How Much Life Insurance Do You Really Need?
That’s an open ended question, if you ask a husband he says oh 100k is good enough. The wife says 5 million. There are a lot of difference people see, spouses especially women don’t want to have to work ever again, children want enough to pay off your remaining debt. Husband many times just through out numbers. When we sit with a family the formula we try and stick to is simple. How much debt? Who is earning the money? How many children? How much more do they need to be raised?
A spouse loosing their partner can lead to the loss of a job, depression, and home. Tackling the debt amount upfront gives some breathing room to the remaining spouse. $120k owed on a $250k home, $40K in vehicle debt quickly put you at needing at least $160k in coverage.
The husband often doesn’t value the needs for a lot of coverage if the wife is gone because they often are earning the money and figure life will go on, a new truck would be nice though. But this thought really makes no since when we break it down. The wife often will be staying home to care for the 2 kids to keep from paying daycare, or have a part time job just to cover health insurance and pay for daycare. These all go into our calculations. Daycare $300/week alone is $15k a year multiply that by six years for newborns and your at over $90k in daycare fees just to hope they can stay after school until you can make further arrangements. Reversely if you look at the income earning spouse say they make $50k a year. the same Six year period you would lose $300K.(WOW). Things are adding up.
For the kids we used two kids in the example earlier. We’re not in a life appointment (or are we…..) or I would additional count the full 2.5 kids that the government accounts for. So for 2 kids we always do a quick estimate, each household is different. Did you go on school trips. have dance, karate, piano lessons, need uniforms, have a cell phone, get allowance, get a car, buy expensive sneakers, or purchase video games? Well just to let you know all of those things are more expensive now, and if you plan to give your kids the same lifestyle you will need to calculate the cost. So we’ll use $250,000 each child for this example so at least they can attend a community college. So you would need $500k to cover this.
Adding just these three categories together you are at $1,000,050. Yea that is a lot of money but you will spend it during your life time. Now maybe both spouses don’t need as high of coverage that’s why you have to be comfortable with. But in this example at least the non bread winning spouse needs this policy and the working spouse. FYI, for this example I would recommend at least a $500k policy for the bread winning spouse on the other spouse. Thus covering the home, daycare, and 1/2 of the kids expenses should help ease the burden of loosing their spouse.