How Much Life Insurance Do I Need?

Seeking Advice
1

I’m 36 with two young kids (ages 3.5 and 8 months) and a stay-at-home partner. My current life insurance (excluding work coverage) is about 4x my income. However, an insurance agent suggested I need 20-30x my income to cover the next 20-30 years, which seems excessive.

The agent’s calculation doesn’t account for certain factors, like life insurance death benefits being untaxed and the proceeds being invested for returns. I believe this setup reduces the total coverage needed. My rough math: paying off a new mortgage (likely around 3x my income) would leave about 7x my income, plus existing savings (2.5x income), yielding roughly 9.5x. Assuming a 5% annual return, this could support my family for decades. Even considering college costs for three kids, this seems reasonable.

We’re looking at a Level Term 20 policy since my kids would be independent after 20 years, and our nest egg should grow substantially by then. I initially thought 10x my income would be sufficient, but the agent made it sound like I was being reckless. What are others’ thoughts?

2

Consider term life insurance for your partner, too. Replacing her contributions as a stay-at-home parent would be expensive if she passed away.

3

Scout said:
Consider term life insurance for your partner, too. Replacing her contributions as a stay-at-home parent would be expensive if she passed away.

We’re looking at $350k for her, thinking it would cover a nanny for a decade or so.

4

@Peyton
That might be low. Nanny costs for three kids over a decade, especially if they drive, could be higher. $350k, even invested, may not stretch as far as you think.

5

Scout said:
@Peyton
That might be low. Nanny costs for three kids over a decade, especially if they drive, could be higher. $350k, even invested, may not stretch as far as you think.

Fair point. I estimated $45k/year for a nanny, assuming a 5% return on investments. I’m in a moderate-cost area (Pittsburgh, PA), but I might need to revisit this estimate.

6

My approach was to get enough coverage to pay off the mortgage, fund college for the kids, and provide three years of income. It only costs $50/month for me, but my partner also has her own career.

7

Ash said:
My approach was to get enough coverage to pay off the mortgage, fund college for the kids, and provide three years of income. It only costs $50/month for me, but my partner also has her own career.

What’s your coverage? $50/month sounds incredibly low.

8

@Kim
$750k through Ladder Life. I was 40 and in excellent health when I got it 10 years ago.

9

Your calculations seem logical, but there are factors to consider:

  • Will your wife have retirement savings if the insurance funds are primarily for raising kids?
  • By the end of 20 years, your youngest (or hypothetical third child) may still be a dependent, and your older kids could be in college.
  • Kids get more expensive as they age due to activities, education, and other costs.

You might want to reconsider your ROI assumptions and add a buffer for unexpected expenses.

10

If you plan on a third child, a 20-year term might expire before your youngest is fully independent. Also, consider your partner’s long-term financial security, health insurance needs, and unexpected costs like medical bills. Increasing your coverage to 15x your income could offer more peace of mind.

11

@Blaze
Good points. I hadn’t factored in potential medical bills or the full timeline for a third child. I’m leaning toward 15x now.

12

There are two main approaches:

  1. Provide enough coverage so the payout can be invested and generate income indefinitely (20-30x income).
  2. Cover immediate and mid-term needs (mortgage, education, living expenses for dependents).

The second option often results in a lower total coverage amount. Based on your details, $2-2.5M seems reasonable.

13

Disability insurance might be even more important than life insurance, given that a medical issue is more likely than death.

For life insurance, $1.5-2M should be sufficient to cover your mortgage, provide for your kids, and offer your partner financial security. It’s also worth considering therapy or additional childcare costs if you were to pass away.

14

Laddering policies might save you money. For example, you could get:

  • A 10-year policy for immediate needs (e.g., $1M).
  • A 15-year policy for mid-term needs ($500k).
  • A 20-year policy for long-term needs ($500k).

As time goes on, your financial responsibilities decrease, and so does the total payout.

15

Given your income ($240k) and assets ($600k), aiming for $2.5M in total coverage seems reasonable. It pays off the mortgage, funds college, and provides for living expenses. At the end of the 20-year term, your retirement savings should reduce the need for further coverage.