Simplified Cash pipeline Flow Illustration

The following is a simplified illustration of cash flow to help us talk about the need for life insurance.

WATER PIPELINE = HOUSEHOLD CASHFLOW
Fortunately in our society water supply is not a big problem. Most households have plenty of water for their use. We take water supply for granted, as there is such a healthy supply. The pipelines that bring us the water are very important and they are engineered to withstand all of the use and problems that they will encounter over the years.

We're going to use the cash pipeline to illustrate many different aspects of financial planning. Pipelines are like our financial situations, especially when it comes to life insurance. Life insurance is one of the tools to use to reinforce the strength and durability of the cash pipeline.

A pipe usually comes in different diameters, sizes and lengths depending on what it is used for. The same can be said about financial situations. Your financial pipeline is going to be smaller when you're just starting off in your career. Your income is less and so is your financial requirements. As you get older and take on more financial responsibilities the cash pipeline needs to get larger and more durable to handle your needs.

A pipe used for your kitchen sink is going to be a smaller diameter and length than the one used to carry the main water supply into your house. It is important to keep each of these pipes safe and insulated from ruptures so that they don't break and disrupt the water flow into your house.

The water main pipe that supplies your house has to handle a great deal of pressure. It must withstand hot and cold temperatures from outdoors, and any pressure changes in the city water system. The walls of the water main pipe are usually much thicker and durable than the smaller pipes used in the house.

The water main pipe must supply all of the water needs of the whole house. Imagine what would happen if there wasn't enough water to supply the whole house or if the following happened:

• The water main pipe broke leaving you with no water and there wasn't enough money to fix it.
• The toilet usage is so high that there isn't enough water for drinking water.
• Watering the lawn used up all of the water and there was none for the rest of the house.
• You only had enough water coming in to allocate 1 gallon of water each for drinking, showering, cooking, cleaning.

Example of a 40 year old couple.

The pipeline illustration above could easily describe most couples in the prime of their career earnings (and spending). By the time you get to age 40, you and your spouse are settled into your careers. You've got several years of seniority at your company. You're enjoying a nice lifestyle that includes many of life's toys and luxuries, on top of a nice mortgage and car loan. Your combined incomes support your monthly financial requirements with not much room to spare.

The only way this lifestyle works is when both incomes are coming in and flowing through the cash pipeline. If the pipeline suddenly gets ruptured, for example, one of the spouses dies suddenly, there won't be enough money to cover the monthly cash requirements. This would completely disrupt the surviving spouses lifestyle as they would have to give up some of the items for which the cashflow interruption can't pay for. This would be especially true if the spouse that died was the higher income earner.

Insulating the Pipeline If your house's water main pipeline suddenly became unearthed and exposed, you would quickly do whatever it takes to get the pipeline covered up. Otherwise cold and hot outdoor temperatures would rupture the pipes. As well you might have children walking over or cars driving over your pipes. This would certainly rupture your pipeline and disrupt your supply of water.

Similarly, insulating your cashflow from exposure to external risks is an important idea. A rupture to your cash pipline could be caused by one of the following: losing a job, business problems, health problems, marital break up, death, taking on too many expenses. If any of these things happened, they would rupture your cash pipeline. In some of these cases, you can purchase some type of insurance that will ensure the continuity of your cash income.

For the sake of this discussion we are talking about life insurance. In order to ensure that you or your spouses surviving family members maintain the SAME cash income to maintain your current lifestyle, it is important that you purchase enough life insurance coverage. If you're not sure how much coverage you need, please contact us. We'll have an agent help you understand your financial requirements and how to protect your cashflow pipeline.

Get a Life Insurance Quote
Learn more about money