How much Life Insurance should one Buy

The great thing about life insurance is that it comes in many different “flavors,” and you can truly tailor your insurance coverage to what your needs are.

For instance, if you have 2 children, ages 2 and 5, a brand new mortgage (30 yr) and other debts. Your income is 100k, and your wife also earns 100k.

This would be Ideal coverage.

Step 1:

Cover your salary:
At least 5x so 500k 20 year term; now you might want to consider that if you die your spouse might want to stay home for a bit to make sure that your children (if you die before they get to college) are looked after in a troublesome time so you should add 200k (double your spouse’s income) for a total of 700k in 20year term insurance.

Step 2:

Cover your mortgage; there are 30 year decreasing insurance policies specifically designed to cover mortgages don’t do it because if 20 years down the road you decide to take a home equity loan to upgrade, update or consolidate whatever, then you will be under insured. Take the total amount of your mortgage liability and get a 30 year term policy as time goes on and your mortgage liability decreases there will be more money to offset other debts should you die so it isn’t wasted coverage anyway.

Step 3:
College: considering that you already have 700k from your salary coverage, an additional 100k 20 year policy should suffice.

Step 4:
Long term: take out a 75k whole life policy, as time goes by and all of the other policies expire, this one will continue to grow in value and take care of potential outstanding liabilities in the future.

Step 5:
Don’t forget your the fact that your spouse plays a role in your family:

What if your spose dies before the children are off to college? Your spouse should have at least 5x his/her salary, for you to be able to cover daycare costs, take a leave of absence to stay with the children, after school programs etc. And even if your wife (or husband) is stay at home mom/dad, you should cover them for the 5x your salary so that you can now cover the house upkeep expenses and day care expenses (homemakers provide an extremely valuable service to our lives that recent studies have valued at well over 100k per year).

Of course this is the ideal coverage, and can get expensive, if you cannot afford this type of coverage I would recommend at least 5x of your salary because placed in the bank can cover the bills for quite some time and allow your spouse to get back on her/his feet and make the appropriate adjustments.

Remember there is nothing worse than losing a loved one and at the same time losing your house, car and have creditors calling you expecting payment etc., as a spouse and parent you owe your family in death just as much as you owe them in life…you owe them EVERYTHING!