Life “Death” Insurance

Life Insurance.  Let’s be honest it should be called “death insurance.” Not as exciting to talk about like last night’s pursuit.  But it’s a discussion that needs to be had.  And you do not have enough through your employer’s sponsored plan.  

Let us stop and take a quick assessment of your financial situation should you die today off duty and you are still years away from retirement.  A little morbid but it’s a reality.  Your life can change in a matter of seconds.  You’ve seen it.  I have many times.  The tourist walking down the sidewalk being struck by a car from behind.  A rollover collision with an entrapment that catches fire. Stray gunfire.  Sometimes your number is up.

The acronym LIFE is a good starting place when there are kids, spouses or dependent parents involved. (And if you are single you still need to read this post)

L – Liabilities/Loans Outstanding

I –  Income Annually required until kids are high school graduates

F – Funeral expense (some cities refuse to pay for line of duty death)

E – Education College/Vocational 

Grab a piece of paper and get to work.  

LOANS/LIABILITES

Sum of your mortgage, family credit card debt, school loans, car loans.  There is enough stress after a death.  Have a life insurance policy to pay these off.  Write this number down.

INCOME

Now that you’ve paid off the Loans/Liabilities, how much does your family need annually to maintain a similar standard of living until your children are out of high school. Your death will be stressful for the family.  Don’t presume your spouse will continue working.  Your kids may need a full-time parent and here is your chance to plan right. Take annual income needed multiplied by years until your youngest child is a high school graduate.  Write this down.

FUNERAL 

How big of a celebration do you want?  During a time of grieving family members will overspend.  Your funeral could be as inexpensive as a few thousand dollars to twenty-five thousand dollars.  And line of duty funerals is not always paid for by the employer.  Shocking and tragic. Write this number down.

Side note, you can preplan your funeral and reduce the stress on family members should you die. This will be a future blog post.

EDUCATION FOR KID/S/SPOUSE

How much – that a good question.  Current 2019 one-year California tuition, books and housing is estimated at $20500 per year and has been increasing at a historic rate of 5% annually.  Let’s presume your kid pursues a four-year degree.  Using 2019 dollars that is $82000 not including rising tuition.  

Has your spouse expressed an interest in return to college?  What about if your kid wants to be a rocket scientist or nurse?  Do you need to plan a little extra?  Now is your time.

LIFE NUMBER SHOCK

So what’s your number?

Now how much life insurance do you currently have in place?  Standard employer benefit or association benefit usually doesn’t exceed $50000.  Yes that is fifty-thousand.  Call HR or your Association Board today and ask.  

Your retirement contributions may be available for surviving family but that is another ball of wax.  This amount will depend on employer contracted benefits, vested years of service, pay scale.  And usually it’s not enough.  If you are a CalPERS member log in and see how much you have contributed.

What about your 401/403/457 plans.  Do you have enough in there to hit the LIFE number?

If you do, congrats. If your short, or don’t want to risk your family being short money, read on.

LIFE SCENARIO

So here is a LIFE scenario – 35 year old (dob 4/1/84) male cop in good health/BMI/qualifies for “preferred rating”, married two kids two and eight, 10 years on the job, 3@50 retirement formula, living in Sacramento area.

Loans – Mortgage, car loans, school debt, credit cards                     $675000

Income – $65000 per year for 16 years                                                   $1040000

Funeral –                                                                                                        $25000

Education – 2 kids at $82000                                                                   $164000

                                                                                                                         ————–                   

                                                                                                LIFE                $1,904,000

For simplicity I will round up to $2 million dollars of needed coverage.  This will leave a little extra for cost of living increases.

For this scenario I would recommend a 20 year $2 million dollar policy which will cost about three dollars a day.  Yes $3 per day.  A 20 year policy will help this copper be covered until he is retired and should something happen when his second child is in college there still is more than enough money to make sure college can be completed and his family is taken care of. 

For reference here is a screenshot of the quote page.  Plus you can go to the Quoter page and run your LIFE insurance premium.  

Your LIFE number is the starting point for a bad day, worst case scenario.  But planning for the worst is what we do for a living.  Why else do we wear a stinky, hot vest or carry extra magazines?  

So ask yourself – can I save a few dollars and hope everything is unicorns and rainbows or for about the cost of a coffee per day make a decision that will leave my love ones comfortable and financially secure?