I have talked with many families who fall under the false notion that the company they work for provides them with a sufficient dollar amount of life insurance. Companies give most of their employees just enough pay, health insurance, life insurance and other benefits so that the company can get a deduction and the employee does not quit.
Take this into consideration…. health care costs have increased 50% over the last 8 years, college tuition costs are increasing 8% per year, average inflation of goods and services are going up by 3 percent, and what are the average wage increases per year………drum roll…please…….3% woohoo!!! Your company most of the time does not have you covered. In today’s world, it’s often advantageous to switch companies to beat the 3% pay increase.
Many large corporations love you until you reach a certain age and then you are out the door. Hopefully the 401k match was taken advantage of and the funds offered were quality and not too conservative.
I don’t like to be negative but at the same time we must be realistic and protect our families. It is always a good idea to have investments and especially life insurance policies outside the company you work for.
$300k of life insurance on either spouse’s life is never enough, especially if you have 2 kids. Let’s say you have a couple in which the wife is in upper management at a corporation and the husband has his own carpentry business. The wife is pulling in $150k per year and the husband is making $40k. The wife unfortunately dies in a car accident. Now, that $150k per year is not coming back. If the kids are 6 and 8 years old, that is 12 years before the youngest reaches 18 years of age. 12 years X $150,000 = $1,800,000 that will not come into fruition over time before college starts. Is the 300k life insurance policy going to make much of a dent on this missing income? Not even close! After just a couple years, the life insurance policy is gone and the family is forced to lower their life style and a college fund is about impossible.
I have $1.5M of life insurance on my own life as part of our financial plan, the purpose is not to make anyone rich but instead protect the family’s future goals and way of life. A will and trust can be established to prevent misuse of the life insurance funds when received.