July 2003

Life Insurance: How Much is Enough?
By Leslie A. Smith

Eleven years ago when my daughter was born I was surprised by the wealth of emotions that came with her. It had been a difficult pregnancy, so the joy and relief of delivering a healthy, beautiful, baby girl were almost overwhelming. I loved her with a fierceness I had never known. My husband too, was surprised to experience many of the same emotions. With great joy came an even greater sense of responsibility and protection--and the inevitable “what ifs” we were led to discuss.

“What if” something happened to both of us? “What if” something happened to one of us? Who could possibly love her like we did? Would she get to college and become a chemist like my husband or a financial advisor like me? Would there be enough money for dance lessons or soccer camp?

Having worked in financial services for many years I knew the practical side of insurance. But until then I hadn’t really confronted the emotional aspect of insurance. Those emotions are very real, and an important consideration to include in any discussion of “how much is enough” life insurance. Bundled in the emotional aspect of insurance are the “difficult to discuss with your spouse” and the “this is a low priority, nothing’s going to happen to me” components. (Many financial advisors and attorneys alike find that at least one spouse has a difficult time considering the possibility of their not “being there,” making it difficult to discuss how to prepare).

Most clients tell me that the birth of a child changes everything. Certainly I found this to be true both personally and professionally. Cribs and diapers changed my discussions with clients. In addition to talk about retirement plans, stocks, bonds, mutual funds and diversification of investments came a renewed emphasis on life insurance. Helping clients and prospects through the practical and emotional discussions of “How much is enough” is now a very rewarding part of my practice. Clients tell me that having walked through the questions--permanent vs. term insurance; how much do we need; should we just have the insurance offered through work--gives them “sleep at night comfort” to get on with the business of living!

How much is enough? Have a qualified licensed advisor guide you through a Life Insurance Needs Analysis. The discussion should include your personal and financial situation. Everyone’s situation is different but here are a few life insurance tips to live by:

Consider Your Financial Needs
A very broad rule of thumb is that your life insurance coverage should be 7 to 10 times your income. But you’ll need more insurance if you have a lot (in excess of $5000)00) of credit card debt or personal loans. You may need less insurance if you have a lot of assets ($500,000 or more, exclusive of residence). It’s also wise to consider whether you’re saving for college and retirement.

Consider Your Responsibilities
Who are you responsible for? Do you have two kids or four? More kids, more insurance. Do any of the children have special needs? Are you expected to care for another family member in the future? An elderly aunt, a mother or maybe a disabled sibling? Do you have disability insurance?

Value the Contribution of a Non-Working Spouse
It is a common misconception that a non-working spouse contributes no income and therefore needs no insurance. Attempt to place a monetary value on the work of a “non working” spouse, such as childcare, laundry, meal service, garden care and home repair.

What Happens if You Lose Your Job?
Many people carry all their life insurance through their work. If they lose their job they also lose their insurance. Get protected beyond your employer.

Consider Emotional Factors, Too
One of my clients knew that he wouldn’t be emotionally prepared to work if something happened to his spouse. Therefore, he requested more insurance to cover his salary as well.

Get Started
The best insurance is the insurance you have in force. So get started, get coverage and work towards bettering your position as you go.

About the Author
Leslie Smith is an independent Financial Advisor. As general securities Principal, she has earned and holds five professional licenses throught National Assn. of Securities Dealers. Additionally, she maintains a California Insurance License. As a Registered Representative offering securities through SunAmerica Securities, Inc. member NASD/SIPC, she has at her disposal a wealth of tools and information to determine the products and services most suited to the needs of clients. Her areas of expertise, include life insurance, investment management, retirement planning, estate and college planning. Prior to becoming an independent financial advisor, she was a Vice President of Investments with BankAmerica Investment Services. She has provided family protection and wealth building strategies for nearly 20 years. For more information call her at 650-571-8132 or send email to lasNvst@aol.com.