My wife and I are in the market for term life insurance, which has resulted in over-analytical me thinking a ton about how much life insurance each of us need to have.
Almost everything I read online about this topic indicates that you should insure based on anticipated lost income. One of my good friends, who I consider to be very intelligent, used to sell insurance and was telling me that he's insured for $3M. But this general principle and my friend's insurance amount don't really make sense to me.
I'm stating the obvious for regulars here, but I think one of the core revelations of this website is that your retirement number is based on expenses, not income. This dramatically changes calculations, planning, and outlook.
I think this principle applies with equal force to life insurance--you should get enough life insurance to cover expenses, not income. My calculation is as follows:
$10,000 -- burial expenses
$110,000 -- pay off mortgage
$300,000 -- ten years of living expenses (adjusted for inflation)
$120,000 -- public college tuition for two kids
$60,000 -- money to invest in an IRA for ten years (adjusted for inflation)
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TOTAL = $600,000 policy
My thought is that we already have a decent amount of retirement assets, and covering the living expenses for ten years will allow either spouse to continue to invest for ten years, which would lead to FI.
Am I oversimplifying this, or is this the frugal way to look at term life insurance?