# how much have you insured your life for?



## rookie (Mar 19, 2010)

It seems logical to use the formula (debt + liabilities - assets + replacement of current income??). for myself, i am planning to go with 5x annual salary for both me and spouse after all debts are taken care of. from work, we have another 2x annual salary but we would like to consider that as a bonus since we are not sure if future employers would do the same or if we will be employed at all...

i have 2 kids, 2 and 0. so with 5x annual salary for me and spouse, are we over or under or rightly insured?


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## Ihatetaxes (May 5, 2010)

I have $1.5m of term that costs me about $100/month and wife has a little more including a policy through her work but the $1.5 costs her about $80/month.


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## Maltese (Apr 22, 2009)

I initially purchased my policy through work when I was 23years old. At age 32 I got an autoimmune disease that resulted in me becoming uninsurable. I tried many times over the years to get additional insurance but always got turned down. 

Thankfully I didn't die when my daughter was a child and I only had $100,000 in life insurance.


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## OhGreatGuru (May 24, 2009)

I'm in my retirement years, so insurance is no longer much of an issue. If your mortgage and other debts are paid, do you really need 5x salary? Even with infants 2 and 0, tax-free insurance of 2 x salary should carry your spouse until they are in school, if the mortgage is paid. Of course if you are renting it's another story. But if you are trying to guarantee their financial future until adulthood maybe 5x is a good figure.

When you subtract assets, I hope you aren't subtracting assets the survivor really doesn't want to liquidate early (like RRSPs).


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## michika (Apr 20, 2009)

I'm 26 and ineligible for insurance because of illnesses my parents and brother have. I have none of these issues yet cannot get insurance because of it. I'm really at a loss of what to do as I really do feel that proper insurance is one of the fundamental cornerstones that we should all have in place.


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## MoneyGal (Apr 24, 2009)

If you are uninsurable your option is to self-insure. Purchased insurance should be a stopgap measure on the way to self-insurance.


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## Bullseye (Apr 5, 2009)

Currently have $500k on a 10 year (7 years left), plus 3x salary with work. Married, with two young children. Costs $40/month (th einsurance, not the wife and kids!).

I expect to have mortgage cleared in 5-6 years, and a much higher net worth then, so expect that I'll be able to cut our insurance at least in half when term is up. As MoneyGal states, self insurance should be the eventual goal.


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## Brad911 (Apr 19, 2009)

My fiancee & I each purchased $250k 20 year terms last year as initial policies to cover the cost of our mortgage + 1 year salary (for any forseeable costs).

We each have very good jobs that even working part-time would be able to handle our monthly expenses.

Once we have children (before actually) we'll take out additional policies to cover the costs of the loss in income should should one of us pass.


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## mrbizi (Dec 19, 2009)

my wife and I have a million dollar each in term insurance.

we have two kids, one is a special needs kid.

if the surviving spouse puts all the money in bonds it will cover at least a good portion of the loss in income.

as an aside, i don't have any supporting stats but i figure the probability of one of us dying while our children are young is much higher than us winning the lottery. so the way we see it, instead of buying lotto tickets, we pay for term insurance instead!

btw, it feels good to know that you are adequately covered and are sacrificing and doing what you can do to provide for your dependent children even when you're gone....


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## Jungle (Feb 17, 2010)

$250,000 Term 20 and 2X salary group policy at work. Wife has the same.


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## MoneyGal (Apr 24, 2009)

MrBizi if you give me your age and your wife's age, I will calculate the probabilities of survival for each of you. 

As an example, the probability that at least one a couple now aged 30 (M) and 28 (F) surviving the next 25 years is 99.8%. (M probability is 93.3 and F probability is 96.3.)


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## rookie (Mar 19, 2010)

if instead of quoting real numbers like 250k, 1mil etc, if you guys could quote the multiple of annual income, it would be more informative and a fair comparison...


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## allgood (May 17, 2010)

I have 2x salary through my work. As I'm a healthy, single, childless 30 year old, I feel that is probably more than I need. With no dependants, all I need is debt payoff and burial - which is less than 1x salary, and getting less all the time!


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## Ben (Apr 3, 2009)

rookie said:


> if instead of quoting real numbers like 250k, 1mil etc, if you guys could quote the multiple of annual income, it would be more informative and a fair comparison...


I'd go with multiple of annual expense as more meaningful. I'm around 15. Maybe this is a high multiple, but term life is so cheap relative to the peace of mind it offers. I hope to be "self-insured" sooner than later, at which point I'll reduce the coverage significantly.


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## Cal (Jun 17, 2009)

I don't think it is as simple as saying 5x your annual salary or anything like that. You need to assess the needs of your family, and their financial obligations. An assessment of your dependants' financial vulnerabilities would give you a better idea. I would consider the dependants magnitude of exposure and the time horizon of the exposure.

From a risk perspective, once your dependants financial vulnerability disappears, there is no need for life insurance. Factor in for income taxes as well. First priority is to cover the financial liablities.


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## MoneyGal (Apr 24, 2009)

I'm with Cal. There are a couple of ways to assess how much premature death insurance you want, and "multiples of income" seems to me like one of those kind of meaningless rules of thumb. 

Why do you want a multiple of income? Is the intention that the surviving spouse receive the income you would have brought in for a set number of years?

However, I recognize that employer-provided group life insurance is often provided as a multiple of income, so perhaps that's where that stat comes in. But if you don't have employer-provided insurance, I don't really understand the multiples of income approach.


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## rookie (Mar 19, 2010)

MoneyGal said:


> I'm with Cal. There are a couple of ways to assess how much premature death insurance you want, and "multiples of income" seems to me like one of those kind of meaningless rules of thumb.
> 
> Why do you want a multiple of income? Is the intention that the surviving spouse receive the income you would have brought in for a set number of years?
> 
> However, I recognize that employer-provided group life insurance is often provided as a multiple of income, so perhaps that's where that stat comes in. But if you don't have employer-provided insurance, I don't really understand the multiples of income approach.


i agree there can be better ways to figure out the amount of coverage but the multiples of income is not totally meaningless. i believe that a person's lifestyle is generally defined by his annual income (for a salaried person of course). and most generally after certain number of years into ones career, the income does not significantly change. i do not consider a 10-20% increase due to change or role/company a significant change. and once your family is accustomed to this lifestyle, you would want to insure your life to a value that is sufficient for your family to continue this lifestyle without major hurdles. 

for examples, lets take a person with an annual income of 100k. after tax and personal expense of the earning member and his retirement savings, lets say the family is used to a lifestyle of having 40k disposable income. now if this person had an insurance for 750k and were to pass away, this 500k would fetch close 40k per annum if invested at 5% rate of return. of course the example is crude since i hv not accounted for taxes but as u can see, the figures can be traced back to multiples of annual income.


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## MoneyGal (Apr 24, 2009)

I agree with you perhaps more than you might think, based on my earlier message! Insurance is intended to replace the value of your human capital. 

I don't totally understand the example you gave (how does insurance of $750K compare to an after-tax salary of $40K - and how did $750K become $500K in your example?).

However, as a general rule, insurance can be keyed to the discounted value of your human capital - a slightly different concept than "multiples of income." 

What might that value be? Here's an interesting calculator to play around with (it's the first one at the link - I can't link to it directly).


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## rookie (Mar 19, 2010)

MoneyGal said:


> I don't totally understand the example you gave (how does insurance of $750K compare to an after-tax salary of $40K - and how did $750K become $500K in your example?).


it was alwasy 750k not sure y i typed 500k. sorry about that. as i mentioned 750k invested at a 5% rate of return fetches close to 40k, 37.5k to be precise...


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## rookie (Mar 19, 2010)

MoneyGal said:


> What might that value be? Here's an interesting calculator to play around with (it's the first one at the link - I can't link to it directly).


are u suggesting one should insure their life to the value provided by this calculator?

hmm, i guess this calculator (i am not sure how it exactly calculates) the value at the retirement age mentioned. but if u were to be deceased well before that age, you would never earn that. secondly, since the person is not living, there is no need of planning for retirement. so it would be an awesome lot of money to insure oneself for.


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## MoneyGal (Apr 24, 2009)

The calculator has nothing to do with retirement planning. 

It allows you to calculate the discounted (present) value of your human capital, including a factor for wage growth and a correlation to the stock market (how "risky" is your investment in human capital? Are you a stock or a bond?). This is a little more sophisticated than the "add up your after-tax salary and multiply" approach. 

The retirement age input is simply to tell the calculator when you plan to stop generating dividends from your human capital, whether it is exhausted or not.


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## Cal (Jun 17, 2009)

http://wealthpilgrim.com/do-you-need-term-life-insurance-at-all-if-so-how-much/


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## hystat (Jun 18, 2010)

I don`t have any dependents or unsecured debt, so I don`t require any life insurance.

However, the term stuff through work was cheaper than buying a few lottery tickets every week, so I got $250K just so it will be sort of a surprise gift to my sister in case I die. Better odds than the 649.


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## CrazyDink (May 10, 2010)

hystat said:


> I don`t have any dependents or unsecured debt, so I don`t require any life insurance.
> 
> However, the term stuff through work was cheaper than buying a few lottery tickets every week, so I got $250K just so it will be sort of a surprise gift to my sister in case I die. Better odds than the 649.


Ha - so morbid, yet actually quite nice.

I similarly don't have any since I have no dependents, but maybe I'll pick up a few million and direct it towards my fiance/wife, but only so long she stays single


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## wheel (Jun 22, 2010)

MoneyGal said:


> Why do you want a multiple of income? Is the intention that the surviving spouse receive the income you would have brought in for a set number of years?
> 
> However, I recognize that employer-provided group life insurance is often provided as a multiple of income, so perhaps that's where that stat comes in. But if you don't have employer-provided insurance, I don't really understand the multiples of income approach.


it's not due to employer provided. It's simpler than that.

The problem with most approaches is that they focus on things that are not an insurable need. What happens to your mortage if you die? Nothing. So what does that have to do with life insurance? Same, nothing.

The financial loss most of us have upon our death, during our income earning/ family years, is our loss of income. We die, we lose our income. More importantly, we lose our income over a period of time. It's that loss of income that is the insurable event.

Many people are looking to maintain their families standard of living if they die. Again, it's as simple as that. Where does the standard of living come from? your income. Lose the income when you die. Use life insurance proceeds to provide a replacement income, the job is then done to most people's satisfaction. Is it a perfect number? no, but there isn't a perfect number, only estimates. The income protection model however, focuses on the actual important financial event for most people.

So it's not quite as simple as 10X salary. It's taking your income, assuming a required percentage of that income that's needed to maintain dependent's standard of living, and running a present value calc over a time period you want the replacement income for. That's now a reasonable estimate for how much life insurance many of us need.

And in a lot of cases, you're not too far off if you go with 10 times income. That's where the rule of thumb comes from.



> This is a little more sophisticated than the "add up your after-tax salary and multiply" approach.


Sophisticated in this business most often means wrong. First, as I noted, if you take the assumptions required in most sophisticated(complicated) models and ask the question 'is this a loss if I die' - like amount of your mortgage - it becomes clear that the models are incorrect. Secondly more assumptions is not better - it's far worse. Assumptions in financial models increase the tendency towards errors in a multiplicate fashion. (It's been years since I've looked at this, forgive my simplistic terminology). In other words, 2 assumptions is twice as ineffective as 1 assumption - it's not twice as good. Sophisticated models in life insurance needs commonly have this. The two big ones are interest and inflation. Once you throw those two in, any more assumptions is basically a crapshoot anyway - variations in reality away from your estimate make things ineffectual fast.


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## seanatis (Feb 7, 2010)

My wife and I are both insured for 400K each at a cost of $24/month (each).


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## MoneyGal (Apr 24, 2009)

It isn't an insurance calculator, either. 

It's a calculator which is intended to allow you to estimate the PV of your human capital. The inputs are your age and wages, your intended retirement date, a salary increase estimation, and a factor which is intended to approximate how "risky" or bond-like your salary is. None of the inputs relate to "what is an insurable need?"

I principally said it was "more sophisticated" because it accounts for the time value of money (and other factors, but that's the one I was thinking of). 

I understand that in "this business" more sophisticated does not necessarily = "better." I work in the field of financial modelling though; and I would say the issue is not reducing sophistication but accounting for all the relevant factors.


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## rsal59 (Dec 2, 2016)

I’m 62 and my wife is 54. I have $600K term 20 years( 25 years left) My wife has $450K 25 years ( 20 years left). We have also $320K permanent life insurance. For all above we pay $700/ month. It is a lot but we have a son with autism snd need to have them. My wife also has a 2X salary too. Not sure how much she pays.


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## james4beach (Nov 15, 2012)

What if I don't plan to keep working hard (as in full time career) beyond, say, age 50?

Does that change how the calculation works?


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## MrMatt (Dec 21, 2011)

james4beach said:


> What if I don't plan to keep working hard (as in full time career) beyond, say, age 50?
> 
> Does that change how the calculation works?


Then cut it off.
I am insured for my anticipated after tax income throughout my working years.
If I died tomorrow, my family gets a check for the earnings I'd make.
In 10 years, my insured amount will drop again.

Basically no change to the financial plan. My household gets the same money whether i live or die.


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## Mortgage u/w (Feb 6, 2014)

I'm shocked at the amount some people are paying for life insurance. I think its absurd to be paying a monthly fee for life insurance - that's when you know you're overpaying. Put that money to work for you instead and you'll be in a much better position, financially. Unless you have an 8 digit net worth you want protecting, there is no need for so much life insurance. Then again, you would most likely have a trust or holding corp to protect so many assets.

Best way to look at it is to estimate your net worth and calculate what you would owe in taxes if liquidated. The taxes is the amount you should insure yourself for. You'll want to cover the tax man so that you can pass on your assets in its entire value. Other than that, you can't live your life with the expectation that an insurance coverage will support your family the day your no longer there.

Most won't agree with me and that is ok. Meanwhile, I will keep enjoying my insurance stock dividends!


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## MrMatt (Dec 21, 2011)

Mortgage u/w said:


> I'm shocked at the amount some people are paying for life insurance. I think its absurd to be paying a monthly fee for life insurance - that's when you know you're overpaying. Put that money to work for you instead and you'll be in a much better position, financially. Unless you have an 8 digit net worth you want protecting, there is no need for so much life insurance. Then again, you would most likely have a trust or holding corp to protect so many assets.
> 
> Best way to look at it is to estimate your net worth and calculate what you would owe in taxes if liquidated. The taxes is the amount you should insure yourself for. You'll want to cover the tax man so that you can pass on your assets in its entire value. Other than that, you can't live your life with the expectation that an insurance coverage will support your family the day your no longer there.
> 
> Most won't agree with me and that is ok. Meanwhile, I will keep enjoying my insurance stock dividends!


40yr male non smoker 1 million 20 year policy less than $1k/yr.
If I drop dead tomorrow, my family will get $50k/yr for the next 2 decades.


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## nobleea (Oct 11, 2013)

I don't understand life insurance for people who have no kids. But if you do have young kids, it's critical that you think through all outcomes.

I have a 300K policy and then we have a 600K joint policy, plus my wife gets 2X salary at her work. Its term insurance that ends in 6-8 years. At that point, we wouldn't need daycare.
I figure there has to be enough money to keep the remaining spouse and kids in the same lifestyle they grew up with without undue stress on the remaining spouse. So if I kicked the bucket, there's money planned for lawn and snow care, house maintenance, house cleaning, etc. Stuff that I do now, but she doesn't have time or skill to do. The money isn't to make them rich, just not have to stress about money on top of losing a parent/spouse. My dad became a widow in our preteen years - it's stressful enough.

In the 7ish years, we expect to be self insured and wouldn't need to renew the term.


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## Spudd (Oct 11, 2011)

Mortgage u/w said:


> I'm shocked at the amount some people are paying for life insurance. I think its absurd to be paying a monthly fee for life insurance - that's when you know you're overpaying. Put that money to work for you instead and you'll be in a much better position, financially. Unless you have an 8 digit net worth you want protecting, there is no need for so much life insurance. Then again, you would most likely have a trust or holding corp to protect so many assets.
> 
> Best way to look at it is to estimate your net worth and calculate what you would owe in taxes if liquidated. The taxes is the amount you should insure yourself for. You'll want to cover the tax man so that you can pass on your assets in its entire value. Other than that, you can't live your life with the expectation that an insurance coverage will support your family the day your no longer there.


I don't see how paying a monthly fee equates to overpaying. When we were younger and still had a mortgage, my husband had a low-paying career and I was the breadwinner. Had I died unexpectedly, he might have had trouble finding a good job that could pay the mortgage etc. Sure, he could have sold the house but I wouldn't want him to face that stress. I also wanted him to be insured because if he died, I would want the freedom to take several months off work to mourn and not worry about where the money would come from. So we insured me for (I think) 300k and him for 200k. It cost $30/month. Worth it for the peace of mind. 

Once we were in a place where we had enough savings that if either of us died, the other would be fine without working, we discontinued the insurance.


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## cainvest (May 1, 2013)

Mortgage u/w said:


> I'm shocked at the amount some people are paying for life insurance.


I wish I could drop it but its part of my employment benefits package.


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## Ponderling (Mar 1, 2013)

I am 2x salary at work. Then term for I think 250K at $750 per year now that I am over 55. Likely last year, since kids niw 18 and 21, big resp, house paid off long ago, and wife and I with $4M between us.


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## Johnny199r (May 20, 2014)

$736,180.00 through my employer.

Also an additional $100,000 policy my parents took out on me when I was born(??) that I could cash out for about $20k right now.

I have no kids, I don't think I have a need for insurance. However, if I kick the can prematurely (I'd say there's a pretty good chance of that , my dad and a lot of men I've known die early) It's a nice payday for my wife and some extended family, in addition to about 900k-1mil in investments to leave to her.


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## londoncalling (Sep 17, 2011)

Wife and I have the standard 2x salary life insurance along with some short term and long term disability through work. I am not a big fan of insurance but my wife appreciates the added security. As such I have additional life term which would kill our remaining mortgage and provide an additional year or so of our combined income. As the major income earner I carry additional critical illness coverage. Disability and critical illness insurance are often passed over. For me this coverage is more important than life insurance.


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## Gator13 (Jan 5, 2020)

1.5m term plus policy through work benefits, which is capped at 300k or something like that. Premiums are minimal, but will cancel in a few years at retirement. A couple critical illness policies as well which I will drop at retirement. Financially secure, but keep because the premiums are minimal.


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