How much is enough? Life insurance edition
How much is enough? I think this question applies not only to retirement savings but life insurance as well. I’ve read articles that say you need enough life insurance to replace ten years of your salary. The argument here is that in case you die, your dependents can maintain their current lifestyle without you. Then there are folks who write things like this:
“I read your article about how much life insurance you own, and how you calculated the amount needed. My comment is this… “What’s your wife going to do when the 2 years of income runs out?” Great, you’ll have no mortgage, but she’ll have to sell the house to survive the lost income. I can’t believe she hasn’t divorced you for forcing her into a re-marry or starve position. Maybe she makes that much more than you do, so your income is disposable?”
Here are some of the questions that crossed my mind before I bought my existing life insurance policy:
- I am very fortunate to have life insurance benefits at work. Did I need more life insurance?
- Do I need whole life insurance at this point in my life? These policies are more expensive than term but there are some benefits that come with whole life insurance over term insurance.
- How long might I need the life insurance? A friend of mine who is in the insurance business told me years ago something that stayed with me – insure against a catastrophic loss not just any loss. What level of insurance would be enough?
- What liquid assets do we have?
- Should my life insurance fulfill part of my retirement plan? Enough for my spouse to live from?
- How much debt should we insure against?
- What about “final” expenses? Do we have existing policies in place to cover that?
- Life insurance gets more expensive with age so maybe it’s a good idea to rid myself of debt/liabilities sooner than later. How soon could I be debt free?
The answer to “how much is enough?” for life insurance comes in all shapes and sizes, which makes personal finance personal for many reasons.
Personally, I figure “enough” to cover a few years’ salary (or in this case, a loss of salary) plus enough insurance to pay off all debts is likely plenty for most folks in their working years.
After that, potentially you can self-insure and we intend to.
How did you determine how much life insurance was enough? What things did you consider that I didn’t think about?