Let’s face it, the subject of life insurance tends to make people uncomfortable. A death is not a pleasant situation to deal with. For many, even mentioning the topic brings on the same emotions as if it has just occurred, so they don’t deal with it.
What can be worse though is the financial burden left with your family when you are no longer there. Avoiding the conversation may ease anxiety for you now, but does nothing to provide comfort to them after you’re gone.
One way to make the discussion more manageable is to focus your attention on the why of insurance, to give you perspective for the important decisions that will follow.
Focus on your family
We build our lives with and for the people around us. I can say this with absolute confidence because if you didn’t care about anyone but yourself then you would have stopped reading at the title of this article.
If you’re still with me then clearly you do care, and you have people around you who care about you in return. What’s more, many of them depend on you – emotionally, physically, spiritually and of course financially.
That’s the practicality of family life. While it rests on a foundation of love, it requires a stable financial framework to allow each of us to plan and pursue our hopes and dreams. That’s why you work hard to build a career, and earn an income that will support those goals.
Where insurance fits in
Despite our best efforts and intentions, however, we can’t control everything. Fate can intervene in ways that can disrupt what we have put together. Death is often a huge disruptor.
For a spouse and children, there is the immediate shock and grief. Recovering from that pain can be a long and difficult journey, but one in which they can lean on one another to cope and carry on.
Recovering from the financial fallout may not be so forgiving. To be blunt, the loss of the person means the loss of that person’s income. As if the emotional stress was not enough to deal with, the money stress could cripple the family’s future.
Life insurance is a stand-in for that lost income. Nothing will replace the person, but the proceeds can replace that person’s economic contribution. In both a figurative and literal sense, it buys the time for the family to get back on its feet. And ongoing, it is the source of cash for their continuing needs.
How much is right?
There is no simple answer to what is the right amount of insurance.
Life insurance is a stand-in for that lost income. Nothing will replace the person, but the proceeds can replace that person’s economic contribution. In both a figurative and literal sense, it buys the time for the family to get back on its feet. And ongoing, it is the source of cash for their continuing needs.
In principle though, if it’s for the income replacement purpose we’ve been discussing, then the starting point is current and future earning expectations. Ideally, the insurance proceeds will be sufficient to allow an annual draw of the amount that would have to come into the household if life had continued on.
With the assistance of an experience insurance professional you can come up with an appropriate insurance amount, and associated premium cost. Because those premiums are effectively how much you give up in current income, you now have a logical basis for evaluating that trade-off so you can decide what best suits your needs.
What remains unchanged is the family you are part of and the needs they have. They will always be at the heart of your decision, whatever that may be.