How Much Life Insurance Do I Need?

life insurance

My husband and I each got $500,000 life insurance term policies after our second child was born. We both work, though I am an entrepreneur so my income fluctuates. His friends have told him their wives have no life insurance or only a small policy. Was I right in getting such a hefty policy?

—Katie M., Beacon, NY

I commend you for recognizing the importance of protecting your family with life insurance and getting individual coverage. (Group coverage through an employer is great, but is rarely enough and not portable if you change jobs!)

For many years men were traditionally the breadwinners, and their wives were typically uninsured. Though many more women are working these days—and in many cases the primary breadwinner—they are still largely uninsured or underinsured. I attribute this to lack of awareness and fear of cost (though the reality is a 20-year $500,000 term policy can cost as little as a few hundred dollars a year, depending on your age and health).

Even stay-at-home moms should have some life insurance. The potential cost of arranging for child care alone in the event of a mother’s death, especially if the children are young, is more than most would think. (Investopedia estimates that a homemaker’s work is worth nearly $100,000 annually.)

Life insurance is often used not just to cover funeral expenses but to pay off debts and provide some income replacement to the surviving spouse. Yes, there’s always the chance a surviving spouse will remarry and be able to replace some or all of the deceased spouse’s financial worth. But there are likely goals you have for your family that you’d want to be attainable even if you passed away. (If you’re worried about your insurance money potentially supporting another wife in the future, you can set up an insurance trust to avoid that.)

I assume you got your $500,000 policy to cover outstanding debts like your mortgage and any student loans you may have. You probably also want to cover some or all of your children’s college expenses. With the average mortgage balance in the U.S. at about $150,000, the average student loan debt near $33,000, and the average cost of one year of college at a state school more than $22,000, a $500,000 insurance policy seems pretty reasonable to me. (That doesn’t take any potential philanthropy or legacy goals into account, in which case permanent insurance is probably more appropriate at some point in the future).

So, how much is enough? Clarifying what’s important to you is the first step to figuring that out. The reality is that most of us don’t have enough insurance to protect all of our goals. I think it’s safe to say you don’t have too much.

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