The Right Amount Of Insurance
Thomas asks how much term life insurance he should have for a family with three kids under the age of five. Dave explains.
QUESTION: Thomas on Facebook asks how much term life insurance he should have for a family with three kids under the age of five. Dave explains.
ANSWER: You should buy 15- or 20-year level term. If the kids are under five, probably 20-year level term. If you've got 20-year level term, then if the youngest one is three, they'll be 23 at the end of that term, the idea being that the insurance is going to be in place without changing price until the kids are grown and gone. They're out of college. That matches up pretty good with you, and we recommend you take out about 10 times your income on you and about 10 times your wife's income on her. If you make $60,000 a year, you would need $600,000 in term life insurance. The good news is that’s not very expensive. The cost of a pizza, and you can take care of your family. If you die, your wife takes $600,000 and invests it, she makes 10% o that, which she can probably average that over time. If she pulls out $60,000 a year, then your income has been replaced. You don't want to buy too much, or you'll have to sleep with one eye open.
If she is a stay-at-home mom and you make $50,000 or under, you should have anywhere from $250,000 to $400,000 on her. The more household income that's involved, you ought to have $400,000 on her. In other words, we're replacing $40,000 worth of expenses associated with what Mom does. If the household income is very low, we might associate it with a little less.