Being Self-Insured

Cliff asks how much money he needs in order to be considered self-insured.

QUESTION: Cliff on Facebook asks how much money he needs in order to be considered self-insured.

ANSWER: Being self-insured would be referring to life insurance in most cases. That means if you die, how much money a year does your wife need to be all right? I would say somewhere around a 7% or 8% return on that and you’d be fine. That’s a general rule of thumb.

If you have half a million dollars and were drawing off 8%, that would be about $40,000 a year. If she is all right with drawing off that amount, then you’d need $500,000 to be self-insured. If she needs $80,000 a year, you’d need about $1 million in investments to be self-insured.

And of course, the more debt-free you are, and if the kids are grown and gone, the less her need is going to be. The big question to ask is if she is going to be all right when you’re gone without any insurance. Then you are self-insured.

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