How much life insurance?

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neophyte1
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Joined: Wed Mar 12, 2014 10:52 pm

How much life insurance?

Post by neophyte1 » Mon Mar 20, 2017 12:47 pm

Hi everyone,

My wife and I are each early 30s and on the brink of having children. We each plan to obtain term life insurance ASAP. What I can not decide is the optimal amount, as I know there's no perfect formula and it's all so unique to each situation. What I DO KNOW is to find the best rates through term4sale.com and that we each want 30 year terms.

I make about $80K and she makes about $50K. My income will continue to rise at a decent rate and hers go could down if she scales back working in the future when we have kids.

I am thinking 1 million for me and $500k for her? If I passed, she could pay off the house with $200K or so of it, and then have $800K to invest and use some for the children. Maybe this is over-insuring, but I'm unsure. I can get a preferred rate class so it's pretty cheap I guess ... like $900 per year or so for myself at 1 million for 30 years.

Thoughts?
Last edited by neophyte1 on Fri Mar 31, 2017 1:25 pm, edited 2 times in total.

corysold
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Re: How much life insurance?

Post by corysold » Mon Mar 20, 2017 12:55 pm

I always like getting a little bit more than you'd think you'd need.

$1,000,000 sounds good for you, but I'd think about $750,000 or $1,000,000 for her as well. I wouldn't think the premium is that much higher, but you have to factor in more than just her salary. How much extra daycare might there be if you were a single parent? How much less could you save for college/retirement as a single parent with two kids in daycare/after school care. Would you have to take some time off work altogether or get a lower paying job to make it all work by yourself? Etc.

MN Finance
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Re: How much life insurance?

Post by MN Finance » Mon Mar 20, 2017 12:57 pm

Because it's cheap, you can err on the higher side without much regret. If you continue to have kids you might end up with 1M baseline and then add a second 20 yrs policy of, say 500k, after a couple kids, allowing some adjustment to cancel one along the way if it's not needed. We also carry insurance of the amount you're suggested for my stay at home spouse for probably obvious reasons.

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Taylor Larimore
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Location: Miami FL

Re: How much life insurance?

Post by Taylor Larimore » Mon Mar 20, 2017 1:08 pm

neophyte1:

The Bogleheads' Guide to Investing has this Table (page 247) that will help answer your question:

"Computing How Much Life Insurance Your Need."

1. $_______ Annual income (in dollors) that will be needed by the survivor(s)
2. $_______ Annual income available (pension, Social Security, annuities, etc.)
3. $_______ Annual income shortfall (#1 minus #2)
4. $_______ Annual income shortfall multiplied by number of years income is needed
5. $_______ Emergency funds (3 to 6 months of living expenses)
6. $_______ Estimated funeral expenses (U.S. average is $5,000 to $10,000)
7. $_______ Other cash needs (taxes, college, bequests, etc.)
8. $_______ Total family needs (add lines 4 though 7)
9. $_______ Total assets available (savings, investments, existing life insurance)
10. $______ Subtract line 9 from line 8

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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knpstr
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Location: Michigan

Re: How much life insurance?

Post by knpstr » Mon Mar 20, 2017 1:11 pm

Using the general rule-of-thumb, which is likely to be good enough:

$800,000 for you
$500,000 for her.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

BruDude
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Location: Las Vegas

Re: How much life insurance?

Post by BruDude » Mon Mar 20, 2017 2:06 pm

$1M for you, $500-750k for her is probably good. At your age, the cost is dirt cheap, so buy a little extra if needed for peace of mind.

MoneyBagsRx
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Re: How much life insurance?

Post by MoneyBagsRx » Mon Mar 20, 2017 2:06 pm

Something that I do that you may want to consider - staggering multiple polices. My wife and I earn about the same. We each have two (2) overlapping policies:

$500k / 10 year
$ 1 million / 20 year

That way, if we continue to live, our net worth will have gone up over the years AND the duration our dependents will need financial assistance will have gone down. It also keeps the costs down compared to a $1.5 million / 20 year policy.

soccerrules
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Re: How much life insurance?

Post by soccerrules » Mon Mar 20, 2017 2:10 pm

Part of the decision depends on how many kids you plan to have, 1 or 3 (or more) makes a difference. I would err on the side of $1.5M minimum because it is cheaper and should be easier to get when you are younger. The goal should be if you "get hit by a truck" your wife can be able to adjust work schedule a little if needed and the insurance $ will cover the living expenses and also allow for future college. It is cheap, don't under insure.

I did $1M on me 23 years ago right before oldest was born (sole earner at the time) and $250K on wife (SHM). Hindsight for cost I should have increased her's to minimum $500K, and probably mine to $1.5M. About to cancel hers as youngest is almost 16. I will keep mine probably for a few more years until I don't need it (retire, hit FI). Something else I am thinking about is to reduce the amount of mine to a much smaller level and change the beneficiaries to the kids so they would get a small inheritance earlier when I pass. The wife would be good to live on the rest (SS,IRA"s, Taxable).
Don't let your outflow exceed your income or your upkeep will be your downfall.

Admiral
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Re: How much life insurance?

Post by Admiral » Mon Mar 20, 2017 2:15 pm

We are mid and late forties, kids are 13 and 10, we both earn six figures, we have $1m on each of us, 20 year policies that are now in year 2.

If you're 30 and have no kids yet, you want at least 20 years. I'd suggest more like 25 or 30 years. You want insurance that will cover your kids until they are grown and working (and hopefully out of your house).

The diff. in premium for a 30 year old (who is healthy) for $750k and $1m is small.

Also: don't get it through your employer.

neophyte1
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Joined: Wed Mar 12, 2014 10:52 pm

Re: How much life insurance?

Post by neophyte1 » Mon Mar 20, 2017 2:15 pm

Thank you everyone! Very helpful!

Bmac
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Location: Seattle

Re: How much life insurance?

Post by Bmac » Mon Mar 20, 2017 2:54 pm

If I understand it correctly, you do not yet have kids nor do you own a house. Do you really need much, if any, life insurance? What needs do you have to cover if one of you were to die since you are both employed? Unless you have significant health concerns, you likely will still be able to get cheap term life insurance in a few years when you actually have a legitimate need. At least as of now your overall insurance needs would seem to be relatively small.

garlicpotato
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Re: How much life insurance?

Post by garlicpotato » Mon Mar 20, 2017 3:11 pm

Someone questioned your immediate need for life insurance, and advised you to wait until after your children arrived before purchasing a policy. Based on personal experience, I strongly advise against that scheme, at least for your wife.

In our case, we foolishly waited until we had children to get a life policy on my wife. Prior to the pregnancy, she was very healthy. But she developed gestational diabetes during the pregnancy, which is very common. Despite the fact that the GD symptoms vanished soon after giving birth, it was still considered a health risk when shopping for life policies. This was an expensive error. In retrospect, we should have bought her life policy before she became pregnant.

Danzangdc
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Re: How much life insurance?

Post by Danzangdc » Tue Mar 21, 2017 10:03 am

If you die young, there is a very high chance your wife will be remarried within five years. Same thing in reverse if she dies young. Do you think the survivor would work or parent full time? If parent full time, then life insurance would need to cover living expenses in those gap years. You haven't said what your expenses are, but your take home income must be around $100k. So, 5*100k = $500k of insurance on each of you, max. Far less if the survivor will keep up his/her career.

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DaftInvestor
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Re: How much life insurance?

Post by DaftInvestor » Tue Mar 21, 2017 10:39 am

Why are you buying it now?
Personally I'd wait until after you buy a home and after you have kids. If you wait until you have your first kid you can then get a 30 year term to carry you through their colleges.

Flashes1
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Re: How much life insurance?

Post by Flashes1 » Tue Mar 21, 2017 11:44 am

Has anyone ever factored any "fun" money into their Life Insurance. Say you want some extra money after a long disease takes your spouse....I thought a nice car might cheer me up so I got some extra coverage for my wife, but I'm not sure how widespread that is.

fasteddie911
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Re: How much life insurance?

Post by fasteddie911 » Sat Mar 25, 2017 9:26 am

Run the numbers yourself. Create a spreadsheet, estimate expenses, savings, retirement, etc. over your lifespan and see what you come up with, don't forget about inflation. Everyone's situation and needs are different and using rules of thumb may not be accurate for you. I would definitely buy before getting pregnant, you never know what may happen during pregnancy or birth.

sco
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Re: How much life insurance?

Post by sco » Sat Mar 25, 2017 10:18 pm

IF you buy now.. THink about the term as well. 20 years, 25 30?

How long until you don't have that major expense drain, sorry children? Wlil you be comfortable retiring without life insurance?

Lock in a long term rate, as much as you think you need. and don't be afraid to add more/cancel more as needed.

It is very cheap at your age.

MnD
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Re: How much life insurance?

Post by MnD » Sat Mar 25, 2017 10:53 pm

$1M/$750K 30 years. If everything is going well healthwise for you and DW you can always add coverage or cancel and get smaller policies later.
What you can't effectively do is scrimp on life insurance amount or term now, then have health issues and then decide to increase coverage or term.

MWormwood
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Re: How much life insurance?

Post by MWormwood » Sat Mar 25, 2017 11:26 pm

I agree you don't *need* that much life insurance until you actually have the mortgage and kids... But you should buy it now while you qualify for cheap rates. Your potential gain by waiting is small--best case, you could avoid a couple years of affordable premiums. Your potential risk in waiting is large--worst case, you might not be able to find affordable premiums later due to a change in circumstances. I'm surprised others here are advocating waiting.

And I think your amounts are reasonable. 10x salary is a common rule of thumb. Like for AA, individual perspectives vary, but you're in the range of normal, I'd guess.

BV3273
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Re: How much life insurance?

Post by BV3273 » Fri Apr 28, 2017 6:10 am

Any recommendations on where to get a policy with as little hassle (salesman interaction) as possible?

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