If anyone does not take care of his own relatives, especially his immediate family, he has denied the faith and is worse than an unbeliever. 1 Timothy 5:8
We are taught in scripture that we are to provide for our families, especially our immediate family. That obligation does not end in the event of our untimley death. Life insurance provides for the needs of a family in the event of the death of a breadwinner. As believers in Christ, we have sure hope of our salvation and eternal life after death. However, the earthly needs of our families continue after we are gone. Having life insurance does not indicate a lack of faith in God; it represents the final loving act one can do for their family to meet the family’s needs.
We don’t think twice about insuring our homes or our cars. Perhaps this because the finance companies require this insurance to be in place as a condition of the loan.
However, a significant number of people fail to insure their most valuable asset, and this is the ability to earn an income. Just how valuable is this asset?
Consider the following:
EXAMPLE:
40 year old, earning $50,000 per year.
25 years of remaining work life (age 65)
$1.25 million potential loss of income ($50,000/year x 25 years)
IMMEDIATE INCOME TO FAMILY
Unlike holdings that are included in a person’s estate, such as investments, real estate and other items of value, life insurance is not subject to probate and can be paid within a very short period of time provided all policy requirements are met. Also, life insurance policy benefits are NOT normally taxable to individual consumers. (Some business uses of life insurance can result in tax consequences.) This means an immediate source of ready funds to take care of the needs of the policyholder’s family.
HOW MUCH LIFE INSURANCE?
Calculation Method 1
10 times annual income, according to most experts, including Dave Ramsey. Crown Financial Ministries suggests 12 times annual income.
Then invest the proceeds at between 7 to 10 percent return and that should provide the necessary annual income for the family.
Calculation Method 2 (Add the following together)
- Final Expenses, about $10,000
- Mortgage, current principal balance (Allows family to keep or sell home)
- Other Debt, credit cards, cars, etc. (These pass to your estate if you die)
- Education Expense for children (about $7,500 per year currently)
- Add 4 to 6 times annual income
WHO SHOULD BE COVERED
Primary wage earner should be the first person covered if available funds are tight.
A two-income family should cover both wage earners.
Non-working spouse should have about two times the annual salary of primary wage earner for final expenses, additional expenses for childcare, adjustment period, etc.
Children have two reasons to be insured for much smaller amounts: 1) to cover final expenses, and 2) to guarantee insurability later in life. Good children’s plans have good step up provisions for the child to buy more coverage as they grow older and are more independent. Plans are available for $25,000 in term insurance for $5 or less per month, depending on age and gender of the child.
DON’T OVER INSURE OR STRAIN BUDGET
Total cost of insurance for life insurance only should generally not exceed 5 percent of spendable income. Spendable income is gross income less taxes and tithe.
Cancelled insurance due to non-payment is a great waste of money and leaves the family unprotected. Repurchasing insurance again will be based on the attained age of the proposed insured at the time the new policy is written. This can result in a significantly higher premium for the replacement policy later in life.
Now will always be the least expensive time to purchase a good term life insurance policy. Rates are primarily based on age and tobacco status, and rates go up as we get older.
FINALLY . . .
The amount of insurance is based on the need to provide for needs, not to create a wealthy estate for children or spouse, which can lead to slothfulness, greed, animosity, and all the other issues that come with excessive amounts of unearned money. Just look at the typical lottery winner five to ten years after winning. Most are in worse condition than before they won.
