Life Insurance – Revised

Well after a death in my extended family this week, our second baby on the way in early May and the renewal notice of my life insurance policy I’ve revised our life insurance needs to $500,000 each for me and my wife.

Why the $500,000?  My math goes something like this:

  • Pay off remaining mortgage $142,000
  • Stay at home with kids age 0 to 12, $24,000/year x 12 =  $288,000
  • Kid related expenses ages 13 to 18, $10,000/year x 6 = $60,000

Total is $490,000.  So I round up to $500,000.  I expect government benefits will fund the kids RESP’s plans.  Additionally that fact either my wife or I can continue some part time stay at home business will provide any extra income for vacations or anything else while the kids are small.

I don’t feel insurance should make the remaining spouse a millionaire, but rather give them what they need to finish raising the children.  So how much insurance do you have and why that amount?

6 thoughts on “Life Insurance – Revised”

  1. How much did $500k in term life insurance cost? Did you get 5 or 10 year?

    I also believe life insurance isn’t a windfall, but maybe more extreme then you, I think it is temporary relief to get your new life in order.

    Our plan is more along the lines where what we have saved is there as self insurance. We’re both very young and statistically very unlikely to die. Instead of paying off a mortgage or college, if one of us does go we can cash out our savings and live comfortably for at least 6 years without any income, which itself is unlikely.

    This would give my wife enough time to go to complete her education and start a career. Alternatively I would use the funds to pay for a nanny and the added child care costs. Either way we would also be relying on both of our families for help, because they’ve always been a great help and when could they be needed more after a death? Before insurance isn’t that what happened?

    We would likely be losing our financial goal of early financial retirement, but we’ve had a major lose and that is the consequence. There is no reason we can’t continue on life like any other average person who pays a mortgage for 25 years and savings for retirement at 65.

    Personally both my partner and I believe in re-marrying. It will take some time but ultimately it is very important for our own personally happiness to be with someone, to raise the kids with 2 parents and for financial security.

    Based on these needs and our current assets the online life insurance calculators say we don’t need any coverage at all. If we had a house I’d probably consider getting 50,000 of coverage for the equity that is tied up, but I’m also not convinced that selling and renting isn’t reasonable. We’ll cross that bridge when we get there.

    Most people would probably think this is either extreme or foolish, I did have to push our limits but am comfortable with it. What do you think?

  2. My wife and I have mortgage insurance for the house and life insurance policies through our work of about $100k each. If one of us goes, the mortgage is paid off and the other spouse receives the $100k insurance. As we both earn a similar wage, our net savings will be approximately the same as it is now, so that is sufficient coverage for our needs.

  3. Jordan,

    Annual cost is around $350 this year since it is on sale. It would normally be about $430 for both of us.

    In your case it sort of makes sense to not insure yourselves. It is a personal choice on how much if any to have.

    The ability to raise the kids until age 12 was key for us, so we decided to get more (also it would still allow the surviving spouse to still try for early retirement). I’ve reduce my coverage at work since I can get it cheaper privately.

    Tim

  4. I’ve tried to reduce my coverage at work since it is cheaper elsewhere, but apparently, it’s ‘mandatory’ and I can’t reduce or cancel it.

    Insurance is to protect wealth, not create it.
    I agree that a death of a loved one shouldn’t be a windfall.
    Most people I know are massively overinsured (like 500-1000K for a childless dual income couple). I have no insurance outside of what they give me at work and since there are no kids or dependents, that is more than enough. My fiance is in the same position.
    Once kids are on the way, things will change.

  5. Disability insurance should come ahead of life insurance because the disability scenario is much more catastrophic. If you become disabled with only life insurance in your policy, you wouldn’t receive the $500k to relief your financial plight. Worse, since you’re still alive, you become a financial libility to your family.

  6. Hi Canadian Dream,

    I agree with FJ. If you want I wrote a story on Million Dollar Journey about Risk Management. The topic of disability insurance is very important and often over looked. I have a few new ideas to keep the costs down and increase coverage. If you want a story on this drop me a e-mail.

    regards,

    Brian

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