June 22, 2007, 1:26 am

Financial Cliché III: A 100K life insurance is enough for everybody

by: The Financial Blogger    Category: Financial Cliché
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I’m writing another post on financial clichés. There are so many of them, it is not even funny!

When you pass away, you don’t need money anymore. All you need to leave behind is enough to pay for funeral, flowers and maybe a few debts. Too many times I’ve heard this kind of reflection. I always smile back and ask: “What about your wife and children?” Life most goes own, but they will surely need a way to compensate for your income.

Paying for the day you leave is not enough. A 100K is not enough. In order to do some good estate planning, you would need much more than this. In fact, you need enough money to cover for the number of years your children need before majority. For most cases, I would strongly suggest to consider the option of a 20 years term life contract.

In order to calculate the right amount, you need to establish the portion of your income that is not related to your own expense. In other words, you need to calculate what you earn less what you cost as a person in term of food, car, clothes and other expenses. If you only take 30% of your income for yourself, it means that your family rely on 70% of your pay check. If you leave them without insurance, they might end up with difficulties such as selling the house or cut in children’s education.

Most insurance broker will be able to calculate the right amount required in order for your family to live on with the same lifestyle. When he will lift up his eyes from his computer, make sure to read the amount on his lips as he is speaking. This might be the only thing you remember when you will wake up after fainting. The amount will be substantial, probably more than 400K. It sucks to talk about death, but it sucks even more if you leave your family with nothing but flowers. Those possibilities must be discussed and protection must be purchased. Don’t jump if your insurance broker suggest an half of million dollar policy. For an individual making 80K a year, it could easily go up to a million dollar. As I always tell my wife, I worth more dead and alive!

As you can see, a 100K insurance policy is very far from the truth. It might be true for somebody who is living on his own and has no dependent. But for anyone who has a family, you definitely need more coverage.


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