JUST how much are you worth to your wife? Not in a sentimental way, but in terms of dollars and cents? It would seem a simple question to answer, but actually, because of the way the future enters into the problem, it is far from simple.
If we suppose you are an ensign receiving $2,200 a year, of which (neglecting insurance) approximately $600 a year is spent on yourself with no benefit to your wife, then her income from you is $1,600 a year. To be sure some of this goes for overhead that benefits both of you, but whether you are at home or on the China Station that overhead is necessary for her comfort. Capitalized at 6 per cent this $1,600 represents an investment of $26,700. That is what your job is apparently worth to your wife. It is worth some $10,000 more to you.
However, should she cash in on her investment in you for $27,000 she would be making a big mistake. For as soon as you become a lieutenant (junior grade), you will be worth $44,000 to her; as a lieutenant, $60,000; as a lieutenant commander, $79,000; as a commander, $103,000; and as a captain, $107,000. Even if you retire as a commander, you are worth $50,000 for the rest of your life.
In other words as long as you remain in the Navy you are of a constantly appreciating and easily calculated present value, at your maximum being worth about four times your minimum. So even as an ensign, because of your future expectations, you are worth considerably more than $27,000. It is impossible to calculate just how much more, for neglecting the fact that you may die tomorrow, your wife, because she is married to you, can expect her unavoidable expenses to increase as children arrive and the family responsibilities increase.
If, on the other hand, we suppose you have now become a commander, your wife would be foolish (in a strictly business sense of course) not to grasp the opportunity of cashing in on you for $103,000 if she has the chance. For if you should happen to die today your value has dropped to six months’ pay, perhaps $2,500, and a small, a very small, pension, if you have been fortunate enough to die in the line of duty, while that $103,000 would bring her an income of over $6,000 for the rest of her life, and for the rest of the lives of her children and grandchildren after her.
You, as an investment, don’t fulfill for your wife one prime requisite of a good investment. You are not safe. She stands to make big capital gains with you, but she also stands to lose everything, and as your value increases her risks increase also. In order to make yourself an absolutely safe risk you have to make sure that her income continues unabated after your death. And this in practice means that you have to insure your life for what you are worth to her. What she will receive from you while you live will be less than before, because your expenses have been added to by the insurance premiums that you have to pay. And by the same token they have to be deducted from what she would otherwise receive.
Again let us suppose you are an ensign, twenty-four years old. Your personal expenses are $600 (and if you think that excessive just figure out what you actually do spend for food, clothing, carfare, amusements, and incidentals for yourself alone). You carry a Navy Mutual Aid policy which will pay $6,000 and costs you a trifle over $45 a year. Straight life insurance will cost approximately $14.50 a thousand. A little figuring will show that if you pay $276 a year for insurance your wife will have about $1,320 a year as her part of your pay, and will receive on your death $22,000. This, if invested at 6 per cent, will yield her the same amount that she gets now, and if put into an annuity may give her more. (There is not much advantage in an annuity taken out under fifty.) You are an absolutely safe investment for her up to $22,000, and in addition you still retain all your appreciative values.
If now as you advance in rank you cover your increased worth by insurance (which of course grows more costly as you grow older) your permanent safe value is, as shown by the above table, $36,000 for lieutenant (junior grade); $46,300 for lieutenant; $62,200 for lieutenant commander; $77,200 for commander; and $79,800 for captain. Your wife meanwhile receives about two-thirds of your total pay, or for commander and below within one hundred dollars or so of what a bachelor officer at sea receives.
These amounts represent, therefore, the theoretical value of the life insurance that you should carry in one form or another to assure your wife a steady income whether you live or die. Any savings that you may accumulate, any property that you or she may have, can fairly be deducted from it. If your private income is equal to your naval pay, then no insurance is required to guarantee the value of your naval position to your wife, though insurance is required to guarantee her the continuance of the income she receives while you are alive.
But a very brief inspection of the figures will convince anyone that for all practical purposes the insurance as thus arrived at is too high, especially in the lower grades. You may agree that only $1,300 of your ensign’s pay of $2,200 should go to your wife, but it is doubtful, what with two-room apartments costing $50 a month and up, whether she will agree with you. As a matter of fact no life insurance agent that knows his business will advise you to carry so heavy a load. Considering you as an investment, your wife will have to take in return for the great increase of value she will get from you (if you live) a less degree of safety.
Budgets issued by professional budget-makers allocate a minimum of 10 per cent of the income to life insurance. This percentage rises to 25 per cent in the $7,500 salary class. That minimum is all right provided that the income is above a certain minimum amount. But anyone with a position to maintain, as every officer’s wife has, and but a small amount of money to maintain it with, as every junior officer’s wife also has, will question the figures. Being young, both she and her husband discount the future for the benefit of the present. Altogether too much so, if you listen to any older officer, let alone any life insurance agent. A compromise between the viewpoints of your wife and the budget-maker is plainly in order.
When you married, you, to all intents and purposes, undertook to support your wife for the rest of her life. In consideration of this she tacitly agreed to run your home and act as managing superintendent of your family for the same period. She also agreed that an ensign’s pay, or rather the part of it she got, was enough to provide for the overhead and running expenses of the home besides supporting herself. If you were so unfortunate as to marry when you were further along than an ensign, then we must assume that it was not the lack of a sufficient income that deterred you, but the fact that you had not as yet met your wife. With these assumptions we have a starting point for determining the amount of insurance that every officer should, we might almost say “must,” carry.
To start out with we will admit without argument that an ensign should allocate at least $100 of his salary to insurance, even if he has to cut out smoking to do it. Your personal expenses (you are an ensign again) are $600 and your wife is going to receive $1,500 a year. She may not think it enough to pay the rent, the butcher, the baker, and the candle-stick maker, but an ensign’s pay is inelastic, and it will admit of no more. Besides, even if you married immediately on graduation, she has only three years to carry on before she will get more. Unless you die first.
So we can reasonably fix $1,500 as the absolute minimum that your wife is entitled to receive after your death. This represents a capital investment of $25,000, and this, therefore, is the absolute minimum amount of insurance that any officer should carry in one form or another. Below this amount it is not a question of how much you can afford to carry, but how much you can afford not to carry.
We have kept $100 of your ensign’s pay for insurance premiums. Approximately $45 goes to the Navy Mutual Aid for a $6,000 policy. This is term insurance and is not to be recommended as a form to be taken out in any line company. (Incidentally this $6,000 instead of costing $45 is actually costing around $35, but that is another story, and you have to pay the $45.) There is left $55 to be placed with a regular insurance company. For this you can buy about $4,000 of straight life insurance. The total of the insurance you carry and the six months’ pay that your widow will receive amounts to $10,750. A very respectable start toward the $25,000 at which we are aiming. It is to be noted that we have arbitrarily decided because of your youth and the fact that you will receive an increase of pay within a year or two that you can afford not to carry $15,000 worth of insurance. But we have stretched a point to do it.
When you get to be a junior lieutenant your salary takes a jump of slightly over a $1,000. Here is where you catch up on your contract with your wife, perhaps over her strenuous objections. She will want that $1,000 a year, and you can’t blame her. Still you had better get that insurance while you are young and can get it cheap. Every policy has a cash surrender value of something less than the amount paid in, so it is in no sense money thrown away in case your wife should die and you have no other dependent for whom you wish to provide. We would better accept the budget-maker’s minimum figures and allow 10 per cent of your total income to life insurance. For a junior lieutenant that amounts to $330 a year or $230 more than you have been paying. This will buy about $15,000 more insurance, which with the six months’ pay makes a total of $26,500 for your widow. We have reached our minimum of $25,000 and your wife is getting $750 a year more than she was. No matter whether she thinks it enough or not, you cannot afford not to take your full coverage. And it will cost so much more later that it would be poor business if you could afford it.
Your wife is now assured of at least $26,500 on your death even if you should die tomorrow. That means that, if that money is safely invested, she will be getting what she did when she was first married, and perhaps in addition a small pension. She is thus assured of a livable income for herself and her children. Your premiums are not over 10 per cent of your salary, and you are young enough to have your insurance cost almost as little as insurance can cost anyone. (It is of interest to note that your insurance is costing less per year than the upkeep of even a very cheap automobile.)
Now, if by logical reasoning we have arrived at the absolute minimum estate that you should leave your widow, we should by similar processes of reasoning be able to determine what the reasonable minimum is if you are to play fair with her.
You are practically certain of promotion to lieutenant commander, though you may be a long time getting there. You are reasonably sure of promotion to commander, but you are far from certain of promotion beyond that point. If after twenty-eight years of service you retire at fifty as a commander, you will receive as your retired pay $3,550 a year. Provided that you have taken out no additional protection since you were a junior lieutenant you will be paying premiums of about $390 a year on $25,000 of insurance. (Your Navy Mutual Aid has gone up about $50 in the last twenty years.) Your wife will receive as her share of your pay about $2,400 a year. If, on the other hand, as you go through the grades of lieutenant, lieutenant commander, and commander you take out additional insurance up to 10 per cent of your income, you will be carrying around $39,000 and paying as premiums about $680. Your wife will get $2,100 as contrasted to $2,400 a year, and her income after your death will exceed her income while you are alive. Clearly our figure lies between $25,000 and $39,000.
A half hour’s calculating will show that if you carry $36,300, taken out as you were promoted, you will be paying $617 in premiums and after you retire your wife will receive close to $2,180 whether you live or die. The premiums are perhaps a little high for your retired pay. But then no one expects you to sit around and twiddle your fingers just because you are fifty. You can certainly earn enough to pay your insurance premiums.
Logically, then, $36,000 is the reasonable minimum insurance that you should carry. The first $25,000 is taken out within three years of graduation whether you intend to get married or not. (For, as to that, you never can tell when you may get married.) The last $11,000 is taken out at a rate that never exceeds 10 per cent of your pay as you rise in the naval hierarchy. There may be circumstances that may cause you to decide that you can afford not to carry all of the $36,000, but the circumstances will be rare indeed that will justify you in deciding that you cannot afford to carry it all.
Now how much are you worth to your wife? Are you worth a lot alive and nothing or next to nothing dead? Or the next time that your wife, in an unjustifiable burst of ire, tells you just how worthless you are, can you look her square in the eye and tell yourself that she is all wrong; that you are not worthless; not by a long shot; no, and never will be, least of all when you are dead?