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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Welcome to the Enjoy More 30s: Family Finance

podcast, the only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

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

from simply enjoying life.

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

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

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

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

to cover what you need to know about having enough life

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

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

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

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

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

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

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

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

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

extra and get so much more.

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

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

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

the vast majority of young families we come in contact with

are exceedingly underinsured. The reason is most families are

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

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

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

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

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

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

period, you already have $2 million in future income

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

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

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

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

being our biggest asset. Who really wants to think about

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

extra $500,000 if you're no longer here. 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. So what can you do?

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

conversation with your spouse. What would you want to have

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

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

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

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

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

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

primary caregiver, this should also include childcare. A

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

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

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

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

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

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

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

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

spouse.

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

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

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

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

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

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

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

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

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

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

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

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

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

dollars of coverage. This type of policy generally should take

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

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

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

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

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

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

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

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

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

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

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

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

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

The last part of this whole situation that is also important

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

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

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

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

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

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

into what would be a very expensive permanent type policy

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

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

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

no insurance- not a good choice. Or

converting the work insurance policy to a permanent type of

insurance- which would be extremely expensive, and who

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

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

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

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

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

matter what your employment is or anything else.

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

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

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

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

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

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

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

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

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

vast underinsured person after going through this exercise if

it's done properly.

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

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

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

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

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

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

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

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

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

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

Apple podcasts or wherever you listen. There are literally

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

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

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

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

The conversations on this show are

Joe's opinions and provided for general information purposes

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

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS securities Inc and TFS advisory services and SEC

registered investment advisor member FINRA/SIPC.