< DadBodfi >
Crack a Beer. Crack a Joke. Crack the code to Financial Independence.
Look, in life there are some things that just need to get done. Unfortunately, a lot of those things result in you doing them because if you don’t, they’re never going to happen. Getting your car serviced is one example. It sucks, but no one is going to knock on your door and offer to burn half a day at the service shop sitting in an uncomfortable chair flipping through People magazine from last April. That task is 100% on you. At DadBodFI we kicked around these type of tasks and landed on one that is at or near the top. Shopping for and acquiring a life insurance policy. I know.. It’s not fun at all but hang with us for a minute and let’s work this through.
We write a lot about the journey towards financial independence and it all boils down to time. The decision to value our time above our money. We invest our hard earned dollars in an effort to make our wealth grow to do what? Acquire more time that is not earmarked for work. The second piece to the life insurance puzzle is family. We want to increase the amount of time spend with our family because that’s the time we value the most. We think of life insurance like this: It gives us the opportunity to provide the people we care about most with a tool to acquire time. If you pass away tomorrow it’s going to suck for your family. We don’t mean to present the idea of life insurance as crass by any means, but here’s the bottom line.. Either your family loses you, or they lose you and your income. The choice is yours. Having a life insurance policy is going to feel a lot like stroking a check to nobody for nothing. That can be a tough pill to swallow. However, the key is understanding that while you won’t have anything to show for it tangibly, you are buying something extremely valuable. We’re going to get into specifics here in a moment but we think you’re going to see pretty quickly that the value proposition a life insurance policy offers you is much larger than its cost. Also, we believe that there is a window of time in your life in which life insurance makes sense but in a lot of cases, it won’t be longer than 10 years. Some people say life insurance is either something you have at all times or never have. As if it’s some big decision that can only be made once. We don’t believe that’s the case at all. We believe there is a period of time in which your family losing your income would be particularly devastating. It’s when you’re in the wealth accumulation phase of your career yet at the same time you are well on your way to building your family. The issue of life insurance is after all a matter of risk and we want to mitigate risk where possible. Let’s fire up an example to illustrate this.
Gordon is a 32 year old married, father of two. He and his wife bought a $250,000 house about a year ago, have $25,000 in savings and they have another $150,000 in Gordon’s 401K. His annual income from his employer is $55,000 per year. The risk of removing Gordon’s income from the equation is particularly devastating for two reasons. The first is the fact he and his wife have two young kids. They could be 5 years old or 11, but any way you slice it, they have a long way to go before they can earn a living for themselves. The second reason is that Gordon hasn’t had a ton of working years to build up his wealth. He’s only a decade or so into his career. A life insurance policy can mitigate Gordon and his family’s risk in a major way, here’s how. Gordon can purchase a 10-year term life insurance policy for about $40 per month, that would payout $1,000,000 upon his death. Suffice it to say, if Gordon gets hit by a bus tomorrow, his family would be left with options. Yes, they will have lost him but we are talking solely about his income so don’t get all teary eyed on us. Good news is, Gordon is a fictional individual.. Dude’s going to be fine just stay with us here. Focus on the risk that Gordon is dialing down by purchasing the policy. Another piece of good news is Gordon isn’t going to be vulnerable forever. Let’s fast forward 10 years when his policy has run its term. Now 42 years old, Gordon and his wife have been able to save $100,000 in cash, and because he contributed diligently to his 401K, his balance is over $600,000. His children are also now 10 years older. If Gordon and his family decided at this point the risk of losing his income no longer warrants having life insurance, he is under no obligation to buy another policy. If they end up on the other end of that decision, Gordon can shop for a new policy. At any rate, it’s mission accomplished. Gordon protected his family when they needed it the most. He didn’t waste money, he just bought them options that fortunately for him, they didn’t end up needing.
Check out www.quotacy.com for the latest insurance options available to you. Let’s mitigate some risk.