Protecting your family is more important than providing for them. You have to buckle their seat belt before you drive them to Disneyland. Unfortunately, protecting your family financially can feel way more complicated than strapping in a car seat. But it doesn’t have to.
All parents need 3 things in place to protect their kids – life insurance, disability insurance, and an estate plan (aka wills/guardianship/trusts).
Like raising a child, this stuff is all new territory. And as with anything new, it can be confusing and overwhelming to figure out.
Over the next few weeks, we’ll cover all three of these. We’ll start with life insurance.
For our parents, life insurance was simple. Back then there weren’t a lot of choices.
Now there are hundreds of life insurance “products” out there. It’ll make your head spin.
But the truth is, the same life insurance your parents got is all the life insurance you need.
In actuality, there are only two types of life insurance – 1) term and 2) permanent. Everything else is just a variation of these two.
Term life insurance ends after a specific term (like 20 years).
Permanent life insurance lasts your whole life. (It’s all in the name, innit?)
You want term insurance. How long of a term depends on your goals, but we typically recommend getting a 20-year policy. That means it’ll last until the kids are out of college and “off the payroll”.
WARNING! Insurance salespeople, posing as financial advisors, will try to sell you a permanent policy. It’s 5X more expensive for you and 5X more commission for them. Don’t listen. Term life insurance is all you need.
How much life insurance you should get also depends on your goals. We typically recommend getting enough to:
Once you know your goals, you can do the math.
Doing the math requires some advanced financial calculations which are too complicated to explain here. But the solution tells you how much money you need today to support your family for the next 20 years.
A typical family in the Bay Area with two young children usually needs between $1.5-$2.0 million
If you get too much life insurance, then you’re wasting your money on something you don’t need.
If you don’t get enough life insurance, then your family is at risk. Your spouse will need a job. Your kids will need student loans. And they will likely not live the life you envision for them.
So make sure to work with your financial planner to calculate the right amount for your family. Take a stab at here, but let a professional check your work.
We help our members establish their goals and complete the calculations for them. Then we track down the best quotes and walk them through the application process.
The best part is we do not sell insurance, so there is no conflict of interest.
Our recommendations are always 100% in our members’ best interests.
I hope this helped you cut through the noise.
Get a term policy that will support your family until the kids are off the payroll.
Make sure you get the math right. Work with a professional financial planner to do so (not an insurance salesperson).
Next week we’ll cover what you need to make sure the state courts aren’t in charge of deciding what happens to your kids and money if you and your spouse are gone.