MOM-enomics with Booth Parker, CPA

Learn the basics of what term life insurance is and how it might be useful for you. When you hear it from a Certified Public Accountant, you know it's a solid education!

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  • (00:00) - Term Life Insurance
  • (01:56) - Who Needs Term Life Insurance?
  • (03:16) - How Much Coverage Do I Need?
  • (05:10) - Coverage for Stay At Home Spouses
  • (06:23) - Summary

This podcast is produced by Rooster High Productions.

Creators & Guests

Host
Booth Parker, CPA
Financial guru by day; domestic diva by night and sharing it all in between.

What is MOM-enomics with Booth Parker, CPA?

Real moms. Real mom financial issues. Real moms in business. Real stories. I am Booth Parker. A CPA, wife, and mom that loves all things home and family. In this podcast, I talk all things money for moms, families, and small business. From tips to ideas to info you just need to know, I break it down so moms can apply it to their own families and businesses!

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Today we are going to be talking about term life insurance. So what it is, do you need it? And if you do need it, how much do you need? So term life insurance is different from whole life insurance, which we're not gonna talk about today, talk about that next time. But term life insurance is something that more people need, uh, than the whole type insurance.

So I'm gonna cover who needs it and exactly what it will do for you.

So what is term life insurance? So I've got the little definition here. It's insurance that covers the life of a person for a specific, a limited period of time. And the payments are a fixed rate for the amount of coverage. [00:01:00] That you are getting. So if you do not end up needing the coverage, the term life insurance before that period ends, then the coverage terminates and no, you don't get all your premium payments back.

So it's true, true insurance, it's a worst case scenario type insurance like your home insurance, your auto, things like that. So an example would be a 25-year-old man purchases a policy that covers his life until the age of 50. So if he died at 52, the policy would've terminated and would not provide coverage.

his payments are determined on how much coverage he takes out. There are also some other factors that go into it. They generally give a health, physical or things like that to determine risk factors. Um, maybe if you skydive, you might have trouble getting it, things like that. So you rates, rates are generally very affordable, but there are some factors that can affect them based on your lifestyle and your health.

Who Needs Term Life Insurance?
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So who needs term life [00:02:00] insurance? So anyone who has a dependent on them, whether it's a spouse, children, whatever. If someone is financially dependent on the income you bring in and create towards your family, then term life insurance is a really good idea. Unless you're at the point in life when you have a really high net worth or a lot of assets that your family could live off of if you died unexpectedly or prematurely.

So when my husband and I first got married, we were dual income, even though we didn't have kids yet. And one of the first things we did was to get a term life insurance policy, because our budget, even though we budgeted well, and we were saving in that budget. Our budget was done on the dual income. So you're just trying to keep the income steady if something tragically were to happen.

So if someone dies prematurely, unexpectedly, that is bad enough. So the last thing you want to have to deal with is financial stress [00:03:00] on top of that. So term life insurance really is a peace of mind type, uh, coverage. you wanna keep them in the lifestyle, their home, you don't wanna lose the home, things like that.

So that is what this coverage is intended for.

How Much Coverage Do I Need?
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So, how much coverage do I need? Well, as with a lot of things, it depends, right? So it depends on the amount of money you're making. But the general rule of thumb is to have at least coverage that equals 10 years of your annual income. 15 to 20 times is, is really great, and it's generally only minimally more expensive.

Plus if you're buying this at a young age, like even in your twenties or early thirties, your income is probably going to increase your lifestyle. It's probably going to increase. So you want to think about that in case this coverage was needed, um, when, say you're 42, something were to happen to you, so, and you can increase the coverage along the way if you need to.

[00:04:00] But having enough coverage to start with is important.

So why do you need this amount? Okay, so the premise here is making sure your family can live comfortably. Um, they don't have to sell the house, those kind of things, and have the same income that they were used to using for budgeting and living off of every month. So I'm gonna walk you through. For example, if you make a hundred thousand dollars a year, um, and you have 1.5 million in coverage, so that's 15 times your annual income, we're gonna say you're 35, your wife is 33, and she stays home with your twin three-year-old daughters. Okay? So if you die unexpectedly, your wife receives the $1.5 million and then she can invest it at an 8% return, which is below the stock market average. So very reasonable return here, and she would have $120,000 a year to live off of, [00:05:00] would probably be some capital gains taxes on this investment income, but she still is in that range that she is used to having and she can keep the house and all of those type things.

Coverage for Stay At Home Spouses
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Question I get asked a lot is, should a spouse that doesn't work have coverage? And I generally say, yes, definitely if you have kids, here's why. Let's look back to the prior example. Remember the wife stayed home, husband worked, she was home with the two kids. So in that scenario, if the wife died suddenly, then the husband would still have his income. But what about caretakers for the children, all the tasks the wife has been doing. So you might need daycare, you might need a nanny, you might need a cleaning service. All of these kind of things. And that really adds up, especially with multiple children.

So you want to quantify . What that is, if the spouse stays home with the children and have coverage on that spouse, that would generate money to cover all of those [00:06:00] things. Otherwise, the surviving spouse has more to spend in the budget every month now, right?

Because they're having to do the daycare and all of these other things to get covered. So then it becomes a financial little crunch there. So having coverage to cover all of those tasks that even a stay at home spouse was doing is definitely ideal, and it's gonna be minimal cost.

Summary
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So kind of wrapping up, you can see how valuable term life insurance is. It is something that you hope you never, ever, ever, ever need, but if you do, it's great peace of mind to have it. So it's a great thing to get right when you get married, right? When you have children, the younger you, you purchase it, the cheaper your payments are gonna be.

So that is definitely ideal. Can lock those in. And you generally don't need it to go past, say, 50 or 55, depending on what age you are, when you have children. So the younger age it ends, the cheaper [00:07:00] your payments are going to be. But it's looking at, you know, once you're kind of hitting retirement age or have retirement and investments in a higher net worth, you would be okay if something happened to one of you.

So just want to look ahead. Everybody's timeline is a little different, so just wanna have it out to an age where, you know, your children could be self-sufficient and your spouse would, uh, have enough to live off of indefinitely.

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[00:08:00]