Putting a Dollar Value on Your Life
When taking out a life insurance policy, you in essence have to place a dollar value on your life. This is an interesting concept to me and the more you consider it, the more the numbers seems to increase.
The basic question is, how much money would your family need in the event of your passing?
You need to take into account:
– Your income that you will no longer contribute to the family
– How much debt you have outstanding
– How much will your family need to pay for funeral and legal expenses
– Will your surviving family want to sell or retain your assets
– How much you have in superannuation
Here is a fairly standard household situation. 42 year old mother of two earning $80,000 a year, passes away. The family home has a balance of $450,000 left on the mortgage, car loans of $55,000, credit card debt of $5000, children attending private school and father working and earning $80,000 also.
Total Debt: $510,000
Lost Income: $1,840,000
Private School Costs: 200,000
Father’s Income: 1,840,000
TOTAL DEFICIT: $710,000
That figure shows what effect the loss of an income earner could have on a regular family, and that does not take into account other normal living expenses, funeral and legal expenses or increased child care and housekeeping costs required in the absence of the mother. It shows why it would make sense to insure the mother for a minimum of $1,000,000, just so the family can get by and continue with their current lifestyle.
Without life insurance on the mother’s life, the family would have to make major changes to their life in order to make ends meet. They may have to sell their home and downsize or rent and the children could no longer attend private school.
The loss of a family member is difficult enough without having to worry about how you are going to cope financially, so it is imperative to have adequate life cover to protect your family’s way of life for the long term..