Is Your Cow Big Enough?
by Michael Aun, FIC, LUTCF, CSP
CPAE Speaker Hall of Fame, President of NAIFA-Central Florida
Listen up class… we’re going to examine how much you love your family this week. Really? Are you serious? Of course I love my family. Let’s see by doing a little self-analysis.
If you became part of a grill on a Mack Truck today… (Does that graphically describe it?)… Could your family stay in their home?
Could your children complete college without hundreds of thousands of dollars of student loans?
Could they have access to an emergency fund of at least six months of your income?
Could your surviving spouse survive or would they be forced to take an extra job to feed the family?
Where would your spouse and children find the money to replace your income? This is singularly the greatest need you may have.
It’s pretty easy to calculate most of these, i.e. your mortgage balance, credit card debt, educational fund, and emergency fund. A lump sum to take care of these would leave a spouse with no debt and a place to live. But what about the loss of your income, be it pension, social security, earnings?
I’ve been doing insurance and estate planning for nearly five decades and I rarely meet a client that has covered all their bases.
The first thing I do is draw a picture of a Mack Truck and I put a frowning face on the front of the grill. I ask the client to describe what they see. So as to not embarrass them, I quickly say… “When you become part of a grill on a Mack Truck… You’re dead… You’re a pizza spot on I-95!”
They’re generally chuckling at this point, but make no mistake, serious things have to be illustrated on the wings of humor. I’ve used other statements like “Bang… you’re dead!” They get the point.
Next, I draw a rectangle. I add four legs to the box and draw a circle which illustrates the head. I put some ears on the head, a smile on the face and even add a tail. I’ll ask the client to tell me what they see. Some will say “some kind of an animal.” One lady told me “It looks like a shopping cart.”
To help the client figure out the drawing, I draw a circle below the body of the figure and say something cute like “Isn’t this an ‘utterly’ ridiculous drawing?” Now they know it’s a cow.
Next I ask, “Is your cow big enough?” This isn’t a cow, it’s the money that will fund the income of your survivors when you’re dead and gone.
Next, I ask, “What is a fair return on money?” I like it when they say 10% because I failed math and it’s easy for me to calculate. They know, I know and the world knows they’ll never ever be guaranteed a 10% return on their money year-in-and- year-out. But I use their figures to make my point.
So we have a family who needs $100,000 of income each year to survive and dad has a $500,000 of life insurance. Even if he was blessed enough to get ten per cent, it would only provide half of what mama and the kids need to survive.
I’ll get all kind of stupid objections from the client. “She can remarry!” I quickly ask “Would you remarry her?” Now he’s trapped in a corner. The chanced of this poor woman and her four rug rats reentering the marriage marketplace is generally two: slim… and none at all. That’s a lot of baggage.
The client says I can’t afford more life insurance. “If you can’t afford a few bucks more today, how will they make it work off of half of what you’re bringing home now?”
The truth is they won’t get ten percent return. Three percent is much more likely. They really need over $3 million to do the job dad is doing right now. Yes, clearing away all debt and providing a mortgage free home can bring the size of the cow down, but whatever the figure is, divide it by 0.03 and you’ll get the magic number.
Is your cow big enough?
Michael Aun, FIC, LUTCF, CSP, CPAE Speaker Hall of Fame is a syndicated columnist. His column, “Behind the Mike” appears in 1500 weekly periodicals is 41 countries. Past columns can be found at http://www.aunline.com/blog. (Used with permission.)