Last week we left Sally and Jim having cut their expenses to the bone, given up eating out three times a week, and saving $14,000 each into their 401(k) accounts. They had chopped up all but one credit card and were only going to buy stuff required for survival on a desert island. Moreover, they were saving monthly into a conservative investment to buy a condo in four years. The mortgage will give them a large deduction and they will own an appreciating asset. If you missed all of this, whose fault is it? During this four-year wait we can discuss something else. Let me tell you a story.

My friend Harold and I were sitting in a bar near Grand Central. Harold has been having trouble in his marriage. We downed two beers each when he said, “What worries me is that she has been watching the movie ‘Double Indemnity,’ and we have a handsome insurance agent who is 12 years younger than me.”

For those of you too young to remember “Double Indemnity,” it’s an old classic with Barbara Stanwyck and Fred McMurray. The story is about the more exiting uses of life insurance. Mr. McMurray is an insurance agent who is manipulated by his client Ms. Stanwyck into selling a life policy on her husband, who she intends to kill. The agent is then persuaded that all he has to do is to throw the husband off the train and the two lovers can be happy ever after with the insurance money. What Mr. McMurray does not know is that she has planned a surprise for him, once the murder is done. She plans to kill him, too!

“How much insurance you got, Harold?” I asked.

“One million whole life, another half million universal life, and five hundred thousand term,” he said.

“Worth killing you for,” I said. “Do you travel in trains?”

“All the time,” Harold said, looking really nervous.

“Why did you buy that much?”

I was curious about how the amounts were calculated.

That raises the question, how do you calculate how much life insurance you need? Many insurance professionals use a rule of thumb “five times annual income.” Not good enough for you? Try this. If you drove your Formula One car into the wall while trying to overtake the leader in the Indy 500, how much would your family need, excluding car repairs?

Here’s a rough calculation:

* Funeral and final expenses, including legal, say $20,000.

* Paying off the mortgage, maybe $500,000.

* Education for two kids (present value of future need), say $60,000 times 2, or $120,000.

* Supplemental income for spouse for 20 years at $40,000 per year, $500,000 (discounted at 4%).

That’s $1,140,000 assuming she makes a decent salary and can sell the house after 20 years.

Now all of this may not need to be expensive whole life coverage. The children’s education can be covered by low-cost term insurance for 15 years; a whole life policy of $500,000 with a 20-year term rider for $500,000 could also save money. I don’t advocate hefty premiums to get a “vanishing premium” after 10 years because quite often the dividends are not as projected. As a result the premiums don’t vanish. Sometimes the agent vanishes! Each case requires careful calculation and the above is only an example.

Now to return to my friend Harold. After another two beers I offered a simple solution: “The best thing is to make your mother the beneficiary. I know of no woman who would murder her husband if her mother-in-law would get the money. However, if she tries to kill you anyway, all you have to do is to sell your story to one of the crime-drama series on television and become a millionaire!”

He was so happy, and it was “happy hour” to boot, we ordered two more beers.

Mr. Sen, CFP, can be found at www.sunandansen.com. Securities and Advisory services are offered through FSC Securities Corp. He’s also a Registered Investment Advisor, member NASD/SIPC, and member AIG Advisor Group.