Mary Quist-Newins, MBA, MSFS, CFP®, ChFC®, CLU®
Over thirty years as an academic, researcher and practitioner, I’ve gained a greater understanding of just how profound risk management gaps are for women. Most people think of insurance as merely a product and as an expense – both tactical considerations – a sort of “check the box” exercise. Far more important is to evaluate the magnitude of loss. In the end, it’s not about insurance – it’s about having a well-thought-out plan.
The first step in filling gaps is to recognize they exist. Since as women, we often underestimate our economic worth, it’s essential we fully appreciate it that is usually much greater than we realize. Research reveals some disturbing realities.
Women and Their Economic Value
One of life’s biggest risks is being unprepared as a survivor of an economic partnership. It wasn’t that long ago that life insurance for women was merely a marginal afterthought. Few women worked outside the home and insurance on the homemaker was a family “rider” with a small benefit amount. According to the Pew Research Center, in 1960 just 3.8% of women made as much money as their husbands did.
How things have changed!
Today, in nearly two of three households with children, both spouses work fulltime. Over half of all wives earn as much as their husbands, and at least a third earn more. At the same time, the number of single parent families has risen significantly and are overwhelmingly (about 80%) headed by women. In addition to those who are employed, are the millions of stay-at-home mothers who provide substantial economic benefit – without pay – to their families. In 2019, a study by Salary.com tracked real-time market prices for all the jobs that mothers performed on a 24/7 basis and estimated a whopping annual salary equivalent of $178,201.
Our lives have changed big time, but attitudes have not. The value of women’s paid and unpaid labor remains grossly underestimated.
The Life Insurance Marketing and Research Association (LIMRA) reports that in 2021, just 47% of women owned life insurance, compared to 58% for men. For those that have coverage, men on average carry almost twice the amount of the average for women ($432,102 vs. $231,342) according to a recent study by Haven Life. Worse yet, over four in ten adult females have no life insurance coverage at all.
When we don’t fully appreciate the economic value of our lives, we can leave family members scrambling to make ends meet. Worse yet, for business owners there can a double whammy as survivors struggle to deal with the loss personal income and try to keep a business going or sell it for the highest price. Since closely held businesses are often the number one and sometimes only major asset a family owns, the combined loss of personal income and business value can be devastating.
Women as Survivors
Women are not the only ones who need to fully appreciate the economic value to their family, many men are also underinsured. Since the average age of widowhood is just 59, that means there are decades of income and assets to replace. Studies show that around 25% of widows deplete their financial resources within two months of their husband’s passing and that over half of widows over 65 live in poverty.
Now that we’ve established some hard facts on the economic value and consequences of poor planning, what does all this mean to you and your family?
No matter your situation, there are three primary areas that a protection plan for survivors should include:
1. Final expenses
The following costs are generally subtracted from the value of an estate:
- Funeral, attorney fees, probate costs if there is no trust in place.
- These expenses can easily add up to over $20,000.
- Debts of the decedent that will be paid out of any remaining funds.
- Although relatively rare, estate taxes may kick in for estates with net values exceeding $12.6 million in 2022.
2. Survivor income needs
This is usually the biggest gap for most people who have not yet accumulated enough assets to replace the income after the loss of a partner. The shortfalls can be stunning, especially for younger couples with dependent children and survivor retirement to plan for.
For illustration purposes, let’s consider the economic value lost when we have a person making $75,000/year who makes an early exit. Let’s also take into account there will be some relief from Social Security and from reduced expenses, leaving us with a $50,000 per year or $4,167 per month net shortfall until the survivor turns 65. We'll assume 3% cost of living raises on that $50,000 and that we are able invest that $50,000 per year at a 4% net return after inflation and taxes, compounded monthly.
Using the life insurance calculator on the Moneyweave® Academy website, we estimate the following values of the partner’s lost income:
- At survivor’s age 35 with 30 years to retirement: $1,302,802
- At survivor’s age 45 with 20 years to retirement: $909,754
- At survivor’s age 55 with 10 years to retirement: $476,835
3. Capital needs
These include having adequate emergency cash reserves on hand (6 – 9 months’ expenses), paying off a mortgage held in a community property or joint tenancy, goal funding like children’s college education, and charitable gifts. There are additional considerations for business owners, including a buyout of other partners or stockholders, as well as funds to replace a highly valued employee.
So, Do YOU Really Need Life Insurance?
The first step in addressing this question is to recognize not everyone needs life insurance, but most everyone needs a plan. That plans begins with understanding the financial costs that can arise for survivors upon the premature passing of a loved one, and business partner/s or key person.
For women, it means fully appreciating our economic value to our families and our businesses. It also means thinking through the “unthinkable” loss of a loved one or business partner on whom we depend for income. It’s sort of like going to the dentist – not fun but necessary to stave off big problems down the road.
In my next blog, we’ll explore how to create a well-thought-out risk management plan for survivors.