Here is the scenario. Your husband is driving home that night on the local highway. Out of nowhere a large truck sideswipes the car sending it reeling off the road. After the car does a couple of flips and comes to a rest, emergency vehicles arrive on the scene only to realize that they are too late. Your husband is pronounced dead on arrival.
As the chaos unveils, it is learned that the driver of the truck was heavily under the influence of alcohol at the time. He lost control of the truck driving at an excessive speed when he inadvertently hit your husband's car sending him to an early death. As you learn more facts about the case, you decide that there is only one option. That is to file a lawsuit against the trucking company. The big question then becomes . . . what amount do you sue for in court?
Many times in the financial planning process when I ask this question the answer is substantially more than the life insurance the family has on the life of the husband. While a million dollars seems like a lot of money, we generally find that people would sue for several million dollars in a tragedy like this.
In insurance planning, this loss is considered to be someone's Human Life Value. Essentially, if your spouse or partner earns $200,000 per year in this calendar year you would have to first look at how many years would they have the ability to earn that income. For example, if a 40 year old was earning $200,000 per year, it would be 4 million total dollars (without inflation) over the next twenty years. What you have to figure out next, is what the net present value of $4 million dollars would be in today's money. In non financial terms, this really means how much money would your spouse need on a debit card in today's money to generate that $200,000 per year for the next twenty years? The answer to that question is one way to solve how much life insurance you may need.
My guess is if you run the numbers, you probably don't have enough life insurance. To date, I have never met a surviving spouse who said that they had too much life insurance. I have seen plenty who wish they would have bought more underestimating debts, college education expenses, or their ability to earn additional income to pay bills. Hopefully, a situation like I described never happens to you. Ask yourself this question tonight . . . What is the value of my spouse's life?
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
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