You Don't Live Your Life on Paper

by Jeff C. Johnson

A young man, a prospective new client, came to see me. He had started a solid career, and he had accumulated money (not that easy to do today). He also had accumulated a family… four kids! These kiddos were a handful for his stay-at-home wife.

He had cash in the bank, full funding in his company retirement savings plan, savings for college, and was ready to start investing for the long haul. He was rightfully proud of his progress.

When I asked about his insurance, he said, “I’m covered; I’m almost ‘insurance poor.’”

When I hear this one … or “I’m worth more dead than alive” … I can hardly contain myself.

On closer examination our prolific saver has $200,000 of life insurance, a good start. But consider this: He made almost $200,000 last year, which netted his family $130,000 or so after paying taxes and insurance. So, to put it bluntly, if he dies, his nonworking wife would be “set up” for, what, a year and a half?

Well, it’s a long shot, he said. And he was right. That’s why a couple million of death benefit costs him less than $2,500 per year! For a little more than 1% of his annual income he can protect his family with ten years’ worth of tax-free income (death benefits from life insurance claims are generally income-tax-free payments).

I’m a financial adviser, not an insurance agent. My partners and I don’t solicit or sell life insurance. But it’s not uncommon that we advise clients to get acquainted with a top-notch insurance professional and offset unmanageable financial risks, especially when the cost is so low compared to the potential payoff.

Normally a young person might say it’s a bad bet to buy insurance if you’re young and healthy. Well, insurance is not designed to be a bet. It’s designed to be a manageable loss (the annual premium) rather than the risk of a devastating loss, like leaving your family of five with only a year’s worth of living expenses.

People make grand life plans, and sometimes they realize them. But sometimes they don’t. You can draw it up however you like, but the bottom line is: You don’t live your life on paper.