 billion.

Sites like these and many others are going to be able to offer a more targeted and specific education at a fraction of the cost these big business schools are trying to squeeze out of you.
I'm not saying having extra money on hand for your children's education isn't important. It just might not need to be as much and might server in the form of a litteral business investment instead of a warm and fuzzy figurative one.

Just like we've been watching the slow death of printed news publication, secondary education could very well be the internet's next victim.

The Bottom Line

If you're not sure you need life insurance, you probably do.

If someone else is depending on your financial viability for their continued existence than you need life insurance right now. Not later or in five years or when you or the kids get older. Right now.

The younger you are with those responsibilities the less time you've had to make money and protect your family.

When all of the confusing insurance dust settles, you will probably find yourself with a term life insurance policy in the center of any solid life insurance plan.

Next Step

Let's learn a little more about term insurance, what it might cost for you and what it doesn't do.