MSG Presents-"Eric On Money": The Million Dollar Question-Do You Have Enough Life Insurance?

In this episode of MSG Presents: Eric On Money, Eric breaks down one of the most misunderstood topics in personal finance: how much life insurance you actually need.

Many people believe that simply having life insurance means their family is protected. In reality, most people are significantly underinsured and do not know it. The episode reframes life insurance as a tool for preserving quality of life, not just covering funeral costs.

Listeners learn why employer provided life insurance is not the same as owning a private policy, how insurance companies assess risk, and why coverage is never guaranteed. The episode emphasizes that life insurance decisions should be based on planning, not assumptions.

At the core of the lesson is the DIME method, a practical framework for calculating insurable need:

Using a real world examples, the episode shows how quickly insurable need can exceed expectations, often reaching well over one million dollars. The takeaway is clear: having life insurance is not enough. You need to have the right amount.

The episode ends with a call to action for listeners to calculate their own insurable need, compare it to existing coverage, and identify any gaps that could put their family at risk.

*Eric McLoyd is not a licensed insurance agent or broker. This content is for educational purposes only.

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Transcript

The Million Dollar Question: How much life Insurance do I need?

 [00:00:00] What's the correct amount of life insurance? Now, I'm not going to lie. This was one of my favorite things to help people with when I was selling insurance to help them understand what their insurable need was. The goal is always to have a policy that allows your loved ones to continue their quality of life, plain and simple.

So you're thinking about it in the context of, okay, something happens. I die too soon. I want my family to be able to continue on and be able to live in the manner that they lived in prior to me passing. Also, you want to have enough funds to settle your affairs. There are burial costs. There may be different expenses that still need to be paid.

There might be debt that needs to be cleared. All these different things need to be considered, and part of that consideration is you're [00:01:00] thinking about your income, you're thinking about your, rent or mortgage payment, and you're thinking about your education for any young children or other dependents that you may have.

But the main thing I want us to walk away with here is continuing the quality of life for your family members is the number one goal when you have life insurance.

Now I also want you to keep in mind that life insurance companies are taking a risk when they're insuring you. I've had this conversation a lot with insurance clients and it's hard for some people to understand initially because they have these insurance policies on their job, and it's like you're an employee, so they have to cover you as long as you opt in.

This is definitely not. That. So we're talking about you getting a private policy, a policy of your own, and the insurance company is taking a risk. And so when you [00:02:00] complete the application, and we're gonna talk about the process to get insurance in a few, they are trying to figure out how risky is this person to, to insure.

So if they think, see things on there that are risky, you have certain medical conditions, sometimes people might have convictions. They may have medications that they're on that may seem problematic. They're evaluating all of that, and they're going to come back and say, either we can insure you or we can't, or we either they're gonna say, we cannot insure you, or they may say, we can, but it's gonna cost you a little bit more because of your situation.

I want you to make sure that we're clear, though. They don't owe you any coverage. Your situation will be evaluated to see how much of a risk you are. Everybody represents some type of risk because we just don't know what can happen in life, but it's the level of risk is what [00:03:00] they're evaluating. Again, this does differ from your employee based life insurance because you're given coverage just because you are an employee.

Now I love that I was introduced to this because the question comes up, all right, I know I need life insurance, but how much do I need? And I can't tell you how many people out there got coverage, but they didn't have enough. Because I, I'm gonna tell you, one of the favorite things that I used to hear people say it wasn't my favorite, but it was scary.

But you'd initially talk to a lot of people and they, the first thing they would say is, I have insurance. Oh, I have insurance. Oh yeah, I have insurance. And you're looking at them and it's oh, okay. And so my follow up question would be, how much insurance do you have? And because a lot of this insurance was through employers, not all of it.[00:04:00] 

They really didn't know. Now say somebody did know the follow up question to that is or was. How much insurance? You say you have 500,000 in life insurance. How much do you need though? I would say 99% of the people that I've ever spoken to about life insurance did not know, and I'm not saying this in a judgmental way because I didn't know either until I was taught, but they didn't know how much they needed, and trying to talk to them to understand having life insurance isn't enough. You need to make sure you have enough life insurance. So here's a formula. Here's a method. It's called the dime method, DIME. You do not have to use this. You might talk to some people who have a different formula. You might talk to some people that feel like they have a better formula.

That's fine. But I want you to have this in your. Arsenal so that you can use it to compare it against any [00:05:00] other method that's out there to figure out how much life insurance you need. Debt is the D and dime. You're adding up all your debt income, you're multiplying your annual income times 10, and we're gonna get to Y 10 in a second.

Mortgage. Multiply your annual mortgage, mor mortgage or rent expense times 10, and then education. Education, the funds that are needed for your young children or dependents to go to school. Now let's get context here.

We are talking about this from the context of you or someone with a policy passing away too soon, meaning, you're 40, you pass, someone passes away at 45. They didn't expect to pass away at that time. You wanna make sure you have a financial foundation in place again so your family can continue their quality of life.

And so [00:06:00] the debt is being able to go back and pay off debts that were in. The other person's name, if you choose to income, say the person was the breadwinner of the family. They're no longer here. Some people believe it's good to have at least, and I'm one of those people, 10 years worth of annual income so that the family has time to recover, stabilize, and continue on.

Now, you might say 10 years is too much. You might say it's not enough. That's fine. It's just a baseline number. Mortgage and rent, same thing. You pass away. You don't want your family scrambling around trying to figure out where they're going to live and scramble to gather funds. You're basically saying, Hey, you have enough money here to live for 10 years.

Again, you might think that's too much or too little. It's a baseline number. And then, and as far as the education, I would encourage anybody that's has young [00:07:00] children or young dependents who you wanna send to college in case something happens to you. Do a little bit of research on the cost of education at different schools at the time of this video so that you can get a good number, solid number to determine what the costs may actually be in the future.

Kind of look at the trends of how the costs are rising, and then you can factor out, okay, I think I need about $300,000 10 years from now if I were to pass away. Then you just, you come up with a num number you feel comfortable with based on thinking in the future, but also considering the present.

If something were to happen tomorrow, you add all those up and that is your insurable need. Look at an example. You have Malia here, she's married. She has $100,000 annual income, so really nice income, [00:08:00] $250,000 mortgage. She has a five-year-old child named Chris, who she does want to attend college, and she has about $25,000 in credit card debt.

How much life insurance does she need? Now, in this example we have, we're assuming that there's someone close to Malia that's going to help reconcile her affairs. It could be a parent, it could be a significant other, but how much do those do They need to handle everything. So debt, 25,000 could clear income, 100 K per year.

Times 10 is 1 million mortgage. 250,000 to left on the mortgage. So we put that number in and then we've, after doing research, we estimated about $300,000 that we be feel comfortable with leaving for any education expenses. [00:09:00] Add all of that up. $1,575,000. Now, I can tell you most people are always shocked when they see their dime or their insurable need.

They're always shocked. I would say 100% of the people that I've ever worked with were shocked when they saw their insurable need, because it's always higher than what they thought, and they're typically were underinsured. And so do your dime, you're in the course, so you're gonna have that as one of these, the action items, which you want to do your dime, and then you wanna say, Hey, all right, if I'm, if 1.5 million is my dime, how much do I have?

And then you need to work on figuring out how to fill the gap.