Worth More Dead Than Alive
I frequently (OK, occasionally) joke with my wife that I am worth more dead than alive. That is because of the amount of life insurance that I carry. Admittedly, I have a fair amount of debt.
The majority of it is mortgage debt on real estate since I have 6 rental houses and a one-half interest in a small commercial building. Nonetheless, it is still debt and would have to be paid should something serious like death happen to me. So, I carry a lot of term life insurance.
I have always been a little too good at planning for the future. I have been putting 10% or more of my gross income in retirement accounts. I have invested in real estate. I have a more difficult time estimating current expenses.
I could live very cheaply myself, but it turns out that my wife and our 6 kids aren’t into wearing the same pair of shoes for 3 or 4 years or eating Ramen noodles for 3 meals a day. I haven’t purchased any new clothes in well over 2 years.
How Much Life Insurance Do You Need?
I can’t really speak for anyone else, but I can tell you what my goals for life insurance were and maybe offer some guidelines. Ultimately, it depends on whom you might leave high-and-dry when you pass away.
If you are a young college age student, living at home, with no debt and no dependents, you really don’t need any life insurance. On the other hand, if you are like me with a lot of mortgage debt and 7 dependents (6 kids and a wife) whose wife was busy working raising kids at home without getting paid for it, then you might need a little bit more.
For me, being worth more dead than alive is where I need to be at this time when all things are considered. When I first obtained my current level of term insurance, the youngest was still in diapers. I knew that I wanted my wife to have the option of remaining at home to raise the kids until they moved away to college.
That meant adding up all of my debts and making sure that they could be paid off entirely with some money left over for surviving for about 15-20 years. After that, we figured that she could work for daily expenses if necessary.
If I were to kick the bucket after this post, the insurance payment would be enough to pay off every debt we owe including all the mortgages on all of our real estate investments and still leave some extra. Plus there would be all the money left in the retirement accounts that I have.
The rents alone from the paid off houses would be enough to live off without ever having to go to work again. She wouldn’t even have to mess with the stock market (which she knows nothing about) but could simply buy some more real estate with cash and have a six figure income from rental property after expenses. That doesn’t even count any potential Social Security benefits for surviving spouses or children. I don’t even count that in my calculations.
Now you know why I say that I am worth more dead than alive at this point in my life. Do you have enough life insurance? What would happen to your family if you died today? Would they have to change their lifestyle? Have you reviewed your life insurance recently?