Lately I’ve been thinking a lot about death. Tomorrow is never a guarantee and of the people walking this planet 151,600 will not get to see it. In the past year three of my friends have passed at much younger ages than they should have. One of these friends I had worked with for the past 10 years and his family is going through the greatest fear I have about dying early. His house caught on fire and he entered the home to save his pets and was not able to make it out. His wife and daughter lost him and their home on the same day and are now in extreme financial hardship from this devastating event. He was in his early 40s. My other two friends were in their early 20s and early 30s respectively. It’s so easy to take life for granted and forget how fragile and temporary our existence really is.
If I died Tomorrow What Insurance Benefits Would My Family Receive?
Life Insurance: Mrs. C. Would receive a $500,000 life insurance benefit on me. I pay $21 per month for a $500,000 20 year policy which expires in 2028.
Social Security Insurance: The Social Security survivor benefits are based off of your earnings records and are adjusted for younger workers to include fewer years in order to make it easier to qualify for benefits. Since I am 30 the SSA takes only my top 4 years of earnings into consideration. If I died tomorrow, their calculator shows that each child would receive a max benefit of $1,400, and my spouse caring for my child would also receive $1,400, for a maximum family benefit of $3,340 per month. This means Mrs. C. would receive $3,340 per month for the next 5 years, then $2,800 per month for the subsequent 5 years, at which point the benefits would stop. This is because step children count, but children you are legal guardians for do not. This level of income, paired with the approx. $800 per month we get in Social Security for our nephews would be enough for her to cover all of their expenses through the next 10 years. If she was living off of just Social Security, the life insurance money would have most likely doubled in 10 years time.
Home Owners Insurance: Our home is insured for $200,000, which should easily cover the cost to rebuild a decent home on our property in the event of a total loss, just not one as nice as ours currently is. For years I have cheaped out on homeowners insurance. We have always elected to go with the minimum coverage of 80% rebuild. In the event of a total loss this would mean we would need to come up with around $50,000 if we wanted to build a house just like ours. Paying the extra $200 a year in premiums is well worth the extra protection and we should look into changing this.
If I died Tomorrow What Else Would I Leave Behind?
Retirement And Bank Accounts: Mrs. C’s name is on all our accounts, so she would instantly have all the cash we have saved together. She is also the primary account holder for our HSA and is a joint account holder for our taxable account at Betterment. She is the primart beneficiary on both of my retirement accounts, so she can easily roll my accounts into hers following my death.
Debt: We still owe close to $100,000 on our primary residence. We are paying this off quickly, but she would continue having mortgage payments for another 20 years without paying any extra going forward.
A Plan: A couple years ago I developed our legacy drawer, which is a central location holding all the information Mrs. C. would need in the event of my death. It contains a long term plan for utilizing and building our wealth and how to handle the large influx of insurance money and social security. It also includes a listing of all our accounts.
A Will: My will is reflective of the plan that is in the legacy drawer. Everyone needs to have a will. If I died tomorrow, it gives me piece of mind to know that my wishes will be known and carried out. A will is especially important in assigning who you would want taking care of your children if you and your significant other are both gone.
This Website: Action Economics doesn’t produce a ton of money, but $100 is a $100. My guess is without new posts it wouldn’t take long for the income to drop off. What’s more important than the money it may or may not generate in my absense is the information gathered here to teach our kids how to responsibly handle money.
My Action Steps:
1. Increase House Insurance Coverage from 80% rebuild cost to 100% of rebuild cost. Essentially we would get another $50,000 of insurance for around $200 per year. I think this is worth it in order to not have to worry about nickle and diming the rebuild in the worst case scenario of a total loss on our house. Since I have two friends whose homes have been total losses in the past 3 years I am quite a bit more concerned about this scenario than I used to be. The last thing I would want Mrs. C. to have to worry about is not having enough money to rebuild our home in such a scenario.
2. Buy an extra 250,000 of term life insurance. I can get a 15 year policy for under $10/mo. This would bring the total life insurance amount up to $750,000 which would ensure that if I died Mrs. C. would be able to raise our kids and never work again. I think $120 per year is certainly worth it. Raising 4 boys single handedly is more than enough stress without adding in having to keep a job.
3. Continue building wealth: Right now we are doing a great job of building wealth and we are relatively young and are saving at a decent clip. We can reasonably expect funds we save now to be worth 6 times as much when Mrs. C. reaches 60 years of age.
4. Continue increasing my income: Social Security payments are based off of income. As long as my income keeps going up, so will the Social Security survivor benefits, however my kids are also getting older, so there will be less time Mrs. C. would be receiving benefits for.
Being unprepared for our deaths is a common thing in our culture. Without a clear plan we can leave a sizeable burden to the people for whom we work everyday to support. The last thing I want is for Mrs. C. and my kids to have a financial burden on top of the burden of grief when I pass. Take some time today to evaluate your insurance positions and look at establishing a legacy drawer.
More often then not, death comes unexpectedly, what steps have you taken to prepare for end of life?