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Welcome to the 25th edition of the Tech Financial Planning (TFP) newsletter.

In Breaking Bad, Walter White is figuring out how much money he needs from selling meth to provide for his family.

After doing some math, he comes to the conclusion: “$737,000. That is what I need.”

In this newsletter, we’ll break down if you need life insurance, how much you need, and taking a look at how much Walter White needed.

TL;DR

If someone relies on your income, you need life insurance
A simple formula to figure out how much life insurance you need includes outstanding debt, future big expenses, and covering cost of living
Walter White is actually pretty close to estimating his need, although I’d argue his living expenses are a little undercalculated.

A quick overview on life insurance

Put simply, life insurance is a form of “financial protection” that provides a sum of money to your loved ones if you were to pass away.

If you want to do a deeper dive on life insurance, this is a great overview.

The question becomes, “Do I need life insurance?”

The dead simple answer (pun somewhat intended): if someone relies on your income, yes.

This could include

Spouse (working or not)
Kids
Parents
Other family / friends

If you were to die unexpectedly, would that financially affect someone you care about?

If the answer is yes, then you need life insurance.

How much life insurance?

If you determine you need life insurance, the question that follows is how much do you need?

There are different rules of thumb, but here’s a good starting formula.

The goal is to cover:

Any outstanding debt
Any future known, big expenses
Living expenses
That you don’t have assets for

Here’s how it works

Figure out your monthly expenses, then multiply by 12 to get yearly expenses
Multiply that by 25 (25 years of expenses, or a safe withdrawal using the 4% rule)
Add any debt you have (think mortgage, student loans, credit card, etc)
Add future known, big expenses (think college, bigger home, etc)

This gives you how much you need to cover. From there,

Subtract out any existing insurance you have (Be careful including any company life insurance you have - that usually disappears the second you are no longer with that employer)
Subtract any cash or liquid assets you have (brokerage accounts, company stock, etc).

To make it more tangible, let's run through an example.

We have a young family where one parent works, the other stays home with their two kids (4 & 2).

Step 1 - living expenses.

Currently the family spends $10,000 / month. On a yearly basis, that’s $120,000 / year

Step 2 - multiply that by 25.

$120,000 x 25 = $3,000,000

Step 3 - add any debt.

Currently they have a mortgage balance of $800,000 and car loans of $50,000

Step 4- add future known, big expenses.

They want to provide most, if not all of college tuition for their two kids if they want to go to college. The rough cost will be ~$750,000.

So all together, they have an insurable need of $4,600,000 ($3,000,000 living expenses + $800,000 mortgage + 50,000 car loan + $750,000 college tuition).

But we also need to factor in their current insurance and assets.

Step 5 - subtract any current insurance. The working parent has an existing $1,000,000 policy

Step 6 - subtract any cash or liquid assets. Right now they have $75,000 in cash, $500,000 in a brokerage account, and $250,000 in company stock

So the updated total need is $2,775,000 ($4,600,000 insurable need - $1,000,000 current insurance - $75,000 cash - $500,000 brokerage account - $250,000 company stock)

This family needs an additional $2,775,000 of insurance on the working parent.

How Much does walter white need?

So now lets look at Walter White’s example.

Walter White figures out how much money he needs

$360,000, two kids, four years of college

$107,000, remaining mortgage on the home

$30,000, home equity line

$240,000 - $2,000 / month, living expenses (should put a dent in it)

$737,000 is what he needs.

Big note: Walter is going to cover his need through selling meth, not through life insurance.

Now I’d make an argument he could probably bump up the living expenses, and for longer. But this is a really good start.

Putting It All Together

Thankfully, we don’t need to sell meth to make sure our loved ones are ok if we die unexpectedly.

Life insurance exists.

It’s a relatively inexpensive way of transferring the risk from you to the insurance carrier.

I don’t sell it but I’ve helped families make sure they have the right amount and connect them with

The biggest misconception / misunderstanding I’ve seen - people thinking their company provided life insurance is enough.

Two issues with this:

The benefit is usually much less than they need
The benefit typically only exists as long as you are employed by the company.The second you are no longer employed by your company, the benefit is gone.

Life insurance certainly isn’t sexy, and it’s not fun to think about your mortality.

But it’s worth it to go through the exercise to make sure your family is protected.

WHENEVER YOU’RE READY, THERE ARE 3 WAYS I CAN HELP YOU

1. Connect with me on LinkedIn, where I post every weekday (unless I’m on vacation). https://www.linkedin.com/in/marshalljoe/

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