Do Your Children Have a Plan for your Death? You Might Want to Think Again

It may shock you to read this, but you are going to die. Young people don't seem to believe they are ever going to leave the earth and even old folks aren't ready to accept it. Many of us become sole providers for our families under the assumption that we are going to be around forever. Well, there comes a time when we must realize that if we get into our car and head out to work one morning, we may never come back.

What happens to those we leave behind? They are left to clean up the messes that we've left, and you probably know at least one person who has gone to a funeral and watched their daddy's dirty laundry pour itself out all over the front row. The funeral is a day of reckoning, from both a personal and financial standpoint. The point of death is when the Grim Reaper makes us reap what we have sewn throughout our lives.

How do you determine whether or not you have enough life insurance? Let me break it down for you.

Who needs life insurance in the first place? When I talk to my students, I tell them that anyone who does not have life insurance clearly doesn't care about their children. The emotional damage of your death is then compounded by the financial trauma of not being able to pay the bills when the primary provider has left the earth.

Determining how much life insurance you need is a relatively simple process. You sum up the financial obligations and debts you are leaving behind, and add that total to the amount of income your family is going to need when you pass away. You should then subtract your existing financial assets from the total, and get enough insurance to match that amount.

Deaths in 2009

Dolla (Roderick Anthony Burton II), May 18: Up-and-coming rapper signed to AKON's production company was murdered.

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Dom DeLuise, May 4: The portly actor and iconic comic was 75.

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Mayme Johnson, May 1: The widow of Ellsworth Harlem gangster "Bumpy" Johnson died at the age of 94.

Image from 'Harlem Godfather'

Marl Young, April 29: The pianist and arranger had a law degree and helped integrate Los Angeles' all-black Local 767 and all-white Local 47 musicians unions. He was 92.

Rev. Timothy Wright, April 23: The Grammy-nominated gospel singer and New York pastor was 61 and had been fighting to recovery from a car crash that killed his wife, Betty, (pictured here) and grandson, D.J., 14, in July 2008.

David "Pop" Winans, April 9 The gospel music patriarch -- BeBe and CeCe are his kids -- was twice nominated for Grammys, in 1989 for his album with wife Delores, pictured, and again in 1999 for a solo album. He died at a Nashville hospice, seven months after suffering a heart attack and stroke.

John Hope Franklin, Mar. 25: Franklin was a revered historian of life in the South and the African-American experience. He was 94. His 1947 book, "From Slavery to Freedom," sold 3.5 million copies.

Duke University

Altovise Joanne Gore Davis, Mar. 14: Mrs. Davis was dancer and actress and the widow of Sammy Davis Jr. She was 65.

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Estelle Bennett, Feb. 11: With her sister Ronnie, left, and cousin Nedra Talley, right, Bennett sang '60s classics like 'Baby, I Love You' and 'Be My Baby' with the legendary Ronettes. She was found dead in her New Jersey home of undetermined causes. She was 67.

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Hank Crawford, Jan. 29: The prolific saxophonist, who led Ray Charles' band, played with Jimmy McGriff and had a successful career in his own right, died at his home in Memphis. He was 74.

Tom Copi, Michael Ochs Archives/Getty Images

So, for example, if you have $50,000 in credit card debt, a $100,000 mortgage and anticipate that it will cost $100,000 for your children to go to college, then your financial obligations are $250,000. You may want to add in another $20,000 for funeral expenses, since burying people isn't cheap. This gives you $270,000 in financial obligations.

You would then add your total debts to the total income that you would have provided to your family members if you were still here. So, if you expect to earn another $300,000 over your lifetime, you would add that amount to the total (actually, it can be as little as half that amount, since the money grows and earns interest until it is spent). So, you then have $570,000 in total obligations, which consists of your debts, plus income that must be earned. From this amount, you can subtract any income you would receive from social security, death pension income and other sources.

After you add your obligations to the income needed to provide for others, you would then subtract the financial value of your existing assets. This is not what you THINK they are worth, but what they would actually be worth if someone tried to sell them. So, if you have $100,000 in home equity, $40,000 in savings, and another $65,000 in your 401k account, you would then have $205,000 to work with. This person would need $570,000 - $205,000 = $365,000 in life insurance coverage. This is a rule of thumb, but pretty close to the actual need.

Other factors to consider when deciding how much life insurance you need would be the following:

1) Do you have children?

2) What is your spouse's income level?

3) Does anyone in your family have special needs?

4) Are you expecting to care for elderly parents at some point in the future?

5) How old are your chldren? (Younger children need more coverage)

Let me say this: If you love your family, you will make sure they are protected in the event of your death. With the financial challenges that many of our families face, the one who dies is usually the lucky one. Life insurance should be a critical piece of your personal financial plan.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of "Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good." For more information, please visit www.BoyceWatkins.com. For financial advice, visit www.DrBoyceMoney.com. To get Dr. Boyce commentary delivered directly to your mailbox, please click here.