Last week, I was shaken when I heard about the tragic death of a Glen Ellyn acquaintance that lost a two-year battle to cancer. The death of this fine man, husband and father hit home not only because he had lived a few blocks away, but he was also my age, 48, and had three children; one of them is a classmate of my daughter. The family posted a beautiful video of his pictures from the time he was born through the many significant life events including his marriage and time with his friends and children.
I was on vacation with my wife and three kids last week and the stunning news put me in a reflective mood. On the one hand, it made me appreciate all that I have and on the other, I couldn’t help but wonder what financially related choices my wife would have to make I were to die in the near future. While the loss of a spouse is not a financial issue, the survivor’s finances often change significantly when a breadwinner passes away.
I do not know this family well, but hope and pray they will be financially OK as they move forward with their lives here on earth.
As the main breadwinner in our family and a financial planner, I thought these would be some of the first financial questions my wife would ask if I died;
How will we pay our bills?
Will we have to move?
How will we pay for our children’s college?
Will I need to go work more hours?
How much life insurance did Brad have and will that be sufficient?
The life insurance question is the one I want to focus on.
Here’s how that works: The lump sum life insurance benefit combined with social security (while there are minor age children) is in place to be invested and generate income to replace the deceased’s paycheck.
A widow would ideally want to invest the insurance benefit conservatively and use the monthly interest to pay the bills. Therefore, there are two key variables to the answers this question:
1. How much life insurance &
2. What interest rate can we expect to earn
For most people, including me, they purchased their life insurance a while back and when doing an insurance “need” income calculation (insurance proceeds x interest rate = income) interest rates were significantly higher than they are today.
Unfortunately, one of the adverse effects of low-interest rates is they negatively impact the income that can be generated from CD’s, bonds and other interest bearing accounts.
For example, four years ago when interest rates where 4%, a $1,000,000 CD could generate $40,000/year.
Today, that $1,000,000 invested in a 5-year CD at 1.5% would generate only $15,000 per year!
In many Chicago suburbs that would only be enough to pay the annual property tax.
This means that most income earners with dependents are grossly under insured and probably not aware!
Everybody’s situation is different, but this is a wake up call that $1 million does not go as far as it once did. Adjust your life insurance accordingly. LIFE INSURANCE CALCULATOR
The good news is that life insurance has never been more affordable.
The table below shows the cost (subject to underwriting) of $500,000 of life insurance for a male at different ages.
Monthly Premium Monthly Premium Monthly Premium
Age 10-year level pay 20-year level pay Lifetime – Permanent
35 $25 $38 $250
40 $35 $60 $315
45 $53 $92 $378
50 $82 $137 $464
55 $130 $212 $614
When creating your financial plan, it makes sense to plan for financial success under all circumstances. As I write this, I have requested a quote from my agent (me) for another $500,000 of income protection. Yes, the financial planner needs more life insurance.
In light of this, please take a few minutes to reevaluate your life insurance today and consider how far that money would go for your survivors.
Use Life Insurance for Long Term Care (if needed)
CD HISTORICAL RATE CHART BELOW:
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