How do I know if I need life insurance?

Mike and Chris Bird never really gave much thought to life insurance. The Vista, California, couple owned a term contract that they’d had for quite a while, but they admittedly weren’t big believers in it.

Both educators in their mid-50s—Mike a high school physics teacher and Chris a Christian elementary school teacher and principal—they decided in early 2019 to take a closer look at their overall finances. They met with Tyler Jones and Michael Miller, Thrivent financial advisors, after attending a Thrivent workshop the duo sponsored.

“We learned we were doing a lot of the right things,” Chris says, as the couple looked ahead to retirement. Mike planned to retire in a few years and had a pension through his school district. Chris did not have a pension, which came into play as they talked with Jones and Miller about their goals and values. In that conversation, it became evident the couple didn’t have enough life insurance, especially if Mike would die before Chris.

“We were sort of in the mindset that as we were getting older, we didn’t need life insurance as much,” Chris says. But after discussing it, the couple decided to purchase a $500,000 10-year term life insurance contract for Mike.

“We absolutely couldn’t fathom that we would actually need it,” Chris says. At least not anytime soon. But the couple also had watched both of their moms after losing spouses. “Mike’s dad did a much better job of planning for his mom, but my mom is not living the life she was accustomed to.”

Fast forward to August of 2020. As Mike was prepping for virtual teaching of his physics classes, he was struggling with the technology, something that hadn’t been a problem before. As he was making a shopping list, spelling was an issue. After numerous medical visits and tests, the diagnosis was clear—Mike has an inoperable brain tumor. Treatment gives him additional time with his family, which includes two adult children and two grandchildren, but the prognosis is terminal.

“You don’t usually think about life insurance, at least we didn’t,” Mike says, until they talked with Jones and Miller. “But now it’s just so nice to have that security, and to know that if I go to be with the Lord, my family will be taken care of. That’s such a great feeling.”

How did the Birds make their decision to purchase a life insurance contract for Mike? While part of a larger conversation, they walked through the following four questions with their Thrivent financial advisors.

A common question Jones and Miller ask clients is: If you don’t make it home from work tonight, financially what would happen to your family?

“We don’t have anyone telling us how, when or where we’re going to die,” Jones says. “But we do know the human death rate is 100%.”

Insurance is about protecting your current and future family and the needs that come along with life. You may be single today, but that doesn’t mean you always will be, and purchasing insurance at a younger age may lock in future insurability and lower rates, Jones says. It also can be used in retirement planning and for leaving a legacy.

Today, many families have a two-income household, says John Estes, a regional vice president for Thrivent in Overland Park, Kansas. It’s not uncommon that when one spouse dies, the surviving spouse needs to take time off from work, which can equate to a temporary loss of income. This is on top of the lost income from the person who died.

And recurring expenses like mortgages and student loans don’t stop. This is part of what caused the Birds to purchase the contract on Mike. “We saw one of our greatest needs was to pay off the house,” Chris says.

According to the 2021 Insurance Barometer Study,* 42% of families say they would face financial hardship within six months if the primary wage earner died unexpectedly. For 25%, it would be within just one month.

“So, while it’s not super exciting to pay premiums,” Jones says, “life insurance is there to help ensure your family will be taken care of, that your spouse can take care of your children, that your family can stay in their home if you don’t make it home.”

• How would one of us dying suddenly affect our finances and lifestyle?
• What income sources could be reduced or vanish in the event of a death?
• Do I want to leave a legacy to people or places I care about?
  

  

This is one of the most important questions to answer for your personal situation. “I’ve never had someone tell me they didn’t need the life insurance benefit,” Miller says. “It’s usually, ‘I wish I had more.’”

A financial advisor can guide a discussion about your goals and values, income potential and liabilities, such as a mortgage, student loans and credit cards, Miller says. You’ll also discuss future education expenses for your children, if applicable, and your legacy wishes. And you’ll also look at any life insurance you currently own.

“Many people don’t understand the human life value,” Estes says. “Over the next 10 or 15 years, what would have been the total income of the spouse who died?

“At a bare minimum, I’d recommend you cover 10 years of lost income. But it’s my obligation to share with clients what you need to have the lifestyle you want for your family,” he says.

Everyone’s needs are different, so this conversation is different for each person.

• What lifestyle do I want my spouse and family to enjoy when I die?
• If one or both of us has insurance benefits through work, is it enough?
• Are there any probable health status or risk class changes since an existing contract was issued?
  

  

The answer to this question depends on your goals and your season of life.

“Different contracts accomplish different goals at different times in life,” Jones says. “For me personally, right now, my highest priority is family protection for my wife and two children. So it’s structured now to get the most out of it for the least amount of premium.”

But later in life, Jones says, he wants to use it as a source of retirement income, so he’ll look to convert to permanent contracts.

Miller adds that while the people who benefit most from life insurance proceeds are usually the immediate family, there can be a domino effect on future generations. “Life insurance is, in many cases, the gift that keeps on giving.”

• Are my beneficiary designations up-to-date?
• I’d love to give more to charity, but can I afford to?
• What amount of cash value do I need to meet my retirement income goals?
  

  

“If you’re drowning, do you care what color the life preserver is or just that you have one?” Miller asks. Ultimately, the only thing that matters is that you have adequate life insurance coverage on the day you need it, he says.

Essentially, it goes back to your goals for the coverage you seek and what your starting point is. The 21-year-old looking to make sure student debt would be covered has a different goal than the married person who is 40 and has a family, or the 70-year-old grandparents who want to make sure their grandson with a disability is taken care of.

“The first goal is to determine what you need, and it could be a high amount,” Estes says. “Then when you determine how much you need, we’ll talk about how to fund it—term, permanent or a combination—in a way that fits into your budget.”

It depends on you and your personal situation.

“We’re here to guide,” Jones says. “We’ll show you different options and solutions, but you’ll make the final decision.”

• How long do I need the coverage?
• When is cash value or income needed?
• What premium am I willing to pay and for how long?

When the Birds answered questions like these in early 2019, they had no idea what would lie ahead—a terminal diagnosis followed by six weeks of radiation and chemotherapy last fall. Monthly chemotherapy since. And it’s why they want to share this story with others.

“Someone years ago told me to start putting $40 a month into an IRA. It was helpful financial advice,” Mike says. “Hopefully our story will help someone who doesn’t have life insurance, or doesn’t have enough, to consider it.”

The hope, Chris adds, is that you never need the life insurance. But you can be thankful you have it if you do.

“We serve a mighty God, and he could choose to heal Mike,” Chris says. “It would be my preference not to need the insurance. But for me, as much as I dislike this, there is peace. I can focus on enjoying every day we have together.”

Do you have enough life insurance to meet your family’s needs if you were to die? It may be time for an insurance check-up with your Thrivent financial advisor. You can also get started with our life insurance calculator.