Hi, I'm Billy Gwaltney and this is the CYA podcast. This show is for the physician who understands the importance of protecting everything you've worked so hard to achieve. Each week I'll bring you tips and advice to help you cut through the clutter and misinformation and show you exactly what you need to preserve your income and way of life. If you're ready to achieve the peace of mind that only financial security can bring. Let's get started.
Welcome to episode number 13 teen. The title of today's program is how much life insurance do I need? And that's an excellent question. I get asked that a lot. And whether you're a physician, you're still in training as a resident or fellow or if you're an attending. And really for anyone, how you run this calculation and how you decide this is really important. There are three primary approaches to doing this, to calculating how much life insurance to purchase or at least consider purchasing.
(00:55): The first approach is to ask some friends and colleagues what they have and just mirror that. And that happens a lot. I get asked, you know, how much do other people in my situation usually have? And I answer that to the extent I can, but I also make sure that they understand that. And it's important for anyone to understand the conventional wisdom and kind of doing what everybody else does. It's not, it's not always the best way to function. It's not the best way to answer important questions and it's not the best way to decide what your family family's future is gonna look like. And so, but it is an approach and at least get someone in the ballpark for tackling this question. And so that is kind of the first and probably the least advisable approach, but it is, like I said, getting you down the road.
(01:41): The second approach is running what's called a needs analysis calculation for your specific situation and by a needs analysis. This is an equation or calculation that factors in your income and your assets, your debts and also your goals for replacing your income. How much and for how long. And what it'll do is drill down and give you an amount of money that's needed at that particular point in time to do the things you want to do. There's a website called life happens.org again, life L I F E H A P P E N S.org that has a generic calculator you can access to run that figure for your situation. That's a a more advisable approach, probably more accurate than the first one of kind of going with what everybody else is doing. But it still focuses on kind of a scarcity approach to this.
(02:33): You know, how little coverage can I get to do the things that I think I might want to do if I'm no longer around or I might want my family to have. And so the third approach is generally the most favorable, at least with people that in situations where we've had to deliver claim checks is the one that leaves the loved ones in the best shape. And that's what's called a human life value approach. And is where it's simpler than the calculation it's wearing it. You take what an insurance company will offer you, which is generally 20 times your annual income. Some may say that sticker shock is too much. I don't want to make those left behind rich, but it's important to understand that an insurance company will not allow you or allow a beneficiary to get rich off of you. They just, they won't do it.
(03:23): Their risk analysis will not allow them to enter into the get rich quick approach to life insurance cause that's not good for business for them. And so when they tell you that 20 times income is not too much and is not leaving your family rich, I think it's important to to think through that and really see in your own situation, if that's true, if what the insurance company is saying again, they're not offering you 20 times because just because they want to see how much premium they can get from you, they're offering 20 times understanding that at some point down the road there's a, there's a chance that would have to pay that out. And so they don't want to give anybody too much of an incentive to do something, you know shady. And so when you run these numbers, when you really run this calculation for the situation, if you're no longer in the picture, what happens?
(04:19): What happens at that point? Your income is gone forever. It's never going to come back. The people that count on you, your spouse, your children, even your extended family are never going to have your contribution to the family economically in any other way. And so whatever's you've put into place up until that point is the only thing that's going to remain. And so again, your income is gone forever. Keep in mind they're going to be market ups and market downs that will continue and if someone is forced to access a pool of money to pay bills at a time when the market is down, that has disastrous consequences and permanent consequences to how long that asset pool is going to last. And so you have to factor those things in. Taxes will likely go up at some point in the future. That's an important thing to keep in mind that the biggest enemy to any pool of assets is inflation.
(05:18): The biggest enemy to our money is inflation. The fact that things will cost more in the future than they do now. And so factoring that in is really important. And so again, when you're replacing your income forever and that income stream is never going to be there, when you really look at the numbers, you know, 20 times just not an astronomical figure. And I'm not saying everyone has to get 20 times. I am saying that is it's good food for thought too, to factor that in instead of just seeing how little you can get because the last thing, whether you like it or not, your legacy, my legacy, how we will be remembered by our loved ones will be tied to the financial situation. We left our loved ones in a lot more than we would expect. The position we leave them in is going to go a long ways to solidify how they remember us and how you're remembered.
(06:17): And so again, none of this is a requirement, it's just there. There are again, three approaches to calculating the death benefit or a life insurance amount. You can go with what your friends do, you can run a needs analysis calculation and then you can factor in the human life approach or excuse me, human life value approach, which is where you do a multiple of your income up to as high as 20 times. Hope this is helpful. Please feel free to text me anytime to arrange a conversation or with questions. My number is (704) 270-2376 again, that's (704) 270-2376 I would be happy to discuss your situation anytime and until next time, this is Billy Gwaltney. I'm grateful for your time. Thank you for carving out a few minutes and look forward to seeing you or talking with you next time. Take care.
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