September 2017 – Life Insurance

Would Batman need life insurance? September’s theme of “Life Insurance” is aiming to separate the different facets to ponder about life insurance.  It’s a topic that we shouldn’t wait until our “spidey-sense” tingles or we get “Bamm Bamm’ed” over the head before thinking about it. Hopefully this information will provide you somewhere between “Alohomora” and “Bombarda Maxima” type wisdom.  Enjoy this month’s OC Wealth Coach reading!


Hello,

In last month’s newsletter, we “hit the links” between a golf ball and investments and encouraged you to visualize some goals and assess your swing in targeting those goals. I hope you’ve been able to use those tips whether you’ve been on the golf course or the…concourse.

This month, our focus is on Life Insurance. After all, it is “Life Insurance Awareness Month”! The very fact that an awareness month exists suggests that it’s common for people to not think about it. It’s something which doesn’t appear to be urgent, especially if we are in good health. And it’s easy to take a back seat to pretty much anything else. I think it’s so easy because it’s a decision that involves a very uncomfortable conversation. We need to estimate a devastating emotional loss in dollars.

I realize how tough this idea may be to stomach, but for many of us, life insurance fulfills 1 need; it replaces an economic loss. No amount can replace the emotional loss. It won’t be easy, but we have to put the emotional loss aside in order to simplify it in financial terms. We will look at the first two steps that identify whether life insurance may be needed and how much would be needed.  The most appropriate type of insurance or time period vary widely per person, and would be better served in a future article.

A starting point with anyone about whether they need life insurance is this question; “Does someone depend on you economically?” What is dependence, you may ask? Well, let’s look at the examples used in a 2005 survey by the Life Foundation that asked which fictional character had the largest need for life insurance: Fred Flinstone, Marge Simpson, Harry Potter, Spiderman, or Batman? The responses are interesting and quite fun to analyze.

Fred is an easy choice, he’s the sole income earner and there would be a large economic loss to Wilma and Pebbles to replace his income. Marge Simpson, although not an income earner, performs many stay-at-home services that Homer would have to do (which is doubtful knowing Homer) or hire for help (which is expensive). Harry Potter has little need for life insurance, as he is a young student with no dependents. Spiderman, or Peter Parker, is a young bachelor (despite a complicated possible marriage storyline) who *might* provide some support to his aunt, except she always tells him to not worry about her. Lastly is Batman, aka Bruce Wayne, an unmarried billionaire in great health. Although he has the most dangerous job/hobby of this group, there is very little need to replace an economic loss. Granted, Gotham City, would be worse off without him, but replacing his “talents” would prove to be difficult for them, no matter the money. There might be more intricate life insurances uses here for charitable or estate work as well as a possible key person policy on him owned by the Gotham, but I don’t think that was the spirit of the survey.

Although it sounds cold to insinuate that the very real emotional loss of a spouse (or Harry Potter) may not be an economic loss, this decision about whether to buy life insurance, unlike some other financial decisions we may make, is all about the math. After identifying the numbers, it’s often an easy decisions to make.

First, we have to calculate the income. Economically speaking, whether there are dual incomes or just one, there would be lost income. Suppose that 2 spouses each make $40,000 per year.  If something happened to one of them, there’s $40,000 of lost income. But the surviving spouse may also lose time to other commitments, for perhaps $10,000 per year.  So, we could have a $50,000 loss per year.

How much of that $50,000 would need to be accounted for? The answer will vary per family, but would depend on the degree that income would be used to fund the goals they identified as a couple. It may be just a portion of the income, but it very well could be a large percentage of it. The number needed would also be affected by the amount of time they have until those goals need to come to fruition.

Calculating it based on income means spouses will probably have different values for their economic loss, which is normal. Again, we have to separate emotion from the equation or else we can get derailed. As Bruce Wayne would say, “It’s not who I am underneath, but what I do that defines me.” Insurance isn’t an investment, it’s an expense. We are people, first and foremost, who contribute what we can to our goals.  Our life insurance isn’t about who we are underneath, it’s about replacing our interrupted ability to fund our goals.

So you’re probably thinking, “How’s Trent gonna’ possibly challenge me this month?” After giving it a lot of thought, it wasn’t until I used the “bat-signal” that it hit me. Even Detective Gordon realized that there are some things that only Batman can handle. No one else would do. And I think we all share that uniqueness with Batman. Life insurance may replace the economic side of us to our loved one, but it won’t replace the things that only we can do.  This month, I’d like to challenge you to notice the things that only you can do for your loved ones or close friends. Things like changing the car’s oil or mopping the floor are certainly nice, but they are “replaceable”. However, the way you make them feel is not. The way you leave them a note or flowers, the way you call them just to say “hi”, and the way you smile and hug them are the ways they’ll remember you. So be “you” with these people this month and let the minutiae of “tasks” fade to the background. I’m not saying to skip dish-duty or lego-clean up, but make an effort to be genuinely thoughtful.

I think they’ll notice a difference without any explanation or figurative “grappling hook” needed.

Tune in next time to the same Bat-time, the same Bat-channel!

(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.)

(All illustrations are hypothetical and are no representative of any specific situation. Your results may vary.)

(For information about specific insurance needs or situations, contact your insurance agent. Insurance guarantees are based on the claims paying ability of the issuing company.)

Trent Huston
Wealth Coach
California Insurance License #0G24740

17742 Irvine Blvd #200 | Tustin | CA | 92780
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Trent Huston is a Financial Consultant with securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through AK Financial Group, a registered investment advisor. AK Financial Group and OC Wealth Coach are separate entities from LPL Financial.

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