Financial responsibility. To some it means sticking to a monthly budget and paying your bills on time, to others it means investing for the future. Yet, to a select it few means….nothing. For those out there who don’t quite “get it”, this blog entry is for you. A “reality check” if you will.
Warning….this is probably the most in your face / brutally honest / tough-love kind of blog that I have ever written (and will ever write). While I have had a somewhat direct style of writing in a few of my past blog entries, this particular one is a little out of character for me. In fact, it’s going to get a little rough, but trust me it is for your own good. Read at your own discretion.
If you earn an income and especially if you have dependents (ex: kids), you need to be financially responsible. Yes, you need to have a budget and pay your bills on time. Yes, you need to invest your money for the future and of course for your retirement. Here’s one more for you, if you have people depending on your income you need life insurance. Oh, you think that the topic of life insurance is taboo? Well then you seriously need to grow up and change your thinking. Yeah, life insurance is not a cheery topic, but we’re all guaranteed to die eventually. It’s a fact of life and if you have dependents, you need to address it and prepare for it. In addition to life insurance, you most definitely need a Will, but that’s a discussion for another time.
You need life insurance, there is no question or debate about it. And you need a specific amount based on your particular financial need. I’ll tell you this much, the life insurance policy that you have at work (if your job even offers you one) for most people is nowhere near enough. The group policy that you are covered under at work will only replace between 2-3 times your annual income, at most. Even many of the highly compensated executives who receive more coverage are still under-insured.
You need to have an individual life insurance policy on yourself. Not having a personally owned life insurance policy says one of two things about you. You are either ignorant or simply immature. The term “ignorant” is not a bad word nor is it even derogatory. It just means that you have made a decision without having all of the relevant facts. Maybe you haven’t sat down and figured out exactly how much of your income is required to keep up the standard of living for your children/dependents. Maybe nobody ever discussed with you about the financial impact that your passing will have on your family. So maybe, just maybe it’s not your fault that you never really thought about purchasing a life insurance policy. Then again, with all of the financial information that’s available with a click of a mouse, maybe it is partially your fault.
The fact of the matter that is you need to have enough life insurance to replace your income or at least pay off your debts, so that they won’t burden your dependents. Contrary to what you may have heard, life insurance is not very expensive at all. Most people don’t need a multi-million-dollar permanent life insurance policy. A very affordable Level Term life insurance policy, one that will cover you until retirement (ideally) is all you really need. Unless your looking to do some sort of complex business succession planning, or inheritance & estate tax planning for an estate large enough to be subject to federal estate taxes, a basic 20, 25 or 30-Year Level Term policy will do just fine.
When calculating coverage amounts, the general rule of thumb is to have between 8 to 12 times your annual income in total coverage. So if your annual salary is $75,000, then you really need between $600,000 and $900,00 in life insurance coverage. If you have an employer policy of $150,000, then you need to purchase an individual policy of $450,000 to $750,000 of coverage to be fully insured. Keep in mind that your specific need may require more or less coverage. Are you looking to replace 100% of your income? Maybe just replace half your income and pay off the car and student loans? Or are you just interested in paying off the mortgage and loan balances, and then have some cash left over for a modest burial? These are questions that you need to address in order to be properly covered. This is what a financially responsible adult does, plan for the inevitable.
Below is a real world example of what coverage actually costs.
A 37-year-old man earning $50,000 a year, who’s a non-smoker and that is in generally decent health, can qualify for a “Standard” rating (let’s forget about “Preferred” or “Preferred Plus” for the moment). A 30-Year Level Term policy of $500,000 of coverage (10 times his annual income) with Banner Life Insurance Company, which will cover him until he retires (age 67) will cost him $86.83 a month. That’s only 2.08% of his monthly income; most people pay more than that for their cell phone bill! If he pays it on an annual basis, the cost will only be $992.38 a year. And if he’s the type that exercises regularly and eats healthy, he’ll most likely qualify for “Standard Plus”, “Preferred”, or even “Preferred Plus”, which will be even cheaper. Women actually receive a lower cost per thousand for life coverage than men do. For a 37-year-old woman, the same exact Banner Life 30-Year Term policy will cost only $69.04 a month (1.66% of her monthly income) or $788.98 if paid annually. Oh and ladies, if you’re a single mom you can’t afford to not have adequate life insurance coverage! It's not even up for discussion, you need proper coverage. Get it.
And for you smokers out there, today you can get more affordable rates than were previously available to you. There is now “Standard Smoker” rates and “Preferred Smoker” rates. Certain insurance companies will favor smokers that smoke less than they use to, so it pays to cut down a bit and then shop for coverage.
The point is this; unless you have a pre-existing condition, which makes you 100% uninsurable, you have no excuse to not have adequate life insurance coverage on yourself. Be a financially responsible individual and think for the future of your dependents. Have a budget, pay your bills on time, invest for the future, and for heaven’s sake get yourself covered with adequate life insurance coverage.
Here ends the sermon.
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*This blog is strictly the opinion of Michael A. Malleo and not those of
ASH Brokerage Corp., Quest Capital Strategies, Inc., nor any of our affiliates.