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Survivors Don't Care About Too Much Life Insurance | Series 1.3
Episode 31st February 2021 • Enjoy More 30s: Family Finance • Joseph P. Okaly
00:00:00 00:09:46

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Shownotes

Young Families Are Often Underinsured, Are You?

  • Future income potential (01:27)
  • Having conversations: know what you're solving for (03:55)
  • Living worry-free (05:57)

Quote for the episode: "If your family basically has too much life insurance from you- not a problem. If your family does not have enough life insurance- very, very large problem."

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Transcripts

Voiceover Audio:

Welcome to the Enjoy More 30s: Family Finance

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podcast, the only podcast dedicated to making life more

Voiceover Audio:

enjoyable for young families by hitting on the financial topics

Voiceover Audio:

that tend to weigh on us, stress us out and distract our focus

Voiceover Audio:

from simply enjoying life.

Joseph Okaly:

Hello, and welcome to the Enjoy More 30s: Family

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Finance podcast. Today is the third episode in the "Your Money

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Mindset" initial series and it's titled "Survivors Don't Complain

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About Too Much Life Insurance". So in this episode, we're going

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to cover what you need to know about having enough life

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insurance to protect your family, and what you can do to

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actually achieve it. We've all been to the movie theater

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before, I know everybody out there has been to at least one.

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And when you go to buy your popcorn, you almost have to buy

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that giant, enormous bucket that you can refill a million times.

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You know that after you finish eating all of it, you're going

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to feel sick and nauseous and terrible, but at the end of the

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day, you can save like $1. If you get the smaller one, you get

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a bag that's 50% smaller and no refills, so why not pay a little

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extra and get so much more.

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So what you need to know is that life insurance, when you're

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young and healthy, is much the same way- a little bit more can

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really, really go a long way. This tends to be ironic because

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the vast majority of young families we come in contact with

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are exceedingly underinsured. The reason is most families are

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not aware of what their biggest asset by far is. And that's your

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future income potential- you have the next 20-30 years or

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maybe more, depending on when you're listening, of income and

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all the raises that come with it as you progress through your

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career. Let's say that you're making $100,000 right now. Over

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just the next 20 years, assuming no raises ever during that whole

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period, you already have $2 million in future income

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potential coming to you. Now, if you add on raises, if you add on

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10 more years, it could be $3-$4 million or even more. Now, I'm

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young, and I obviously don't plan on dying anytime soon, God

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willing. So it's an easy thing to simply ignore, despite it

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being our biggest asset. Who really wants to think about

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dying, right? The problem is that because we have families, a

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lack of insurance could be catastrophic, and I'm not

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overestimating that. I don't want my wife to have to sell our

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home. I don't want her to have to work more and see her kids

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less, in a scenario where I'm not here, when they probably

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need her the most. I still want her to be able to send our kids

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to college, still want her to retire, still hit all the goals

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we have together, even if I'm not here.

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And that brings us to the title of the episode, "Survivors Don't

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Complain About Too Much Life Insurance". If they don't have

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enough, though, that's a whole different story. So the

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difference between, say a $1.5 to a $2 million dollar policy

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for a preferred plus- so top-health kind of individual

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for 30 years, that's a 30 year old person- might be an

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additional $25-$50 a month to go from that $1.5 million to the $2

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million policy. Depends on the carrier, the situation, what

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state you live in, but as a rough estimate, if you're in

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really good health as a 30 year old, it could be somewhere in

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that $25 to $50 a month additional range to get that

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extra $500,000 of coverage. Now I'm willing to bet you're not

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going to notice an extra $25 a month. If I look at your credit

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card statement, I'm sure it varies month by month more than

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$25. But I guarantee you your family's going to notice an

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extra $500,000 if you're no longer here. If your family

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basically has too much life insurance from you- not a

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problem. If your family does not have enough life insurance-

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very, very large problem. So what can you do?

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The first step, like for a lot of these, is having a

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conversation with your spouse. What would you want to have

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happen if either of you passed? Stay in your home, move closer

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to other relatives? First you need to really know what you're

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solving for. You have some people that say, "Hey, I want to

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move in with my parents if that were to happen." Great. Now we

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know the situation that we're solving for and we want to make

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sure that we're protected against enough for that. For the

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primary caregiver, this should also include childcare. A

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caregiver spouse may not earn any salary, but they are saving

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$20 to $25,000 a year. I mean, if you're in New Jersey, you're

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certainly saving $25,000 a year, which should be accounted for.

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So for example, $25,000 a year for 18 years- say someone just

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had a child today- that comes out to around $450,000 to cover

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the entirety of that person's childcare if something, God

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forbid, were to happen to the caregiver spouse today. So a 20

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year term policy, $450,000, that could easily cover the caregiver

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spouse.

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For an income earning spouse, you may need to take a look at

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what you're actually living on. Life Insurance comes to tax

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free; that's one of the great things about life insurance. So

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if you're living right now for your expenses- so you added up

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all your gas, mortgage, all that- and came out to $5,000 a

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month. And then you looked at what you're saving, and that's

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$1,000 a month, let's say. First step is pretty easy. I'm living

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on five, I'm saving one, five plus one equals six. So pretty

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easy so far. So you need roughly $6,000 a month to replicate. If

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both spouses are working, you can back out their net income

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from that equation, but with no other income to consider, this

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family in this example, is needing around $72,000 a year.

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So over 20 years, this might be around one and a half million

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dollars of coverage. This type of policy generally should take

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you out to retirement. So if you're 30 years old, or 30 years

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out, then a 30 year term provides you with the majority

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of your insurance you'd likely need, and you're done with

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having to have this weigh on your mind. I have the

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conversations already in the past with my wife, where we went

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over the scenarios, we obtained the coverage that we needed to

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protect against those scenarios, and now I don't have to worry

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about it anymore. I never worry about "if something were to

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happen to me, would my family be taken care of financially? Or if

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something happened to my wife, would I be able to afford the

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childcare that I would need and want from my kids?" I don't have

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to worry about that. And it's a question that you don't have to

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worry about either, if you follow through with these steps.

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The last part of this whole situation that is also important

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to take into account is unless you plan on never leaving your

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employer, and your employer can essentially not fire you ever-

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think kind of like a tenure teacher kind of thing- you

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should likely not rely on your work insurance as part of your

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total. Work insurance may not be something that you can take with

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you many times, or if you can, you need to generally convert it

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into what would be a very expensive permanent type policy

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in most scenarios. So basically, if you rely on work insurance,

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and then you have to leave your firm, and your health is no

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longer good, you can find yourself in a bad situation.

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no insurance- not a good choice. Or

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converting the work insurance policy to a permanent type of

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insurance- which would be extremely expensive, and who

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knows if you'd be able to afford that or not, or even if the

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coverage amount would be what you wanted it to be or needed to

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be. Essentially it would be outside of your control. If you

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get life insurance on your own, that policy is within your

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control forever, as long as you pay your premiums, doesn't

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matter what your employment is or anything else.

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As a young family, you want to just basically buy the bigger

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popcorn bucket when it comes to life insurance. The great part

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is once it's done, you have the majority of your income needs

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locked in now long term. And that 'what if' question again

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about your family is covered. Now if you start making a lot

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more, your expenses come up, you can always add on that

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additional policy if you need to, or even build in a little

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bit of a buffer now. But the majority of your insurance needs

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should be handled and covered after this. There should be no

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vast underinsured person after going through this exercise if

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it's done properly.

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So main points to remember after today's episode. First thing,

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just buy that bigger popcorn bucket- look at it that way-

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it's a little bit more, it's not going to really affect your

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lifestyle and you get a lot of bang for your buck, especially

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when you're young and healthy. Second thing is having that

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conversation. What are you trying to cover for, what are

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you trying to protect for, and make sure that everything is

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lining up for what you're trying to accomplish between you and

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your spouse. Thanks very much for tuning in today. As always,

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if you enjoyed this episode, please make sure to review us on

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Apple podcasts or wherever you listen. There are literally

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millions of young American families out there I'm trying to

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reach and help just like you. Check back in soon for our next

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episode, "You May Already Be a Future Millionaire". Thanks very

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much as always, and I'll talk to you again soon.

Voiceover Audio:

The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS securities Inc and TFS advisory services and SEC

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registered investment advisor member FINRA/SIPC.

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