Hey… I’ve seen the general wisdom is 10x gross salary for life insurance. My gross salary with bonus is $215k, husband’s is $285k. We have one child. We just bought a new house, so our biggest concern right now is our new mortgage. Right now I applied for $1M in 25 year term life insurance for each of us. The idea behind the $1M is if either of us passed, we could use that money to pay off the mortgage. Without a mortgage, either of us could easily afford household and childcare expenses on our individual salaries. Besides a mortgage, we have no debts and live well below our means.
We’d like a second child, so the idea behind the 25 year is by the time we’re 25 years out, our children will be grown and our retirement fully funded.
Am I looking at this wrong? 10x our salaries would put us well over $1M each. We also each get 2x salary in basic life insurance through our employers, but I’m not relying on that as I know employment changes.
Visit lifehappens.org and use their calculator as a starting point. You can refine the number later with detailed wealth planning.
Remember, a rule of thumb isn’t one-size-fits-all. As long as you’re comfortable with how your coverage supports your family, you’re on the right track.
Given the cost of term insurance, I recommend going for $2M coverage on each policy. Here’s why:
Inflation: $1M today won’t be worth the same in ten years.
Unexpected Costs: You might face high daycare, college tuition, or medical expenses.
Affordability: If you can manage on one income, you can afford the higher premium. The increased death benefit will significantly help if something happens to one of you.
I handle disability insurance for doctors, so my clients are in a similar income bracket. Often, they buy a $1M-$2M policy and later realize they need more coverage.
I’d suggest $2M for each policy. Term insurance is fine unless you have special needs children. Consider the Securian term policy with these riders:
Extended Conversion Agreement
Chronic Illness Conversion Agreement
Accelerated Benefit for Terminal Illness
Waiver of Premium
This policy allows you to convert to permanent life or long-term care insurance later. Given your income, it’s unlikely you’ll qualify for long-term care insurance later, so you’d need to self-fund or buy it. This policy locks in your health rating for long-term care up to age 60.
As a longtime brokerage owner, I suggest thinking about how much it would cost to replace your income. To replace $200K a year after tax (about $130K), you’d need roughly $2.7M, which is about 10 times the income.
I get this by using an annuity with the death benefit that pays your spouse $150K a year (around $130K after taxes) for the rest of their life, based on a 44-year-old male.
Every situation is different. If you can cover your living expenses on one income, that might change things. Also, consider college funding and other factors.