Life Insurance for the Primary Income Provider
Important Factors to consider & 3 MUST Know Factors
Life Insurance for the Primary Income Provider- Importance and Significance Explained
Life Insurance for the primary income provider is a huge financial decision and a very important one. If your reading this, I’m assuming you already understand the need exist but maybe you have some questions? My hope is this can provide you the information needed to make the correct decision regarding your life insurance.
If so, I don’t blame you. Below, I have outlined 3 main reasons why you should be carrying life insurance if you find yourself in this situation. Many self-employed or entrepreneurs are currently carrying no life insurance at all. This could be a devastating mistake for their legacy and families financial future. So let’s jump into those five reasons.
Reason Number 1 – Income Replacement
Now, this one seems pretty straightforward right; I think so. Many times, I have had a prospective client not see the value in replacing the income he or she was providing for the family during his or her living years.
Most Life Insurance Carriers will offer up to a 12x multiplier of one’s income. Certain carriers do not need much extra legwork to allow you to do a 30x multiplier for your death benefit in the event something was to happen.
Let’s think about this for a second. I am the only employed in my household and bring in $50,000.00 per year. The wife stays home with the kids and has adapted and adjusted to this style of living. I am now involved in a tragic accident where my I am no longer contributing to this income.
What is my family going to do now?
Well to be blunt, they are going to be in trouble; it’s advisable to avoid this situation altogether. If you can achieve affordable rates why not go for the 30x multiplier in coverage? It sounds like a large number, but it’s really not.
Let’s take the $50,000.00 yearly income as an example.
The 30x multiplier is going to allow you to apply for $1.5 million in life insurance. This coverage to provide for the family if something was to happen, but how far is this going to take them? First, they will have the mortgage to pay off. Let’s assume you have paid this down to a $200,000.00 balance.
Next, you will have all outstanding bills, legal fees, estate taxes, and college funding (if fitting) taken out of this face value. Now, the money remaining will be what the other spouse is used to living on. Also money for the typical “re-adjustment period. In almost every circumstance, the face value of the life insurance is TAX-FREE. Now that is a significant benefit!
Reasons Number 2 – Your Responsibility, Not your Families or Friends
This principle also seems to be pretty simple, doesn’t it? Again, it is not. I speak to dozens of people weekly who will state something as in, “well if I expire, what do I care what happens after?”
That may work for some but it’s not a realistic way to look at your family’s future or the burden it will leave on others. Even looking at things on the smallest scale, it is still a large burden to place on a family. Let’s look at both scenarios.
Scenario 1- Best Case Scenario:
Limited or No Debt- the Only Burden is Final Expenses
Ok, so with the only burden being final expenses for your family to be responsible for, how much are we talking about?
Is this still a number you can sleep decently at night knowing that your family would be responsible for? Hopefully, the answer to this question is no.
Scenario 2- Worst Case Scenario: The average amount of debt per household in the US is roughly $139,500. The average income for the main income provider per household is roughly $73,000.
Average Debt Carried By US Household. – The burden on the family is total debts plus loss of income plus final expenses
Now let’s take a look at it any debts you have that your family would be responsible for. You may have a mortgage reaching well into the 100’s of thousands. You may have vehicles adding another 20-50K in debt and this is only doing the law of averages. This is not including credit cards, student loans, business loans, and more. What kind of legacy would be left to your family in the event something happened to you? It is always wise to have some income replacement included in your life insurance policy. And, It is also wise to have extra funds for the transition period and for your family to prepare for their future.
This is where the 30x multiplier for coverage could be a huge lifeline for your family’s financial forecast. It could allow them to deal with the loss of you, without such a huge financial hiccup. The cost in today’s world adds up very fast. We haven’t even factored in the typical 3% inflation rate across the United States on a yearly basis. If you have the means to get this coverage for a decent rate and at a decent age, it’s financially irresponsible not to carry the coverage. It will someday only hurt the people you care about most.
Reason Number 3 – Cost of Living is on the Rise
We have now covered the two primary reasons for life insurance for the primary income provider. What other factors go into how much or how important it can be? The cost of living in America is on a steady climb and shows no signs of slowing its pace. Although it’s held somewhat steady between the 2-3% mark, that does not mean it always will. The life insurance for the primary income provider does not have to be a one time deal either. It may wise to continue to add to your life insurance coverage throughout your life, Now this reason, definitely ties into reason number 1 and 2, but how? Well, let’s look at back at our original reasons.
The reasons are obvious that Life Insurance for the primary income provider are extremely important and it’s not to difficult to figure out how much. So now let’s assume something tragic happens tomorrow. Let’s also assume you have purchased a sufficient amount of life insurance. This amount does not factor in that the cost will continue to rise long after you are no longer around. This would cause even more strain on your family through the upcoming years. Coverage meeting your exact dollar amount of debt may not be financially safe for your family. Consider these factors and speak to an Agent that can offer plenty of options for you and your family.
What Will Your Legacy Be?
Time after time, the phone rings. I answer and begin a conversation discussing what coverage one is looking at. It’s at this point a potential client informs me of a story of dealing with the financial burden of someone dear to them who did not carry life insurance. The entire purpose of you calling me at this point is so so you do not put the people you care about in the same position.
No, certain situations arise where protection currently exists. Or the family is financially stable without the life insurance. Life Insurance for the primary income provider makes the situation even more crucial and important.
What’s your current situation?
What burdens will be left when you pass?
All these are good questions we all need to ask ourselves. Everyone should take the time to examine the financial situation and stability of your family. It is at this point that you can make an informed decision about what coverage is needed. Is it needed at all? How much total coverage is needed and how long do you need the coverage and protection?
Plenty of options exist to affordably replace your income and protect your family. If done correctly, it can be very easy and expedited. One should at least seek to replace the current income of the breadwinner at the very least. Speak to an experienced life insurance agent to help you navigate your options and needs.
Article Published 04-07-2018 by Joshua Martin