Stansell Wealth Planning Podcast

Life Insurance: Calculating What You Need with Cody Stansell

• Cody Stansell • Episode 12

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How Much Life Insurance Do I Need?

Death and taxes may be inevitable but understanding exactly how much life insurance you need doesn't have to be complicated. In this eye-opening episode, Senior Wealth Advisor Cody Stansell cuts through the confusion to reveal a refreshingly practical approach to life insurance.

Most people have been sold the idea they need permanent life insurance, but Cody challenges this conventional wisdom with a more strategic perspective: "We want life insurance to be a bridge until you are self-insured." This fundamental shift in thinking transforms how we approach coverage decisions.

Cody walks through the four most common scenarios where life insurance becomes essential. Beyond the obvious case of income earners with dependent families, he explains why stay-at-home parents need coverage despite not earning traditional income. Using personal examples, he illustrates how the passing of his stay-at-home wife would create significant financial pressures through childcare costs and potential income reduction during the grieving period. He also explores scenarios for those supporting aging parents and business owners needing succession planning.

The episode dismantles popular misconceptions, particularly the "insurance for life" approach that permanent policies promote. For the vast majority of people, term life insurance provides appropriate coverage during wealth-building years until their accumulated assets can sustain their family's lifestyle without insurance. For single individuals without dependents, Cody offers the liberating advice that they likely don't need coverage at all – contradicting what commission-based insurance agents typically recommend.

Whether you're just starting your financial journey or reassessing your current coverage, this episode provides the clarity needed to make confident decisions about protecting what matters most. Take control of your family's financial security by understanding exactly how much coverage you need – and for how long.

To learn more about Stansell Wealth Planning visit:
https://www.StansellWealth.com
Stansell Wealth Planning
5550 Granite Pkwy, STE 270
Plano, TX 75024
469-606-2040

Speaker 1:

Welcome to the Steadfast Wealth Planning Podcast, where faith and financial wisdom come together. Hosted by Cody Stansel, owner and senior wealth advisor, we provide comprehensive Christian-based financial planning to help families, individuals and business owners build a life they're proud to live. From investment management and tax planning to preparing for retirement, we're here to guide you with clarity, integrity and purpose. Let's get started.

Speaker 2:

Life insurance isn't a one-size-fits-all. Cody Stanzel breaks down how to calculate the right amount of coverage based on your family's needs, goals and future plans, so you can protect what matters most. Welcome back everyone. I'm Sophia Yvette, co-host and producer, back in the studio with Cody Stansel, senior Wealth Advisor for Steadfast Wealth Planning. Cody, how are you today, hey?

Speaker 3:

Sophia, I'm doing well in my neck of the woods. It is softball season for my daughter. I have a third grade daughter. I'm her head coach. Our first game is coming up this weekend, so we're excited about that, hopefully to avoid some rain and get the season going. So we're excited.

Speaker 2:

Awesome, awesome, yeah, very, very exciting, and it's exciting to have you back on today. Now, cody, this is a question nearly every family asks at some point, and I'm sure you've heard it a million times how much life insurance do I need?

Speaker 3:

Yes, great question. The two inevitable things, right? Death and taxes. And, lucky for you, we're professional in both and we talk about both. Right? So we've talked taxes before. We'll continue to talk taxes down the road, but today is death. Yeah, riveting topic Life insurance, all joking aside, is a very sensitive topic, right?

Speaker 3:

Having a conversation around it is awkward because we are talking about death and a lot of insurance companies and commercials use it to tug on your heartstrings in order to sell it, don't you love your family? You better have more life insurance. You know those kinds of things. So it's kind of used as a salesman's trick almost, and you know that's not good. It's also hard to talk about because you never want to benefit from it, right, if you think about it, it may be one of the only things that you'd be glad to pay for and never use, right? Just because you don't want the alternative.

Speaker 3:

Our view is we want life insurance to be a bridge until you are self-insured. So think of that phrase and I'll repeat it life insurance to bridge you until you are self-insured. A lot of clients think that they should always own life insurance. We want you to have the adequate asset base is what we call it, whether that's retirement accounts, investment accounts, bank cash, any other assets you own like a house, we want that, once you add it all up, that asset base to be large enough that, if God forbid you passed away, it would be able to sustain your lifestyle without an outside source like life insurance. So I'll repeat it we don't want you to own life insurance for the rest of your life, but of course there is a period in time that you do need life insurance. So hopefully that summarizes what we're all about and makes a little sense.

Speaker 2:

Most definitely. Now, Cody, let's get into things a little bit deeper. What are the key factors you consider when helping someone determine their coverage amount?

Speaker 3:

Yes. So their situation in life? Right. So I'll back up a little bit. What is life insurance for in the simplest terms? Think income replacement. So it is replacing an income. So if you buy a million dollars in life insurance and you die, your beneficiaries will receive that $1 million from the insurance company in a couple of months, right?

Speaker 3:

And so there's different types of people with their situation, how much they need, how long they need it. Those types of things, the four most common types of people that we see. First one if you earn an income and someone is dependent on your income, right, that's the most basic case. For example, you're married, you have a couple of kids, your family depends on your income and if they would struggle to pay the bills without your income, there you need life insurance. Right, that's the most common case. Another one is a stay at home parent, where, if the expenses of the household would increase or any kind of income would decrease if you passed away For example, my wife. She stays at home. We have three kids under eight years old. Like God forbid, if she passed away, you better believe I would need some help from family. A nanny, whatever it may be, cooking, cleaning, taking care of the kids, taking them to practice some of those things, and realistically, I would want to take time off work to grieve during a very dramatic time in our life and try to figure out what's the best next move and just take some time right. And so my income would probably decline during that period. So even though my wife doesn't have a high income earning, we need life insurance on her, just in case you know, god forbid, she passed away.

Speaker 3:

So that's the second most type common type of client that we see need life insurance. Third one is any other time someone relies on your income. So very similar to the first example, but here's a little twist. I have a client she's in her late forties and she's taking care of her mother physically and financially. Well, if something happens to my client, how would mom pay for her assisted living bills and pay the bills right? And so my client needs life insurance on her life where her mother is the beneficiary right, because, God forbid, she passed away. Mom needs some financial help. So it's not just for the generation right below you, it could be for a generation laterally or above if they depend on your income.

Speaker 3:

And then the fourth type of client that we see the most is if you own a business, that if you weren't around, someone would need to buy out your ownership in. So, for example, I have life insurance where my business partner is the beneficiary right, because if I passed away, this lump sum of money would go on to him so that he could have enough capital to buy out my portion of the business. Right, because without that he might not have the capital. And now my wife receives my business and she doesn't know how to run a financial planning practice right, so you're kind of stuck. But my business partner having enough life insurance, the benefit, he can buy out my wife and it's a win-win. Right. He grows his business, he can take care of my clients, my clients still have a competent advisor to serve them and my wife doesn't have to worry about selling a financial planning practice and going through that maneuver. So there's other types of situations, but those are the four most common that we see.

Speaker 2:

Wow, Thank you so much for explaining that to us. Now another question for you Is there a difference in approach for single individuals versus families with children?

Speaker 3:

Not quite a different approach, but I would just say I would caution you if you are single, without kids. I actually had a client. That happened to him a few years ago, early 30s, not married, no kids, no one depended on his income. But earlier in his career a life insurance guy got a hold of him and sold him a whole life policy. And when we met up, it's one of those hey man. And we just practically walked through the steps of you don't, if you passed away, no one's relying on your income, not to say that your life doesn't have value, but there's no income replacement needed. So for single folks there may be realistically walking through, okay, who is really depending on my income? And if the answer is nobody, hey, let's save those premiums. Let's not just pay those premiums for life insurance, let's use that cashflow for other areas of our financial planning. So, definitely, if you have children at home definitely from all the clients that I meet, especially in the 30s and 40s you just have to have life insurance.

Speaker 3:

The next big question is how much? Right. So we go through this analysis to determine how much you need and how long you need it. So, once again, life insurance is income replacement, is income replacement. So if you are two years from retirement and not earning, you'll be retired and not earning an income anymore. You may need a lot less life insurance than you think. Compared to my example earlier, you're in your 30s, have a couple of kids. You may need a lot more life insurance than you think. So a good rule of thumb is ten times your income, right, you make 150 grand a year. A good rule of thumb is 1.5 million of life insurance, right? If you never talked to a financial professional and sat down and really went through how much you need, that's a great starting point, right? But of course, like anything in life, it depends. Everyone's situation's a little bit different. How much debt do you have? What's your income? What are your goals in the the future?

Speaker 2:

and that helps determine how much life insurance you need now, are there any common misconceptions people have about life insurance means besides the one that you just explained?

Speaker 3:

yes, I would say what are referred to earlier. A lot of folks think they need life insurance for the rest of life. That's what's called permanent life insurance. So, whole life, universal life. Those are traditionally there for you and you'll life insurance for the rest of your life. That's what's called permanent life insurance. So, whole life universal life. Those are traditionally there for you and you'll pay those premiums until the day you meet the Lord, right?

Speaker 3:

That's not what we recommend. 99% of my clients do not need permanent life insurance, okay. So we recommend buying term life insurance and, just like it refers to you, buy it for a term. So if you buy a million dollars, 10 year term, you will have that life insurance enforced for those next 10 years, right? Compared to you buying a 20 year term, you'll have it for the next 20 years, right? So once again, we want life insurance to bridge that gap until you are self-insured. So at the end of the day, it's a little bit different. Customizing it is a big deal, but once again, we meet with clients to go over how much debt do you still have? We would want you to pay that off.

Speaker 3:

God forbid you passed away. What is your income, realistically? Would your spouse want to stay in the same house. We see that a lot. Some defiantly do. Some say, no, I wouldn't want to stay there, god forbid. My spouse passed away. So what would selling that look like? How much equity? And that's all rolled into the equation of how much you need and how long you need it.

Speaker 2:

Wow, cody, that was some fantastic information you gave us today, a great, great breakdown of everything when it comes to life insurance. Thank you for helping us understand how to protect our loved ones with clarity and confidence, and we'll see you next time on the Steadfast Wealth Planning Podcast.

Speaker 3:

Absolutely. Thanks, Sophia.

Speaker 1:

Thanks for joining us on the Steadfast Wealth Planning Podcast. Ready to take the next step in your financial journey, visit steadfastwealthplanningcom for a complimentary consultation or call 469-606-2040. Smart planning, christian values, a life well lived. We'll see you next time.