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“I’m Covered at Work”

How many times have I heard this? I’m speaking to someone about their Life Insurance coverage and they explain they have a “group policy” through their employer. When I ask how much it is they rarely know the amount or how much they pay for it. The fact is, Group Life Insurance is usually woefully insufficient for most people’s true insurance need—often just a couple hundred thousand face value.

Without knowing other factors like assets, liabilities, and family structure, one can determine the basic level of coverage that makes sense by applying my “rule of thumb.” This rule is that a million dollars of Life Insurance will only generate around $50,000 in ongoing annual income for the family that survives you.

In the D.C. area, many people are making $150,000+ a year. This means it would require 3+ million in Life Insurance to replace that essential income to the family. In other words, that $200,000 group policy at work that you say “has you covered” will only generate $10,000 a year in income—quite a pay cut for a family that has lost its breadwinner.

So the lesson here is to do some basic math and to put in force some personally owned Life Insurance on top of whatever coverage you have at work. You’ll sleep better I guarantee it.

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