Are your Spouse and Children Your Responsibility if you Die Prematurely?

I know this seems like a crazy question. In fact if you ask most married people this question they will say, of course. But the truth of how most married people live is very different.

When I say married people I am assuming and referring to the ones that really love and are committed to each other. All the “I can’t stand my spouse people” I have another post for you, but this is for the loving couples out there.

 Although most people would say that they believe they should be financially responsible to their spouse if they passed away early the vast majority of couples are not responsible as they should be and grossly underestimate the hardship they leave their family to deal with.

 Actual Example:

 Chuck dies and leaves Anne and their three kids a $500,000.00 dollar life insurance policy.

Chuck earned $80,000.00

Anne earned $85.000.00

Home worth $400,000.00 with $350,000.00 mortgage $2875.00 mortgage payment

They have all the usual car payments and bills are living well and saving $2000.00 a month in their investment accounts.

About $80,000.00 in investments between the Anne and Chuck

Children are ages 2, 6, 10

Chuck age 38

Anne age 35

Both chuck and Anne had $500,000.00 life insurance policies.

 Life is about to be very different for the family

Sadly Chuck has a car accident and dies of his injuries. After the initial shock Anne is at least glad that they have life insurance. Most people chose the amount of insurance they purchase by some amount of money they think is a lot of money. If you never have $500,000 at one time that seems like a good amount of cash. You need to the amount of insurance on the amount of income you need to replace.

How are you going to replace your income?

 If you need to replace $80,000.00 a year in income you need a lump sum that you can earn 4% a year on and get $80,000.00. $2,000,000.00 times 4% =$80,000.00. Not including raises it is safe to assume Chuck was going to earn the same money or more for the rest of his working life. His family’s whole plan is based on this assumption.

 Why 4%

This is a safe number where you can spend the interest and protect the principal. This income is important because all the things you as a couple had to pay for still need to be paid for. In fact, expenses go up because now you need more childcare and help to manage your family. This amount of income lets you stay on track toward your retirement goals and your kid’s college education.

 To a person who makes 80,000.00 a year 2 million seems like an awful lot of money. But to a single spouse with three kids to take care of and educate alone it is a drop in the bucket.

 Consider the alternative

 Chuck left his wife $500,000 and three children. If she invested it conservatively for income she can count on about $20,000.00 in income from $500,000.00. How much do you think the family’s financial life is going to change losing chucks $80,000.00 a year and going to $20,000.00. If you think its going to be easy try living off of that now and see how you and your family like it.  If your whole world would change if you lost 60% of your income, then you can bet that the same will be true for your surviving spouse and kids.

 What are your thoughts? Should you be responsible for you surviving spouse and kids if you pass prematurely? I’d love to hear your answers. Can you and your spouse maintain your family life if something happens to one or both of you.

Most couples plans don’t protect them like this because either they think the expense will be too much or the advice they are getting is poor and only accounting for a best case scenario. If you need a great advisor try my personal advisor Tony Brayboy at www.matrixwealthllc.com.

I really want to hear from you on this one!

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