The answer is probably no. In most employer life insurance plans, the death benefits offered are usually close to one year’s salary. If you are a highly compensated individual, you may be lucky and have coverage that is a multiple of your annual salary – typically anywhere from 2 to 5 years.
But let us take a step back. Why do we need life insurance to begin with? First and foremost, we do not want to be a burden to our loved ones. Life insurance coverage should, at the very least, provide for the elimination of any outstanding debts. Without at least that level of coverage, loved ones would need to deplete your savings, or worse, their own assets just to establish a clean financial slate.
Furthermore, in the event of an untimely passing, many of us would still like to give our loved ones the ability to continue the lifestyle that they are accustomed to and that we have worked our whole lives to provide for them. In this case, life insurance means income replacement. Therefore, how much death benefit would be required to fund the lifestyle you had planned to provide up to and throughout your natural retirement timeline.
If the debt elimination and income replacement strategies align with your wishes, employer insurance likely doesn’t cut it. Even with a death benefit of five years’ salary, you would need to be within five years of retirement and without any substantial debts.
To determine your coverage needs, “back of the napkin” calculations can work – add up your debts and how many years’ worth of salary and savings you had planned before retirement. That should get you close. But, with this topic more than any other, a financial planner can be of great benefit in navigating your actual coverage needs. A planner that does not sell insurance directly can provide you with an especially unbiased breakdown of possible shortfalls. Such an analysis would also require a formal evaluation of your long-term and retirement financial objectives (which is something anyone progressing toward retirement should already pursue).
Once the level of necessary coverage is identified, there are countless insurance products on the market customizable for your specific objectives. Temporary (“Term”) policies can be constructed in such a way that your level of coverage mirrors the time remaining until your retirement and a commensurate level of income and savings. That is likely your most efficient and cost-effective route. If your financial objectives also include legacy planning and minimization of estate taxes, it may behoove you to investigate more permanent insurance products.
The last thing we want is to be a financial burden to our family, which can often be difficult to overcome. No matter your age or health, one of the most precious financial objectives is to take care of your family. Don’t let complacency or a busy schedule allow you to overlook the potential threats facing your family in the event of your untimely passing.
Stop. Evaluate your current coverage. Get that figure in line with your needs and live with the peace of mind that your family will be taken care of no matter the circumstance.
