You may think that your most important asset is your home,
your nest egg, your priceless collection of Etruscan snoods. Your most
important asset is you – your human capital. Your human capital is your current
and future economic contributions to your family.
Perhaps you’ve gone to college and majored in a profession to
pursue a career. You may have earned advanced degrees and designations to
increase your knowledge, professionalism, and income.
All of this increases your human capital – your ability to
earn, substantially, over your lifetime.
Now that you have a family, a spouse and kids to support, you
need to hedge your human capital, you need to protect it in the event it’s lost
– should you die unexpectedly.
No one likes talking about death. Even writing these words,
it’s hard to type them. But it’s necessary to convey the importance of life
insurance. Life insurance protects your human capital, the income you receive
because of your human capital, and the support your human capital provides for
Without life insurance, should you die, so does the financial
support you’re providing to your family. In other words, life insurance isn’t
for you, it’s for those you leave behind.
Having life insurance, and enough if it, means your
survivors, your family being able to continue paying the mortgage, bills,
tuition, buying groceries, and continue saving for retirement and or college
educations. It also allows them enough time to grieve without having to worry
about financial obligations.
So how much life insurance should you have? A general rule of
thumb is approximately 10 to 16 times your gross income. Of course, this is a
general guideline. You may need more depending on your circumstances.