I spoke with a young lady a couple weeks ago who was trying to compare life insurance quotes. Whenever I talk to someone requesting quotes, the first question I always ask is “What prompted you to begin looking for coverage?” Unfortunately, my question was met with the answer that her husband (we will call him Mr. Smith) had just passed away in a car accident at age 29. She is 23 years old with two young children, making $19,000 per year in retail sales with no college degree, and trying to figure out how to make ends meet. Her husband was making $45,000 per year at his current job and was scheduled to be promoted to a better job paying $60,000 per year.
Mr. Smith only had the life insurance provided by his employer as a basic benefit in the amount of his salary. Between funeral costs and other final expenses, Mrs. Smith was left with about $20,000 to help support her children. Mrs. Smith also happened to be looking for $250,000 of coverage, at a cost of about $18 per month. Many people making the same salary range as Mr. and Mrs. Smith request quotes from us seeking $100,000, $200,000, or $250,000 of coverage. If we consider that Mr. Smith likely would have worked for another 40 years at his new salary of $60k per year, not including any future raises or other benefits, the total income lost is approximately $2.4 million, a far cry from $100k or $250k.
Most couples generally agree that in the event of the breadwinner’s death, enough money should be left behind to pay off the mortgage, pay off other debts, set enough aside to cover the education expenses for children (usually 4 years of college), and replace the lost income. When all of those items are taken into consideration, it is not unreasonable to say that someone with an income of $50,000 per year may need $1 million of life insurance coverage or more depending on their age. A 35 year old male in excellent health can guarantee $1 million of coverage for 30 years (to age 65, retirement age) for about $75 per month. Would you risk your family’s future financial stability to save $50 or $75 per month?