Make better financial decisions by  seeing the things most financial plans don't

A reader recently asked me this...

Subject: I think my wife is trying to insure me to death

Hi,

I've been reading your emails for a couple of months and I thought I'd finally ask you about something that's been going on at home.

My wife thinks I don't have enough life insurance.

I think I have enough.

So naturally, this has become a completely rational and unemotional discussion in our household.

I'm 43. We have two children, 11 and 7, and about 14 years left on the home loan.

I have life insurance through my employer, and I bought a separate policy about six years ago. Between the two, I thought I was reasonably well covered.

Apparently, my wife has reached a different conclusion.

Her argument is that the children are still young, the mortgage isn't going anywhere, and if something happened to me, she shouldn't have to start making financial decisions while also dealing with everything else.

Which, annoyingly, is a fairly good argument.

My argument is that we have investments, she earns as well, and we're not exactly living like Roman emperors.

That argument is apparently less convincing.

Then last week she suggested that I speak to someone about increasing the cover.

So I did.

This may be where my cynicism gets the better of me, but the person I spoke to took approximately four minutes to explain why I needed more insurance.

Four minutes.

I gave him my age, income, existing cover, mortgage and number of children.

He gave me a very large number.

It was an impressively large number.

I asked how he arrived at it.

He explained.

I nodded.

He explained some more.

I nodded again, this time with considerably less conviction.

Eventually I came away thinking:

How do I know whether I actually need this much cover, or whether I've simply found someone whose job happens to involve recommending more of it?

So that's what I'd really like to understand.

How do you decide whether the insurance you already have is actually enough?

Is there a sensible way of working it out?

Or is this one of those things where three experts will give you four answers and somehow all four will involve buying something?

I'd genuinely like to know how you look at it.

Thanks,

M.Con Fused

"Four minutes."

I thought to myself.

That's fast.

I spend longer than that deciding whether I'm actually hungry or just bored.

But let's put that aside.

Your wife thinks you don't have enough.

You think you do.

The insurance guy thinks you need more.

And somehow all three positions sound perfectly reasonable.

Hmm.

Maybe the problem isn't the answer.

Maybe it's the question.

Because what does “enough” actually mean?

Enough to pay the mortgage?

Enough to replace your income?

Enough to put the kids through school?

Enough to keep your wife from having to reorganize her life?

Those are very different numbers.

But I'm wondering whether we're looking at the wrong side of the equation.

So I wrote back.

------------

Hello Mr. Fused,

I liked your email.

Especially the four-minute bit.

You gave someone your age, income, mortgage, existing cover and number of children...

...and four minutes later he had discovered a very large number.

Impressive.

It takes me longer than that to decide which sock to put on first.

But here's what I'd do before buying another policy.

I'd forget about insurance for a moment.

And I'd ask:

If your income stopped tomorrow, what exactly would your family need to keep paying for?”

Not roughly.

Actually write it down.

The mortgage.

The children.

The household.

The plans you've made.

Then look at what your wife's income could replace.

What your investments could replace.

What your existing insurance could replace.

And see what's left.

Because that's when things get interesting.

You may discover you need more insurance.

You may discover you already have enough.

Or you may discover that you've been trying to answer the wrong question entirely.

And that's where I think this conversation gets really interesting...