How much life insurance would one need to have based on income. As in multiples of your current income?

Question

I am a 32 year old male in good health with a wife and 2 one year old twins.

Answer 1

The rule of thumb is seven to ten years income, but that's dependent on many factors. Your family is just starting out. That being the case, guarantying your family an income in the event of your death, or your disability which is 3-4 times more likely, is certainly your highest priority.

Speak with a financial advisor who can discuss life insurance as part of an overall financial strategy. There is no other responsible way to do this.

Answer 2

There are no hard and fast rules for how much coverage you need.

However, you can do a simple exercise to help you decide. Take a calculator and plug in your annual salary. Now, multiple that times the number of years you plan to continue working. Assuming you never got another raise (which we would certainly hope is unlikely), that's the base amount of your income that your family would be missing out on if something happened to you.

Most people are shocked at that figure.

I would also suggest that you consider coverage for your wife, even if she doesn't work outside the home. If something happened to her, who would help you take care of your kids? And how expensive do you estimate that type of assistance would be? If she also works outside the home, you need to consider replacing her income, too.

Overall, the general rule of thumb is to try to replace at least 10 years worth of income.

You will get a lot of advice to buy term life and, as a general rule, that's a good idea (for replacing income.) However, I wouldn't put all my planning into coverage through work. If you were to become disabled, the company changes hands and drops/coverage, or you retire, you may get hung out to dry (and that may not be such a big deal, as long as you're young and healthy when it happens.)

At retirement age, you may no longer need income replacement (which is why term is a good idea during your working years); however, I do encourage people to consider a small whole life, or universal policy to cover final expenses.

And remember that, in a lot of cases, life insurance is the only thing you can leave to someone that isn't taxable.

Also, I should point out something about cash value policies. Most people don't really understand how they work. It's true that they do NOT pay out cash value in the end; however, depending on the type of product you buy, the cash value beyond the face value can be used to buy paid-up insurance. (Participating policies will do this, non-participating policies will never become worth more than the face value.)

Answer 3

See dude, the life agent buzzards are hovering! waiting for you to die so they can pick your bones. All em want to sell you crap!

Whoever just answered with 7 - 10x of your annual income is right. Thats the book answer. MBRCatz is also right because you need to know how long the income needs to be sustained. What we dont know is if your wife works or not. With twins i consider the possibility you dont want to pay $500 a week for daycar for 2 one year olds. You might also have to account for her comfort even after the kids grow and leave the nest.

The other way you can do it is to figure out how much money your wife and kids need to survive per year. Then figure out how much money you would need to have invested at x% interest to earn that amount per year. Dont forget to also adjust for inflation.

If you are really concerned with maintaning your families lifestyle, talk to a Certified Financial Planner. And no I'm not one thank you very much buzzards! They have the financial forecasters needed and can figure out exactly what it is you need to have. Life Agents cant do this because they dont have the training. Even if they did their going to want to sell you an even more profitable (for them) life insurance plan.

Answer 4

You should have 10x your income in 10-20yr TERM life insurance. That way your wife could invest it & replace your income. STAY FAR AWAY from stupid whole life, universal life, cash value or anything that sounds even remotely like that. It is overpriced crap. The only reason agents sell it is because the commissions are higher. My dad is an agent, so we lock horns about this regularly, but I'm sticking to my guns. You only need term life while you have people depending on your income & don't have enough money to cover them if you croak.

Dave Ramsey has a good discussion of this in his "Total Money Makeover" book & probably on his website (no, he doesn't sell insurance). Don't get screwed by an insurance salesman.

Answer 5

Many agents recommend 5-10 times income. I'd recommend working with an agent and doing what we call a "needs analysis". Or there are many online life insurance calculators that can help you determine your actual need. Also, even if your wife is a stay at home mother, you should consider getting protection on her as well.

Answer 6

There is no set formula that works or everyone. You should have enough for your family to be able to maintain their current lifestyle without your income. Factors to consider are, how much debt do you have?, is your mortgage currently insured?, how much will your family receive from social security?, how life insurance do you have through your employer? Do you want your children to go to college? AND MOST IMPORTANT, how much can you afford to pay in premiums?
I used to sell life insurance. Every ones situation is different. Discuss plans with several agents. Don't let them push you into a decision.

Answer 7

All pretty good advice, but I wholly disagree with the person who says NEVER get anything but Term insurance.

There are numerous reasons:
1) if you survive the term, you get nothing
2) The longer you wait until you move to something like whole life, the more you pay
3) yeah, if you switch to whole life you'll take on risk that is not necessary younger than you should, but if you wait until you're older you'll pay more in premiums
4) The way whole life insurance is priced (before commissions) is that a whole life policy is mathematically equivalent to a 10-year term policy, plus a whole life policy 10 years later... so if you keep buying term insurance, it's just a whole life policy with increasing premium the older you get

Answer 8

The amount of term life insurance a person needs will depend on their specific situation and the reasons for buying the life insurance policy.

One way to decide how much term life insurance you should buy is to consider the needs of your family if you were to pass away prematurely.

Term Life insurance may provide financial security to meet many of your family’s needs by providing a fund they can use to:

Pay off an individual’s debts, such as medical bills, funeral expenses and health care costs

Pay for estate taxes and other expenses related to settling their estate

Provide a lifetime income for your spouse

Pay off an existing mortgage on your home

Pay for your children’s college education

Provide retirement funds for your spouse

Provide an adequate income for your spouse to give your family time to adjust to a new standard of living without you or your income

Receive interest to provide money for some special need – such as travel, education or health care costs.

Provide a monthly income until your children are grown up and living on their own.

The future financial needs of your family should be a major consideration in deciding the right amount of term life insurance to provide the financial security they deserve.

Another contributing factor is the amount of your annual salary. In addition, your family’s style of living they are accustomed to, your monthly expenses and future financial goals, such as, college tuition, retirement funding, vacations and living expenses.

Answer 9

No one can give you that answer unless you can tell us when you will die and what your family financial position will be at the time of your death.

Your best bet is to go meet with several local agents and perhaps a financial planner.

Your insurance needs will change many times over your life depending upon your family and your finances.

Good Luck

Answer 10

Ask yourself if you suddenly died: would you want your wife to immediately have to work? Would you need to hire a nanny or sitter? Do you want your family to have the ability to stay in the residence they're currently living in? Do you want the kids to have braces in the future? Private schools?

While you're still young and in decent health, buy as much group term life insurance on your job as you are allowed, as this is the least costly. At a minimum I'd recommend $500,000 with double indemnity.