October 17th, 2017 is the day my life changed forever (for the better). Life was no longer about me. Instead, it was about doing everything in my power to ensure a great life for Ryleigh Miriam Stern.
With this new-found joy and lust for life swept in a sense of fear and mortality. I found myself tracking my child/wife on Apple’s “find my friends” to make sure she made it to daycare OK and feeling a sense of relief with every photo update I received from our daycare provider. My priority before having a child revolved around saving so I could one day stop working for someone else and enjoy a life of independence and travel.
Now those priorities have shifted, I place less emphasis on saving in my 401(k). Instead I have found a new desire to save in my daughter’s 529 plan for college and took a calculated risk to own my own business. As a Certified Financial Planner ®, this is not the smartest decision or the safest path, but it comes from a sense of responsibility for my little wonder woman.
As I reflect on what I have done and what I should be doing to make smart financial decisions for my family, I wanted to open up about some of the steps I have taken to make sure my family is protected from the uncertainty of the world. In the first part of this series, I wanted to talk about how I changed my life insurance.
Let’s be realistic, no one likes talking about life insurance because no one likes thinking about death. Unfortunately, I find myself thinking about my own mortality more than I’d like, so I wanted to make sure my wife and daughter would never have to worry about finances if something happened to me.
In overly simplistic terms, there are two kinds of life insurance. Permanent (whole life/universal life) and temporary (term life). Permanent insurance for the most part is for people with high net worth’s who are subject to estate taxes (couples with net worth’s over $22.4 million in 2018). Unfortunately, this isn’t me. Some advisors recommend permanent life insurance if you have high income and have maximized your other tax advantaged savings plans (401k’s, IRA’s, etc). We will leave that discussion for another day. Most people simply need the lowest cost form of insurance for a certain number of years. This is called Term insurance.
Before having Ryleigh, I had some life insurance through my work, but I knew that if I wanted more, I wouldn’t get the best rates, so I had purchased a 30-year term policy through Principal. I purchased $500,000 of death benefit, which would be paid to my wife tax-free, yes, tax-free if I were to die within those 30 years. For this coverage, I paid $446/year ($37/month). The purpose of this was to pay-off our $300,000 mortgage and leave a small slush-fund for my wife for other expenses. I knew this wasn’t enough to replace my entire salary for the next 20-30 years, let alone, live a life of luxury, but it was enough to make her debt free.
After the birth of Ryleigh, my mind started racing. What about the cost of daycare, our awfully expensive dairy-free, Nutramigen formula, pre-school, summer camp, college (potentially over $250,000 just to go to College Park in 18 years) or baby #2! I knew I needed more coverage. So, I shopped around and after running quotes through all the major insurance companies, I purchased another $1 million of 30-year term insurance through Banner for $810/yr. ($67.5/month).
So, let’s refresh, for $104/month, fixed for 30 years, if I get hit by the proverbial bus, my wife will receive $1,500,000, tax-free which will pay off our mortgage, pay for college and provide a healthy slush fund for life’s what-if’s. To me this is a no brainer and I feel more comfortable knowing she will be taken care of.
Planning in your 30’s and 40’s can be complex, but it doesn’t have to be expensive.
Financial Planning is not just about managing investment portfolios. More importantly it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on. Today I feel better about the security of my family.
At Abel Financial Management, we are an independent, fiduciary, financial planning firm with a mission to help you make smart decisions with your money. Steve is a CERTIFIED FINANCIAL PLANNERTM and Partner at Abel-Financial Management. He can be reached at firstname.lastname@example.org or at 410-307-1202.