How much term life insurance?

[Virtus3]

My wife and I are in the process of getting 20 year term life insurance policies in place. Looking for any advice or recommendations on amounts.

Age = 33 + 31DW
Dependents = 2 (3 and 1); do not plan to have any more children

Income = $130k me + $40k DW

Debt:
Mortgage = $310k

Assets:
Cash = $25k
Retirement accounts = $250k
529s = $35k
Home = $450k

Just going to do $500k policy for DW; she has another ~$100k through her employer. I can't decide between $1mm or $1.5mm for me; I also have another $500k through my employer.

[SimpleCycle]

It really depends on your goals and what you are insuring against.  There are two scenarios you are potentially providing for - one of you passes away or both of you pass away at the same time.  You have to decide what you are comfortable with in each case.

First, fire up ssa.gov and find out what your survivor benefits would be in each situation.  For us, SS survivor benefits are our primary life insurance - they cover most of our needs.

Second, decide what your goals are if one or both of you pass away.  Some people say "have enough to pay off the mortgage and pay for college", some people say "give the surviving spouse a few years runway to figure things out", some people say "make the surviving spouse FI".  It's a personal choice, but being clear on your goals helps you figure out what your needs are.

Third, figure out when you'd consider yourself "self-insured".  For most people this is FI or close to it.  Once you don't have to work for income, you don't need life insurance anymore.

Then, taking into account your goals, you can figure out how much additional term life insurance you need.  It is probably less than you think you need.  I think the max I'd go for in your situation is $1M and that's probably overinsured.

Finally, look at all the provisions on your potential policy.  Ours allows us to drop the face value once during the term for a reduced premium.  We recently took advantage of this as we are nearing self insured and need less life insurance.  Others allow a payout in case of permanent disability or terminal illness - that could also be helpful depending on the scenario.

Term is cheap (especially when you are young and healthy), but I'd be wary of overinsuring because you just don't need it.

[The_Pretender]

We have a similar situation regarding mrtg, house and accounts.  I have insurance through my employer up to 500K and my wife at 50K who stays at home. 

like the previous poster said it all comes down to your goal or approach.  My approach is not so much FI but allow plenty of time to grieve.  Since I am the one who brings in the paycheck to pay bills. If I were to die, the 500K would help cover monthly expenses for at least 5+ years and still pay off the mrtg.  This would give my wife time to grieve and then also find employment.
 Get the kid into school.  She could not put another penny towards retirement and the balances should grow to have her be FI by 60 or sooner.  Now if she was a stay at home parent and not able to go back to the workforce for any reason, I would supplement to be closer to your 1.5M number.  This would cover at 4% annual expenses.

If my wife were to die, her insurance would cover daycare for a year or two before school and allow time for me to take any FMLA to grieve.  If she were working and bringing in a paycheck, we would look to have some of her earnings to be used at increasing her life coverage.

If we both were to die, our insurance payouts and cash/retirement accounts would be managed in a form of trust to help our kid's new caretakers with the added expense of caring for them.  The balance of all this account based on 4% should more than compensate a larger house (ie increased rent/mortgage payment), school tuition costs, any vacation expenses. There should then be more than enough left over for post high school education/business ventures...

In regards to OP, you're looking at 1.5M and .5M and IMO is you have FI as the goal.  If your goal is not to have FI be the goal for either spouse then you're over insuring.

Also, open to anyone to poke holes in my plan too.

[yachi]

What SimpleCycle stated is spot on.  Definitely look into what Social Security covers - it pays the surviving parent directly, and pays out for each of the children under 18 that the surviving parent cares for.

I know a lot of people like to get enough insurance to pay off the mortgage, but I never found that to be the most practical:
There's a lot of emotion in paying off the mortgage - you picture your family forever living in the same place and having that need taken care of.  But the mortgage can be less than half the cost of keeping the house, so you aren't covering this cost just by paying off the mortgage, and you might be tying down your SO to a housing situation that's not ideal.

Covering the mortgage makes it seem like SO's dying wish be that you remain in the same house that worked in your old life.  After the death of a spouse, it may beneficial to move to be closer to family, friends, or a job.

I prefer to provide enough money to support our normal budget for X years.  Where X can be the length of time it might take to find a new partner, or the length of time it might take to raise the children, or the projected time to FI status.  Add to you budget costs to have someone do things your SO does that you could not (plumbing repairs, or getting kids on the bus).

[Virtus3]

Thank you everyone for the replies. I was not aware of SS Survivor's Benefits and looks like my wife and daughters would currently be eligible for a little more than $4k per month. Do these benefits increase in step with income increases?

With this info and the relative inexpensive cost of term policies at our age I think I'm going to go with $500k for my wife and $1mm for me. Wouldn't provide for complete FI but would remove any short/intermediate term money concerns.

[YttriumNitrate]

Thank you everyone for the replies. I was not aware of SS Survivor's Benefits and looks like my wife and daughters would currently be eligible for a little more than $4k per month. Do these benefits increase in step with income increases?

Sort of. Social Security benefits increase with income, but there are diminishing increases as your income goes up.

[elaine amj]

I was a SAHM /- and wanted enough insurance on DH to be FI. So that’s what we did. DH choose not to take insurance out on me and said he felt comfortable working and covering daycare on his income. When we reached FI, we canceled life insurance. Kinda shot us in the foot as DH got cancer and got a nice pair from his work life insurance policy and we faced the strong possibility of his not surviving. Whatever. We had enough for our simple lives and insurance would just have been gravy.


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[HPstache]

$1M

[seattlecyclone]

@SimpleCycle said pretty much exactly what I would have said. First ask yourself whether anyone in your life would have financial trouble if your income would suddenly disappear. If the answer is no, you don't need life insurance. If yes, then you need to take a moment to think about what level of help you'd want your loved ones to have in that scenario. On one end of the spectrum you might want to make your family insta-FI to take money out of the equation entirely. On the other end of the spectrum you might decide to provide enough cash for a year or three and trust your loved ones will be able to adapt to their new normal in that time. Where you fall on that spectrum is an intensely personal decision and it's something you should discuss with your partner. Wherever you land on that choice, don't overbuy. Life insurance is relatively cheap, but that shouldn't change your underlying mantra of "if you don't need it, don't buy it." Habitually avoiding small, unnecessary purchases is a big part of the path to wealth.