The Real Math Behind Death, Life Insurance
- Constantine J Kitrinos, CPFA
- Aug 11
- 7 min read
Over the last few weeks, I have attended three funerals. It is a constant reminder that I am going to more funerals than weddings and that we're all getting a little older. Nothing we can do about it and no need to fight the aging process, but eating as well as we can, get exercise, and appreciating each day. These passings didn’t share a specific demographic or age bracket. Some were incredibly sudden, taking someone who didn't even know they were sick. Others were the culmination of a long, exhausting battle with cancer or dementia. I'm no longer sharing stories of clients I'm helping navigate the process; it's friends, family, and people close to me now.
In some cases, the final expenses and wishes were meticulously planned. In others, there was no framework in place, leaving the family completely scrambling in the dark during the worst week of their lives. I'd say the majority of the time it's the latter. You often see it with celebrities and wealthy actors whom you'd expect to have everything buttoned up. Most people think they have more time or will live forever. Unfortunately, the end of life isn't always so evident. It can blindside you on a random Tuesday on your way home from work. The best we can do is plan for that day and not worry about it.
End-of-life planning demands attention. Your family, your loved ones deserve it. Because when you fail to build an actionable framework, you force your loved ones to make impossible decisions while they are consumed by grief. People react so differently. I see some go on spending sprees, others shutting themselves off from the world, and others who are eager to find another companion. There's no way to even attempt to predict how you'll react.
The Anatomy of a Family Feud
When my grandmother passed away, my family was faced with a series of choices near the end: where to receive care, what type, how long to keep her breathing, when and if necessary measures need to be stopped, etc. When loved ones have to make those kinds of choices, it is not easy. Anything you plan together with a big group is difficult to have everyone agree on; imagine making life decisions about someone you love and care for. Even after life choices aren't an easy task, like what to do with remains if that wasn't pre-planned. For us, even the small details like where the ashes would be left and how they would be divided among the siblings, what type of urn, etc.
For us, the decision was fairly straightforward and easily managed. But in my line of work, I see the alternative all too often. When wishes aren’t explicitly laid out, it creates a breeding ground for family conflict. You will see siblings arguing over everything you could possibly imagine. The dumbest of things, and it causes friction! It isn’t always about money or financial gain, either. It’s often about memories, physical keepsakes, and massive misconceptions regarding what Mom or Dad "would have wanted."
Hope is not a strategy. Assumption is not a plan. You need to put your exact wishes on paper so your family can focus on honoring your memory, rather than fighting over how to do it.
The True Economic Impact of Loss
When people sit down to discuss life insurance, they often start with the bare minimum: "I just want my debts and the mortgage paid off." Give me what everyone else has. I get that one a lot. Lol.
That is a fine starting point, but it completely ignores the actual economic machinery of a household. If you or your spouse makes $100,000, $200,000, or $300,000 a year, paying off the mortgage does not solve the long-term math problem. There's a ton more thought that should go into crafting a plan that takes care of the things that matter.
You have to extrapolate that lost income over the next 20 or 30 years. And it’s not just the gross salary. It is the lost healthcare benefits. It is the lost 401(k) matches, the pension accruals, and the other corporate perks associated with that specific career. When you factor in the cost of hiring home care or child care to replace the labor of a stay-at-home spouse, the true financial void left behind is astronomical.
This is why a generic policy pulled off the internet is dangerous. Click here, click there, and you're done. No thought, no consideration for how that decision could majorly screw up your plan. You have to sit down with your family and do a comprehensive needs analysis to figure out exactly what your household needs to have to survive financially, balanced against what you can comfortably afford today. I'm not a proponent of being insurance poor. It will not benefit you; only your survivors will reap those benefits. Cheaping out on insurance can cost a fortune for your family later on. GoFundMe is NOT a plan. It's the unfortunate circumstance of a failed plan.
The "Half-Ass" Trap: Why I Hate Hybrid Life Insurance Policies
Let me be perfectly clear: I am a massive proponent of life insurance. It's not an I'm not sure insurance is for me kinda thing. Everyone needs it at some point in their life. Eventually, you build enough assets and accumulate enough wealth, and you may have adequate resources to care for yourself, your loved ones, and pass on a handsome amount of money. But I am fundamentally against the way the industry pushes hybrid life policies that build cash value or promise some projected rate of return using an underlying investment component (like Whole Life or Universal Life). They have their place, especially for high-income earners who are looking for other tax shelters, but splashing ads for these all over the internet and social media is inherently wrong. They are NOT for everyone and should not be used as a blanket solution for most.
They are bloated, incredibly expensive, and highly inefficient. My view about these cash-value policies: they are a half-ass investment and a half-ass insurance policy. Yes, plain and simple, I think there are better ways to skin a cat, if you will. By trying to do both things at once, they fail to do either of them exceptionally well. It's like a wealth advisor that also does taxes. One will suffer, and that comes at a cost to their clients. With the life products that promise massive upside on the investment with nice insurance coverage, you end up overpaying for the insurance component and underperforming on the investment side. There are much better options than this in my opinion.
The 5 Pillars of Pure Insurance
I believe in utilizing life insurance for exactly what it was engineered to do. Buy term insurance to transfer the risk, and invest the difference in real assets. We use insurance specifically for things like:
Protecting the Family: Creating a safety net that keeps the household running without disruption.
Replacing Income: Funding the 20 to 30 years of future earnings and benefits that disappeared overnight.
Eliminating Debts: Wiping out the mortgage, auto loans, and liabilities so the surviving family is debt-free.
Tax Mitigation: Providing tax-free liquidity to handle potential estate taxes or other immediate tax burdens.
Estate Planning & Wealth Transfer: Passing generational wealth down smoothly and efficiently outside of the probate process.
Build the Framework Today
Death is the one variable none of us can control or time perfectly. But you have complete control over the financial blueprint you leave behind, and it doesn't have to be difficult or complex to get in place.
Stop relying on assumptions. Do the math on your true income replacement needs, buy pure insurance to cover the gap, and write down exactly how you want your final affairs handled. Don't leave your family to guess. Leave them a plan. They'll already be vulnerable and shaken by your loss; don't let them also face the financial burden that could have been prevented.
At the end of the day you can find out if your existing plan is a workable plan based on your current scenario. Chances are, if you have a policy in place, there isn't much better than you can get today unless you're overpaying for coverage or there is a shortfall. I have seen old term policies that don't carry coverage through the time they need to be protecting. Again, the ads in the mail or group coverage at work is easy to sign up for and get in place, but those aren't fixed rates forever and often end up costing more than having your own policy over time. People get enticed by a low rate today with 5-year age bands that increase the premiums substantially. If you'd like to make sure your plan is bulletproof, schedule a meeting so we can examine your current policies with an insurance policy review or craft a new plan that meets your needs.
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