Over the years I have watched a lot of my favorite personal finance bloggers talk about calculating life insurance need, and I never understood why their calculations only take into account replacing one income. Two recent posts on the subject are:
- A Guest Post by The Wealth Pilgrim at Cash Money Life, “How Much Life Insurance Should You Buy?“
- PT Wrote about his Purchase of $500K Term (I am in the comments talking about this post’s very point)
You Need to Take into Account 2 Incomes when Calculating Life Insurance Need
I am married, but have no children (yet) if The Wife were to die tomorrow you better believe that I am not going to work, for a little while. What is that little while? I have no idea..but I am not just replacing her income, I have to partially replace mine.
Now throw some children who just lost one of their parents into the mix. You think you are going back to work on the following Monday? Month? Year? Who knows but that should be taken into account.
Everyone seems so worried about over insuring, but when discussing term insurance it is so cheap to do so, why gamble with your family’s future. Lets take PT’s Life (hope he doesn’t mind):
- I decided on $500k because that would be enough to replace a good portion of my income. If I passed, my wife would still have to work (which she plans to do anyway), but the extra income would allow her to breath easy and not put our home, her retirement, or our kid’s education at risk.
- $45/month for $500,000.
So after the Wife Pays off the mortgage so the house isn’t at risk, and putting X amount into the child’s 529 account how much is she really going to have? Two or Three years of PT’s income, maybe? How quickly will she run through that if she decides not to work for 6 months so their child has stability in his or her life?
I should note that I have no idea what PT and his Wife discussed. Maybe PT already has his child’s education mostly paid for and that should be taken out. For instance, I am positive that if I were to die, my wife would sell our home and move in with or near her family substantially reducing our insurance need.
What would another Quarter of a Million dollars cost? Depending on the company, probably another $22 bucks/month.
Like most Personal Finance “Rules” I think one has to take a deep look into YOUR situation and determine what is right for you and your family, not what some random talking head on CNBC tells you.
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