enoriverbend
|
Whether it's adequate or not depends entirely on the family's needs. If the sole earner was only making $28K/yr, then the family presumably needs less to live on then if the sole earner was making $250K/yr. On the other hand, if there is a $2M estate to leave to the family, life insurance is less important than if there is $0.
If the spouse is not going to be employed (taking care of the kids for the next 10 years, for example), then the amount needs to be sufficient to have an annuitized return to support the survivors for a certain number of years. For the kids, you may want to plan on supporting them through four years of a reasonably priced public college.
Only after you've established those sorts of facts and decisions can you figure out what the right amount of life insurance is. And do *not* let an insurance salesman just tell you. |
james m
|
The best way to find out how much is enough, is to have a professional agent do a Financial Need Analysis to determine the correct amount.
But, without an analysis, a good rule of thumb on the amount of insurance needed to provide for a family; to keep them in "their own world" financially speaking, is for the "breadwinner" to have at least 10 times his/her annual income in life insurance.
Examples:
Annual income = $40,000 = $400,000 life insurance.
Annual income = $50,000 = $500,000 life insurance.
Annual income = $100,000 = $1,000,000 life insurance.
Statistically, according to FNA, a surviving family could live on 70% of the total of the previous income, due to the deceased not having to drive to work, buy clothes, use water, use electricity, eat food, etc.
So, of a $50,000 salary $35,000 would be sufficient. Out of $500K, take $10K for burial, leaves $490K. If the surviving spouse invested that at a modest 5% and took a monthly income at 5%, the principal would be conserved, and his/her annual income would be $24.5K, plus social security. That would put his/her total income at well over $40,000. (At least $5000 more than the statistical need)
The surviving spouse could also use the insurance funds to pay off the mortgage, cars, credit cards, etc. That would lower the outgo, and the needed income would still work out.
After the youngest child reaches age 16, the surviving spouse's social security income will stop, until he/she is age 60. (The children will still receive social security until they are age 18, or if they are still in high school, to age 19.) No social security until age 60 is called the "black out period". Then he/she can fall back on that balance of life insurance until age 60, when social security begins. There will still be a considerable amout of funds left, unless there was an outrageous amount of debt.
This is only an estimation. To determine the correct amount of insurance, an FNA should be completed by a professional agent.
Hope this helps. |
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