Your estimates sound excessive. would your death really require immediate funds to pay all expenses for the next 25 years?

You can buy more insurance when you have your 3rd or 4th kid - that's likely 5 or more years away, right? No point paying for it now.

I've aimed for roughly 8x gross annual income. I've switched or just added new policies about every 5 years to get the desired coverage amount, all on 10 year terms. I was actually just shopping a little this morning, I think my newest (about 1 year old) policy is too expensive and will probably switch some time in the next month or two, but no change in covered amount.

SlimTim said:Your estimates sound excessive. would your death really require immediate funds to pay all expenses for the next 25 years?

You can buy more insurance when you have your 3rd or 4th kid - that's likely 5 or more years away, right? No point paying for it now.

I've aimed for roughly 8x gross annual income. I've switched or just added new policies about every 5 years to get the desired coverage amount, all on 10 year terms. I was actually just shopping a little this morning, I think my newest (about 1 year old) policy is too expensive and will probably switch some time in the next month or two, but no change in covered amount.

I totally agree.

OP, you haven't even had your first kid yet and you're getting term life insurance for 3-4 kids' worth of college expenses? You're way ahead of yourself.

I would do 5 times your income plus your mortgage plus 2 years of college expenses for 1 child. If your wife isn't working when your child goes to college, your child won't have to pay for a lot of school. If your wife is working then your child won't need as much money.

What is your income? Your family shouldn't be living better after you die than before.

mikef07 said:I have never heard of anyone that said they got too much from life insurance, but many say they did not get enough.

I've also heard the same thing said about winning the lottery. Doesn't mean we should all be buying scratch-off tickets.

Thank you all for your responses.

I suppose I may have put too much of an emphasis on getting coverage now (when I'm young and healthy) while it's so cheap. cowboyBill is the only one that seems to think I've underestimated my need; I'd like to hear more of what he might have to say.

I'm definitely planning to get coverage for my wife as well, she does so much for the family. I think something like $400k would provide for child care for several years and give me several months off of work.

My income now is $72k. Using either the criteria of psychtobe or mikef07 I come up with about $750k. Perhaps that is a more reasonable amount. In 10 years I might have a few more kids, and then at that point I could get another couple $100k, or perhaps not depending on what my financial picture looks like then.

It looks like for 20 year terms, $400k for my wife is only about $200 a year, and $750k for myself at $300 a year.

Thank you all again, I think I'll start to get some serious quotes now.

I'll respond to a bunch of this stuff.

First of all, in general, when a young, healthy person is trying to figure out their need, they might as well buy more than what they think that they need. This is because the price difference of the premium is an immaterial dollar amount, but the death benefit has a huge material difference.

What I mean is that for a healthy 25 year old male to increase his coverage by $500,000, and it doesn't really matter if we are going from $500,000 to $1,000,000 or $1,000,000 to $1,5000,000, etc., the premium on a 20 year term policy will only increase by about $13/month. You are looking at about $2.50 per $100,000 of additional coverage. At this cheapness, it seems to make sense to make sure that your family thrives instead of survives.

You can buy more insurance when you have your 3rd or 4th kid - that's likely 5 or more years away, right? No point paying for it now.

That is extremely dangerous advice. Insurability is fragile. I see too many people who need coverage and can't get it at affordable rates. The one thing that the vast majority of these people had in common is that at one point they were insurable.

Look what happens even if he stays insurable, but he just gets a little heavy or develops high blood pressure, etc. I'm comparing purchasing an extra $500,000 now to waiting 5 years to get it. I'll assume in 5 years, he'll get a 15 year policy, just so that I'm doing apples to apples with a 20 year purchased today. His rate on that extra $500,000 will be about $35/month. What if he stays in excellent health? The rate will be about $15/month. In short, there's plenty of downside risk to waiting to purchase coverage, but very little in the way of upside benefit.

What is your income? Your family shouldn't be living better after you die than before.

Why not? Shouldn't his family live in the style that he wants them to live? He's 25 years old. He has dreams and goals for his family. He's probably had late night talks with his wife about how he wants things to be. They are going to move to a nicer neighborhood, have a big house with a picket fence, send his kids to private school, etc. Should the dreams that we have for our families that will be accomplished through our hard work die because we do? I am not saying that he wants these things, but, rather, everything should be based upon his wants for his family. For some people, it is about having their family survive. Others want to make sure that their family thrives.

I would do 10x the income necessary for your family to function should you die. Why 10X? I can pretty confidently invest in Mutual Funds that should earn close to 10% (as in 75% of the time) long term. If I needed $100,000 then $1M should throw that amount off without touching the principal. Should it not, I would have to dive into some of the principal which should not be an issue. I have never heard of anyone that said they got too much from life insurance, but many say they did not get enough.

If someone wants $100,000 year, $1,000,000 won't come close to getting the job done.

Problem 1: Let's assume for a second that you have an investment that will give you $100,000/year. The best case scenario, is that everything will be a capital gain and the spouse will get $85,000. Now factor in inflation, the fact that it won't all be capital gains, and capital gains tax rates will go up and it should be easy to see that even if she gets 10% a year, $1,000,000 isn't enough to give someone $100,000 of income.

Problem 2: There is no investment that will give 10% a year, so let's try assuming that she will average 10% a year. We'll completely ignore taxes and inflation. What if the returns looked like this in years 1-10?:
-20%, -10%, 35%, 10%, 27%, 18%, 0%, 10%, 14%, 30%. This is the same as averaging 10%, but after 10 years, the balance would be down to a little over $500,000. If taxes an inflation were factored in, I'm guessing that she'd be down to about $300,000.

Problem 3: It's insane to think that someone can average 10%. You said that you can get 10%, 75% of the time. Ok. Let's generously say that you average 0% on the years that you don't get around 10%, this only works out to an average of around 7%.

It's only realistic to be able to take $40-$50,000 before taxes out of an investment of $1,000,000. If $100,000 a year is going to be generated from life insurance proceeds, a $2,000,000 benefit is the minimum needed.

I suppose I may have put too much of an emphasis on getting coverage now (when I'm young and healthy) while it's so cheap. cowboyBill is the only one that seems to think I've underestimated my need; I'd like to hear more of what he might have to say.

Putting the emphasis on getting coverage now is smart! I don't know what you need. It really depends on what you truly want for your family. Here's one completely unscientific way to determine if you have a good amount of insurance. Take that $750,000 that MikeF is suggesting that you get. If I was willing to give you $750,000 today and in exchange you could never work again no matter what, would you accept the offer? That is what you would be asking your family to do...replace your ability to earn an income with a lump sum. Until you apply, you don't even know what the rate will be. Why don't you apply for the most coverage that you can get, and then make a decision after you are positive what the rates will be? After the policy is approved, you can accept it or lower to the amount that fits your comfort level and your budget.

I'm definitely planning to get coverage for my wife as well, she does so much for the family. I think something like $400k would provide for child care for several years and give me several months off of work.

Just to give you something to think about...What's important to you? For instance, my wife is a stay at home mom because that is what we feel is the best for our children. We have a lot of life insurance on her. Day care is not acceptable to us. If she dies, we don't need to replace her income with child care. We need to replace my income so that I can become a stay at home dad and then probably suffer a permanent shortfall in pay since I want to be home when my kids get out of school for the day. Term insurance is so cheap. Decide what you want and cover that want.

Also, be careful with your thought process that you won't need/want insurance in 25 years. More than likely that won't be the case and you'll actually have more. Don't believe me? Go talk to 10 50 year olds. 9 of them will have more coverage now than when they were 25. Why is this? They had a $50,000 mortgage. Now, they have a $400,000 mortgage. They were making $25,000/year. Now, they are making $250,000/year, etc.

Sure I have some bias. So what? We all have personal biases. I sell insurance. I'm not trying to hide this. Is it a problem if someone with expertise on the subject chimes in? I've been licensed for 20+ years.

I don't know how much coverage he should have, nor do I know the type of coverage that he should have. I do like whole life insurance. Sometimes it is appropriate. Sometimes it isn't. However, it is irrelevant to the question of how much coverage he should get. Whole life shouldn't be purchased because it has cash value. It should be only purchased when somebody wants to leave money behind at death regardless of when death occurs. When someone fits this description WL may or may not make sense depending on the specifics of the situations.

Psychtobe, you have two choices. 1)Assume that everything that I say on the subject must be biased and ignored since I am in the business and I must have some sort of agenda here or 2)Take me at face value. Did I say something in my posts that would indicate that I have given any information that is inaccurate or not in the best interest of the OP's family?

Get 30-year term!!! There are some incredible deals out there for 30-year and based on your current life plan 20-year is too short. If I was you I would get $1,000,000 30-year term and then forget about this subject until your next child is due at which point you can decide if you need more or a new 30-year term to start the clock again. For your wife I would probably get $500k 30-year term.

Good luck with the baby and enjoy your sleep now...

InsuranceExpert said:I'll respond to a bunch of this stuff.

First of all, in general, when a young, healthy person is trying to figure out their need, they might as well buy more than what they think that they need.

Let's start here. There is a "correct" amount of life insurance that an individual needs. This amount will vary - a lot - depending on the individual, but once this amount has been determined, it's determined. If this is not true, then why doesn't everyone get $10 million in insurance? It's more than they need, right? It might be more appropriate to say, "You probably need more than you think, because people tend to underestimate future expenses, etc." But again, once the 'correct' amount has been determined - for you, myself, or Mikef07 - there is no need to exceed it.

InsuranceExpert said:
You can buy more insurance when you have your 3rd or 4th kid - that's likely 5 or more years away, right? No point paying for it now.

That is extremely dangerous advice. Insurability is fragile. I see too many people who need coverage and can't get it at affordable rates. The one thing that the vast majority of these people had in common is that at one point they were insurable... In short, there's plenty of downside risk to waiting to purchase coverage, but very little in the way of upside benefit.

The downside risk is paying for more insurance longer than you need it. Paying more than you need to for something you don't need is a problem; in part because of the opportunity cost of the unnecessarily committed dollars, in part because the logical extension of your argument is to buy a changeable airline ticket every time, just in case. We should shop our needs - no more or less. Again, perhaps your point is that people 'need' more insurance than they think - but it's a different question.

InsuranceExpert said:What is your income? Your family shouldn't be living better after you die than before.

Why not? Shouldn't his family live in the style that he wants them to live? He's 25 years old. He has dreams and goals for his family. He's probably had late night talks with his wife about how he wants things to be. They are going to move to a nicer neighborhood, have a big house with a picket fence, send his kids to private school, etc. Should the dreams that we have for our families that will be accomplished through our hard work die because we do? I am not saying that he wants these things, but, rather, everything should be based upon his wants for his family. For some people, it is about having their family survive. Others want to make sure that their family thrives.

Fair enough, but I think you're overstating the 'dreams' most people have for their family. You're running dangerously close to the philosophy of selling dollars as a way to ease the pain of death, as in, "Your spouse will be grieving your death - don't you want her to have a Lexus to ease her pain?" It's an individual decision, of course, but if we drive 12 year old Toyotas in real life, I see no reason my widow needs to drive a Lexus after I die. If I thought Lexuses were so important, we'd buy one now, right?


InsuranceExpert said:If someone wants $100,000 year, $1,000,000 won't come close to getting the job done.

Problem 1: Let's assume for a second that you have an investment that will give you $100,000/year. The best case scenario, is that everything will be a capital gain and the spouse will get $85,000. Now factor in inflation, the fact that it won't all be capital gains, and capital gains tax rates will go up and it should be easy to see that even if she gets 10% a year, $1,000,000 isn't enough to give someone $100,000 of income...It's only realistic to be able to take $40-$50,000 before taxes out of an investment of $1,000,000. If $100,000 a year is going to be generated from life insurance proceeds, a $2,000,000 benefit is the minimum needed.

Agreed that if someone wants $100,000 in after-tax income, adjusted for inflation every year, indefinitely, $1 million is not enough to start with. However, who says you can't touch the principal? In fact, wouldn't you expect such a widow to touch the principal? And who says the money needs to last forever? Was the deceased planning to work forever? A Monte Carlo scenario will show that $1,000,000 earning 8% per year with 3% inflation can throw off about $100,000 per year for about 13 years with a high likelihood of success, depleting the principal en route. That's going to be mostly tax-free income, since it reflects mostly principal, and it is adjusted for inflation. Someone may need more or less, but there's no reason to leave the principal sacrosanct.

InsuranceExpert said:Problem 2: There is no investment that will give 10% a year, so let's try assuming that she will average 10% a year. We'll completely ignore taxes and inflation. What if the returns looked like this in years 1-10?:
-20%, -10%, 35%, 10%, 27%, 18%, 0%, 10%, 14%, 30%. This is the same as averaging 10%, but after 10 years, the balance would be down to a little over $500,000. If taxes an inflation were factored in, I'm guessing that she'd be down to about $300,000.

What was your starting principal? If you started with $1 million, then your numbers are wrong. I'm getting $2.7 million, or an annualized return of 10%, as you said. You are familiar with the commutative property of mathematics: axbxc=bxaxc=cxbxa, etc. So it really doesn't matter what order the ups and downs come with if one is not touching the principal, and pulling out a fixed percentage of the balance per year. It's more complicated if you are touching the principal and refusing to adjust your withdrawals depending on market conditions. But for the probability of ending up with $2.7 million, most of us would happily take less the first 2 years for more the next 8.

InsuranceExpert said:I suppose I may have put too much of an emphasis on getting coverage now (when I'm young and healthy) while it's so cheap. cowboyBill is the only one that seems to think I've underestimated my need; I'd like to hear more of what he might have to say.

Just to give you something to think about...What's important to you? For instance, my wife is a stay at home mom because that is what we feel is the best for our children. We have a lot of life insurance on her. Day care is not acceptable to us. If she dies, we don't need to replace her income with child care. We need to replace my income so that I can become a stay at home dad and then probably suffer a permanent shortfall in pay since I want to be home when my kids get out of school for the day.

This is an interesting suggestion. I'm not sure this is what most would do, but it's thought-provoking.

InsuranceExpert said:Also, be careful with your thought process that you won't need/want insurance in 25 years. More than likely that won't be the case and you'll actually have more. Don't believe me? Go talk to 10 50 year olds. 9 of them will have more coverage now than when they were 25. Why is this? They had a $50,000 mortgage. Now, they have a $400,000 mortgage. They were making $25,000/year. Now, they are making $250,000/year, etc.

This assumes (correctly, for most current baby boomers) that they have not saved money along the way, ie, self-insured. This obviously varies depending on the individual, and based on your post I'm sure you would encourage an individual approach to such an important problem. For example, I have saved about 4 times my income at this point. This is money destined for retirement and college savings. Therefore I see the need for less insurance than most calculators suggest. I expect that in 18 years, when my term policy expires, I will be more than adequately self-insured.

I didn't mean to suggest you couldn't be a source of good information, only that naturally, as an insurance salesperson, your incentive is to sell insurance. You benefit when people buy more insurance, maybe more than they need. Sorry if I came off dismissive.

To the OP - 30 years may make more sense for you given your age, but hopefully you'll be saving money over time and won't need so much insurance later in life.

To Mike - I really don't feel I have "minimum" insurance. My income is A. My 20 year term is 7.5A, my work policy is A, I have a mortgage worth 0.5A and no other debts, and I have savings of 4A. If I were to die today, my wife and child would have 12 times my income in assets and no debt. I feel this is exactly the correct amount they need for my wife to have to work 1/2 time (which she does now) but be able to take a few years off if she wanted, and for my daughter to go to 4 years of private college and 4 years of private graduate/professional school if she wants. We have a modest lifestyle and very close families that would help her out immensely, and I personally think the insurance I have is exactly enough. On what basis do you think I have "minimum" insurance?

I think you are right there on insurance 12A (12 x Income is perfect). You have been able to self insure and subsidize what you can't self insure. OP is not in your position and since he will most likely have kids someday and he is younger now than he will be later (obviously) 10A+ is a good start IMO because his rates will only go up..