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The most irresponsible thing you could possibly do while living on this planet would be to die without making sure your loved ones are taken care of. Specifically, I am talking about a situation where you are the main provider for your family and you die earlier than anybody expected.
The same holds true even if you aren’t the main provider. If you contribute income to your household and people depend on it – you MUST be sure to have some sort of income replacement in place before you die.
The funny thing about death…
Nobody knows the hour or day that they will die. We all hope to live a long, healthy, and fruitful life. But you just never know. Death could meet you when you least expect it.
I looked up some detailed statistics about death and you might be shocked to learn that 100% of us are going to die! That’s a 0% chance that we escape this life alive!
The law of averages tells us that most of us will live to a ripe old age. But some of us will not. Some people die young, much too young. In any case, we need to be certain that people who depended on our income while we were alive will still have some sort of income to live on after we are gone.
Do single people need to worry about passive income for loved ones?
This advice applies only to people who have other people who depend on them. If you live alone and your income is used solely to support you (and nobody else), then this is not something that you need to think about. The only exception to this is if you expect that your life situation is going to change in the near future.
- Are you planning on getting married?
- Do you have a child on the way?
- Are you planning to adopt a child?
- Do you have elderly family members who may depend on you?
- What about incapacitated family or friends that you might be willing to help support?
If you are single and you expect that life might throw some dependents your way in the near future – then keep reading.
What if I already have enough passive income to live on?
If this is you, no matter what stage of life you are in, then congratulations! You made it! After all, passive income to live comfortably for the rest of your life is the ultimate goal for most people – whether they know it or not. There are many ways that people achieve this dream…
- retirement savings (or pension) – work a career for most of your life then enjoy the passive income during your golden years
- investment savings – invest wisely in non-retirement ventures to build up a nice stream of passive income for yourself
- owning a business – ownership of a business where you don’t have to manage or work in daily (passive)
- real estate – own a portfolio of investment properties that cash flow
You’ve already done the hard work, and you’ve diligently saved. If you feel that your portfolio of passive income is more than enough for your loved ones to get by after you die – then you have just one major responsibility.
Be sure that your loved ones know exactly how and where to access your income. Leave extremely clear instructions.
Do not die without a will in place!
This is especially true for somebody who has built up a respectable sum in savings and assets. While a will is immensely important (so the government is clear on what happens to your stuff), it is just as important that you leave a separate set of instructions for whomever will be handling your estate. Make sure they know how to access all of your assets and accounts and they know exactly what to do with each.
What if I don’t have enough (or any) passive income to live on?
If this is you, you are not alone! Believe it or not – MOST people who have dependents actually fall into this category. So, how are you supposed to leave passive income to your loved ones if you don’t have any passive income (or not enough) in the first place?
Introducing the magic of life insurance! You can quite literally purchase insurance on your life, and the insurance company will pay your beneficiary (or beneficiaries) when you die.
It’s not much different than car insurance – if you think about it. The car insurance company charges you a rate to insure your car based on many different factors (age of the car, the value of the car, age of the driver, driving history, etc.). If your car gets totaled in an accident, the insurance company covers your loss, depending on which type of policy you purchased.
It’s the same thing with life insurance. The life insurance company charges you a rate to insure your life based on many different factors (life insurance amount, term years, age of insured, health of insured, etc.). If you die before the policy expires, your beneficiary (or beneficiaries) gets the life insurance payout, depending on which type of policy you purchased.
My #1 recommended online life insurance provider – Bestow.com
How is a life insurance payout considered ‘passive income’?
A life insurance payout is just that – it’s typically a one-time payout in the form of a check or bank transfer. A one-time payout can hardly be considered passive income, right?
This is where your detailed and specific instructions come in. The instructions you were supposed to write in addition to your will. It also wouldn’t hurt if you had talked about some of this stuff while you were still alive. But that’s beside the point…
In your detailed and extremely clear instructions – you should have laid out a plan to turn your life insurance payout into a steady stream of passive income that would (ideally) support your loved ones for the rest of their lives.
Want to see the exact set of instructions that I wrote out for my wife? I published my Dear Susie… letter on this blog for all the world to see. Feel free to use it as an example for your own set of instructions.
Dear Susie, Here’s what to do with the money if I die first
There are many ways to develop a healthy stream of passive income from a lump-sum life insurance payout. The easiest and most basic ways involve investing the money with a local and trusted certified financial planner. Once the money is invested, set up monthly distribution withdrawals. Boom! There it is. Monthly passive income, derived from your lump-sum life insurance payout.
The 3 Main Types of Passive Income