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Life Insurance And Second Marriage
Here’s A Real-Life Problem:
A guy (let’s call him Mike), was married to his first wife for 10 years and has two children from the first marriage. At the time of his divorce, Mike was required to have $1,000,000 life insurance to protect his children until the youngest was 18 years old. His ex-wife was the primary beneficiary, as required by the divorce decree.
Five years after Mike’s first divorce, he remarried a woman, 10 years younger (let’s call her Sarah). After a few years, along comes Mike and Sarah’s only child (Bobby).
Mike is a successful business owner and has a beautiful wife, a young son, and two young adult daughters. Mike’s income is about $400,000 a year. He has a good start on his savings plan for his retirement.
After a few years of marriage, Mike realizes that in the event of his death, his primary responsibility is to take care of Sarah and Bobby (age 6) because his two older daughters are both in college. In a few years his financial responsibilities to his daughters are nearing an end. He does have a small term life policy that would provide enough money for his daughters to complete their college degrees.
His Long Term Concern Is: How Much Inheritance Will Be Available For His Two Adult Daughters?
Mike knows that Sarah cares for his daughters, but she has to think about their young son Bobby and herself. How much, if anything, would Sarah be willing to give Mike’s two daughters upon his death? After all, Sarah is 10 years younger than Mike.
If Mike dies at age 75, Sarah will only be age 65. Bobby would be 30 and his two daughters would be ages 45 and 42.
Here’s The Dilemma:
Mike assumes that if his success continues, he and Sarah would be worth about $5,000,000. Should Mike die, Sarah would be in fine shape financially and would be able to continue the lifestyle she has become accustomed to. The kids are all grown and doing fine, so Sarah just has to worry about herself. She expects to live past age 90 because of her family history.
So What About Mike’s Two Daughters?
Remember, they did not get any money at Mike’s death. After Mike’s death, Sarah had rewritten her will and Bobby is the sole beneficiary. Sarah does not feel that she is required to leave money to Mike’s two daughters because after Mike’s death they rarely saw each other and did not spend any holidays together, etc. They basically drifted apart because their dad (who was the glue) was not there to hold the step-family together.
What’s The Solution?
The easy way to solve the problem is for Mike to buy a life insurance policy with his two daughters as beneficiaries. This accomplishes two goals, first this will allow all his and Sarah’s assets to remain available for Sarah and Bobby’s future needs. Second, it will allow Mike to pass on a pre-determined inheritance to his two daughters without having them depend on Sarah.
As you can imagine, Mike’s two daughters may have very different goals and ideas of what to do with their money. With completely different “pots of money,” hopefully their relationship will remain strong, but they will be totally independent from one-another financially.
If this situation is something you should discuss with your financial advisor, please give them a call. We too are always available for assistance by calling 800-327-2866.
Thanks for your time.
Scott Harper
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