Comments on: How Much Life Insurance Do You Need?

By: Frank

Frank — Thu, 31 Mar 2011 03:45:54 +0000

Whole life is a total crock of BS for most people. It’s prohibitively expensive for almost anyone, at least for any significant death benefit. If you need anywhere between 500K and 1Mil, which is quite standard for most people using the 10 to 20X income formula, then have fun with those monthly payments on whole life. I don’t know how many people have an extra 3, 4, or 5 hundred bucks per month laying around, but I sure don’t.

By: Ryan

Ryan — Fri, 20 Aug 2010 23:27:35 +0000

Here is something I don’t understand. In the example given, it was assumed that each spouse brought home $4000, but it was also assumed that every dollar of this $8000 per month would be spent on food, mortgage, savings, or child expenses.

But, this can’t be true. If I die, my family loses my $4000 a month. But they don’t need to replace my $4000 a month. See, I won’t need to eat, drive a car, or take a shower in the grave. So no food, car payments, nor water bills. And our retirement savings can be cut drastically as well. The NET income needs to be replaced, not every dollar that I bring home. Right?

Ryan

By: Leonard Robbins

Leonard Robbins — Tue, 10 Aug 2010 00:33:16 +0000

Dad S, you may also want to consider “laddering” your policy(s). Remember that you can always purchase more than one policy from the same or different carriers as long as you inform each insurer of your plans. Also, when considering more than one policy, try to keep the amount at $250,000 or more since you will usually get a better rate than a lower amount.
Whatever you decide, you’re doing the right thing by thinking about it, rather than just pulling a figure out of the blue!

By: Ryan

Ryan — Mon, 15 Feb 2010 14:20:11 +0000

Dad S, Term insurance should be cheap enough that adding a few years to your policy is probably worth it. You never know what will arise between now and then and having that extra time on your policy will probably help you sleep better at night. With most term policies you can drop it if you no longer feel like you need it. But adding a few years to your policy later on means you will pay premiums at the new rate. (for example waiting five years to change your policy might be more expensive than getting a longer term now).

By: Dad S

Dad S — Thu, 11 Feb 2010 19:27:48 +0000

I am looking at buying term insurance to replace income lost if something should happen to me (wife works but wish to leave her income out of the equation)…I make about 6K a month after tax but wondering how long of a term i should get…I have 15 years to retirement but have young kids, 2 and 5…since the youngest will still only be 17 when i retire, should i opt for the longer 20 year term or stick with the 15 year term to retirement? Also, as we have some assets built up, i am really only concerned about near term unexpected events and making sure the kids are comfortable through college…What advice can you offer?

By: Ryan

Ryan — Tue, 26 Jan 2010 03:34:33 +0000

Teacher mom, It is very difficult to answer your question because you don’t give enough information about your financial situation. The rule of thumb used in this article is 17 times the annual salary of the person in question, but that formula doesn’t always work for everyone or each situation.

You need to consider how much money you would need if one of you were to pass away. Take a look at your current expenses, possible future expenses (funding college, insurance, moving, etc.), possible changes to life situation (remarrying, for example), and try to determine how much you would need above your current income to reach those future expenses. You might wish to consider how much it would take to pay off any debt you might have, including your mortgage, then go from there.

In any calculation I would do, I would consider how much it would take to payoff the mortgage (or all debt), then add a buffer based on the assumption of how much I would need to maintain a decent lifestyle with my current income from working, with no house payment. There is no “exact’ formula because each situation is different, just guides that might make things a little easier. I hope these tips help.

By: teacher mom

teacher mom — Tue, 26 Jan 2010 01:27:00 +0000

I am trying to figure out how much life insurance to take out on my husband. He is an executive chef with no benefits. I am teacher with great benefits that will help my husband if something was to happen to me, me on the other hand…We are both 30, excellent health, two kids (3 and 4) what is a good plan?

By: My Journey

My Journey — Fri, 07 Aug 2009 18:02:56 +0000

Miss J,

Lot to digest but I feel you deserve some insight:

1) Life insurance is income tax free. As opposed to what most finaicial planners tell you – it is 90% of the time included in your estate for estate tax purposes (there are advanced ways to get it out of your estate). So, if you had assets totalling $500,000 and you had a $1,000,000 policy. You would pay 0 in federal estate tax (because you can leave up to $3.5 Mil to a non-spousal US bene) but you might hit a State Estate Tax if you live in one of 18 states which are decoupled.

2) Second your end number is $1.67mil or something doesn’t into account future growth of that money. If you are trying to get how much you need that way (e.g. Income Replacement) you need to do the present value of that number given a specific growth rate (I would use something really low because the kid is going to have to be conservtive so like a 2.5% NET to 3.5% NET).

3) In terms of the mortgage you should build an excel spread sheet seeing how much that takes off your husband’s need.

4) As you can tell from the above comments and my guest post on this blog – I like whole life insurance because you know why – 99% of us (including myself) do not buy term and invest difference! How much cash do you have built up in the WL? If it was int he last 2 or 3 years the number is 0, but if its 10 years deep you’ll be suprised how much cash is there, you can then do a lump sum 1 time pay off of UL or diff type of term.

JUST SOME THOUGHTS!