Author Topic: How much term life insurance for single income family?  (Read 5807 times)

Mom to 5

  • 5 O'Clock Shadow
  • *
  • Posts: 24
How much term life insurance for single income family?
« on: June 04, 2013, 04:39:04 PM »
I have an appointment Friday morning with our agent because our 10 yr term is expiring. However, a lot has changed in that decade. Here's where we are now:

1. Husband is the sole income provider
2. 5 kids age eleven and under
3. Our public schools stink, so we do homeschool at first (private for oldest kid).  This is for all schools in our area. So moving to a different district isn't going to change this.
4. If I did go back, it would be in teaching, so basically all my income would go to tuition anyway.
5. He has a work policy that is 4x his salary. I think it's safe to plan w/o depending on that due to possible job change.

What would be the appropriate way to figure how much insurance would be needed?
Im just looking at changing the number for his. I figured out mine already (just covering school tuition, basically).

huadpe

  • Stubble
  • **
  • Posts: 219
Re: How much term life insurance for single income family?
« Reply #1 on: June 04, 2013, 04:52:16 PM »
You want enough such that if he dies you're financially independent.  So for a 10 year term, you want (annual expenditure)*20 - (your current invested assets). 

If you're not saving aggressively at the present, you will want to build inflation into that, so I would tack on another 10-20% of the number above.  Term life insurance is pretty cheap, so it's not necessary to skimp.  Get some quotes online as well to compare to what your agent says. 

Johnny Aloha

  • Bristles
  • ***
  • Posts: 315
Re: How much term life insurance for single income family?
« Reply #2 on: June 04, 2013, 05:47:07 PM »
There are lots of different opinions out there, and I'm sure you'll get lots on this forum.  You might also want to search the bogleheads forum to see how others have handled it.

Here's what we did:

1. added up mortgages (also add in other debt if you have it)
2. estimated the income needed from surviving spouse
3. subtracted net rental income from #2
4. divide annual income needed (#3 - #2) by .04 (assumes 4% SWR, which is also subject to debate)
5. added some money for college costs - wife was pregnant at the time
6. added some fluff on top

We added fluff because term policies are very cheap since we're in peak health, and we purchased 30yr term.  We layered with two policies each.  If we don't need/want the extra fluff in the future, we'll just stop paying on the second policy.  But for now, we have a young baby and large mortgage, so we want the extra peace of mind.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: How much term life insurance for single income family?
« Reply #3 on: June 04, 2013, 06:27:54 PM »
Thanks! I have some quotes for $1M 20 year. But I'm thinking that figure may not work if I want to help them through college some. I will definitely compare!

If you are going to be FI before twenty years, would you not price it based on the expected term needed to reach that point?  5 years, etc.

I would also include the employer portion in the calculation unless you know that he won't have that job within a year. You can always get more if in the future he quits his job. Some credit cards have life insurance attached.

bdub

  • 5 O'Clock Shadow
  • *
  • Posts: 77
  • Location: Minneapolis, MN
Re: How much term life insurance for single income family?
« Reply #4 on: June 04, 2013, 07:10:04 PM »
Sounds to me like you may have under-insured yourself.  You have to ask your husband if he would want to keep on working full-time if you died.  My wife and I had the plan originally to cover my income if I died and only the cost of childcare if she died.  Once we talked about it, I realized I probably wouldn't go back to work anytime soon if she died; my kids would need a parent around.  Most employers won't give more than 3 months unpaid leave for a death of a spouse.  Is that really enough time for your husband and children to attain a new normal?

MountainFlower

  • Bristles
  • ***
  • Posts: 285
  • Location: Colorado Mountains
Re: How much term life insurance for single income family?
« Reply #5 on: June 04, 2013, 09:01:02 PM »
Sounds to me like you may have under-insured yourself.  You have to ask your husband if he would want to keep on working full-time if you died.  My wife and I had the plan originally to cover my income if I died and only the cost of childcare if she died.  Once we talked about it, I realized I probably wouldn't go back to work anytime soon if she died; my kids would need a parent around.  Most employers won't give more than 3 months unpaid leave for a death of a spouse.  Is that really enough time for your husband and children to attain a new normal?

That's interesting because I think if my spouse died, work would absolutely keep me grounded and sane.   I'm convinced I would keep working for a while.   However, I would get about 900K if my DH passed away, so leaving my job and declaring FI would be inevitable, which is very comforting. 

Sweet Betsy

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: How much term life insurance for single income family?
« Reply #6 on: June 05, 2013, 06:01:26 AM »
We have 15 times my husband's salary right now. We too are a single income family for now and I want to have the ability to not have to work while the kids are home as well as have enough to pay off the house and send the kids to college.  We are probably a bit overinsured but I really like the peace of mind it gives me.  We have two policies one at 10 times his salary which has 19 years left on it and one at 5 times his policy which I believe has a bout 15 years left on it.  These will both get us through the kid's college years.  Term insurance is so inexpensive that for us it makes sense. 

We have a policy on me worth 5 times my husband's salary.  This will enable my husband to pay off the house and pretty much pay for the kids college.  This was as much as he wanted.  We figure that the surviving spouse gets to decide how much to take out on the other.