Why Covering Just the Mortgage Isn't Enough
As a 'Protection First' philosophizer I hear all sorts of stories and reasonings from my clients as we take our deep dive into their financial profile. The most common misnomer I encounter is this false idea that only owning enough life insurance to 'pay off the mortgage' at your death is not only sufficient, but the efficient choice. While I appreciate the thought, this can't be further from the truth.
While a mortgage in Boston certainly feels like the largest asset you'll ever have, the truth is that your ability to work every day is worth more than any home/s you'll ever carry the keys to. A mortgage might be as much as $1 million (don't we all wish!), while your future earnings could be 3-4x that over 20-30 years of earning wages.
If you buy life insurance only to cover the mortgage of your first home and catastrophe strikes in the middle of paying off your third home's mortgage, how close do those amounts match? Reupping your life insurance coverage every time you move homes is not only costly to you, but you may not even qualify due to life events that may occur during the 30-40 year span of time between your first home and your ultimate dream home.
But let's be honest: the likelihood of your passing during your working years is low. According to USAFacts.org, the average age of death in the U.S. is nearly 78 years old. So, if you or your partner passes in their 30s-50s, there's a good chance it's due to a tragic incident or terminal illness. Both of those scenarios bring with them exorbitant costs that will land in the lap of the surviving spouse/children.
The simple solution: a death benefit based on your economic viability. A life insurance strategy that brings in true income replacement to the survivors' lives...not just lets them stay in a home they may or may not wish to live in without you.
This is the most myopic of all the reasons I hear. I don't care if your partner gets decapitated by a green line train or fights a terminal disease for 2 years before crossing the rainbow bridge: you are missing work on Monday. And if you have children, you will miss work for a lot of Mondays.
But you are correct, the surviving spouse will go back to work eventually. Not because they will want to, but because they must. Consider this: let's assume your life insurance covered the mortgage plus final expenses and you go back to work.
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Who's watching the kids? What's that cost you? What if your deceased partner's job carried your family's health insurance? What's that cost you now? How long will you spend with the kids before you return to work? What's the time without income costing you? And the most important question I have for you: why would you do this to your family?
I can't tell you how many stories I hear about a husband saying, "My wife is pretty. She'll remarry." I'll avoid my personal disdain for this statement and simply ask, "Great. Who is it?" Follow-up questions are, "What do they earn?" and "Will they be good to the kids?"
You're right. Their lifestyle will adjust. Possibly no more or limited extracurricular activities. No more paying for college or weddings. No more renovation of the home or family beach vacations.
What's the legacy you want to leave behind? One of confidence and stability? Or one laced with confusion and worry?
I prefer confidence and stability. Let's work on it together.
-Wes
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 2023-158015 Exp 7/25