Hello Nicole. I'm not really dead.
Sorry about that spooky title.
But if I do die unexpectedly, I want you to give you and the kids a clear path to feel safe and well taken care of …
Hence why I'm writing this letter to you today …
The Warm Blanket of Life Insurance
As I was thinking about writing this, I went on reddit this morning and I saw this terrifying post:
My husband died today.
He was 37. He had a seizure, which led his third heart attack. He had just started a new job, so there is no life insurance.
We have three kids under 6, with the youngest about to be 6 months old. I am a stay-at-home mom.
I feel so lost right now, but I have to be strong for my kids.
My heart breaks for this woman. I cannot imagine what she is going through.
It is stories like hers that remind me why we are more than happy to pay for that term life insurance each year. Because we make that investment, I know you won't be in this situation.
But … We never really talked about what to do with the $1,000,000 of life insurance money if I died. Below are the steps I would take.
What To Do With The Insurance Money If I Die
1. Get Two Copies of the Death Certificate
Before contacting the insurance company to collect the life insurance money, you will need to get two copies of the death certificate.
You can get these from the funeral director or the cremation organization. Oh, and don't forget that I want to be spruce tree – shout out to The Living Urn.
2. Contact the Insurance Company
Inside our lock box, you'll find a copy of our life insurance policy with the appropriate contact information. Call the insurance company and tell them that you'd like to file a claim on your late husband's life insurance.
The process can take up to 30 days. Don't worry and don't feel rushed. You can use money from our emergency fund for the memorial event. The way you plan events, I'm sure it'll be an excellent celebration – don't forget the karaoke.
3. Contact My Employer
Where I'm working right now, we have a decent life insurance policy. You'll get one year of my salary. I may not be working at my same company when I die, but the majority of decent employers with benefits have some sort of life insurance policy for their employees.
Contact my HR department, discuss the situation and ask them what is the process for receiving the money right away.
4. Put the Life Insurance Money in the Bank and Wait
You're going to be feel pretty emotional during this time. You don't want to make any quick decisions when you're not feeling your best.
Since you have the year's salary to still live on, don't rush into investing the insurance money once it comes in.
Wait three months before doing anything.
5. Start Investing
After the three months of grieving has passed and you're feeling up to it, contact a company like Vanguard or Fidelity to open a brokerage account. You currently have a Roth IRA with Fidelity, so that will probably be the easiest place to start.
Take $500,000 of the life insurance money and place it in your new brokerage account.
My advice for investing would be to follow the same advice billionaire Warren Buffett gave to his wife …
“… Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. … ”
These index funds have extremely low fees and they track the market.
Specifically these funds are as follows:
- 90% in “FIDELITY 500 INDEX PREMIUM CLASS” (FUSVX) which is an index fund that mirrors stocks in the S&P 500.
- 10% into FID U.S. BOND INDEX INVESTOR CLASS (FBIDX) which represent investment grade bonds being traded in United States
- This would not be a “retirement” account. This would be a “brokerage” account.
If you want help with this process, I would recommend you contact a “Fee-Only Financial Advisor” through a company like XY Planning Network. These people make an hourly rate for their advice. This is a much better route than having a broker invest on your behalf and take a commission (remember we went down that road before).
Continue using the one year salary benefit from my employer for the remainder of the year while the interest starts to pile up in your new brokerage account.
6. Invest in Real Estate
Pay the remaining balance on our mortgage so you can be completely debt free and own our house outright. This will decrease our monthly expenses so you can live comfortably.
With the remaining cash left over (around $400,000), look into investing in residential real estate so you can take advantage of your home decorating and project management skills. This is something that you and I always dreamed about doing together so we'd have investments to leave for our kids.
In order to not add more debt on your plate, do not get a mortgage on these properties. Only pay cash.
With the right real estate agent, you will be able to get great deals on houses in the ideal rental markets (areas where young professionals and young families live).
Look at comparable rental homes in the market and set a monthly rent that allows you to make 10% annually after expenses.
7. Rental Real Estate Emergency Fund
Just like our current emergency fund we have with 6 months of expenses, create an “rental home emergency fund” as well.
Put at least one year of expenses away in a savings account so you have it available for times when you don't have renters or there are unexpected repairs needed.
8. Live off of the Interest
Between the interest made from your brokerage account and your rental home income, you should be able to live comfortably.
Both the housing market and the stock market will fluctuate each year. Some years you'll make 20% in the stock market and other years you'll lose 10%. Some years you'll have full occupancy in the rental properties and other years it will be inconsistent.
With that fluctuation, try to live off of 6-8% of your interest each year from both the rental properties and the brokerage account. If you earn more than 6-8%, save those excess funds for the upcoming years when the interest is not as high or the rentals are not as consistent.
9. Rebalance Your Portfolio Annually
Depending on how the housing market and the stock market performs annually, you will need to rebalance your portfolio. For this exercise, I'd recommend you work with a fee only financial advisor.
Essentially, that person will help you ensure that you're not over invested or under invested in certain areas.
I'll plan to update this letter periodically as I learn more about investing and as we continue to live our lives together.
I love you with all of my heart.
Your husband, best friend and karaoke partner,
Would you add anything to your letter? What advice would you give?
Please let me know in the comments below.