Most people have a basic understanding of the core reasons for purchasing term life insurance or life insurance in general.  The need is pretty apparent if you have financial needs that would severely go unfunded were you to pass away.  For most people who barely have rainy day fund to last a month much less 6 months or 5 years, the concept of life insurance is self-evident and if they deal with it honestly, pretty important.  Going along with this thought, most people intuitively think to get life insurance on the primary earner in a family where one person earns the vast majority if not all of the family's income.  We can't argue with this take on life insurance needs but we want to make sure that people understand the risk associated with the non-working spouse passing away without life insurance.  Anecdotes always help to clarify real-life situations and a recent client's situation serves pretty well.   Let's look at Matt's situation.

We received the call on a pretty typical Wednesday.  We had actually helped Matt almost 5 years back find and purchase a pretty ideal term life insurance policy based on his income replacement needs and financial responsibilities.  We brought up potential coverage for his non-working spouse but he was adamant that the need was for him alone.  We're not in the business of selling or pushing, just guiding about term life insurance so that was that.  The call indicated why we brought up some level of coverage on the spouse.  It was Matt and he called to review his term life coverage in light of the passing of his wife.  granted, he made the majority of the family's income but that fact was misleading when looking at the new financial constraints he was feeling.  He had a house, a self-employed small business, and 3 children.  Obviously, the family was in a state of emotional collapse relating to the loss of his wife but that financial considerations also became apparent, surprising Matt.  Suddenly, there was a need for childcare and support at home as his company typically required 10 to 12 hours days and any day spent not working meant a loss of income.  He didn't have flex days as the owner.  Those were the ongoing expenses that we would now need to deal with and he didn't expect it to run 1000's of dollars per year until his younger daughter was 18 (not to mention college).  There were also immediate expenses which hit hard at exactly the wrong time financially.

Most people don't realize that a funeral can quickly run 10's of thousands of dollars in immediate expense.  Many people end up putting this expense on credit cards only to pay them down for years (at multiple amounts of what the original cost was thanks to those lovely credit card interest rates).  There was a significant medical expense as the result of treatment received prior to his spouse passing away.  When all combined, he was looking at $45K which was exactly going to be found in petty cash from his business.  So how do we address these needs without over insuring a non-working spouse?

First, make sure to at least cover final expenses (funeral, medical, transition, etc) of about $50K.  We further recommend another $50K (since $100K is not only a nice round number but typically where the first price breaks of term life insurance occur) to cover the long term transition resulting from a spouse's disappearance from the home.  When we say non-working, we mean for pay but everyone who has a child knows that it really is the hardest job to run a home...much harder than any 9 to 5 you'll every come across.  $100 of term life insurance should be very inexpensive and a minor footnote to provide for an all-around approach to protection....protection from having to make a call to us like Matt did.