Life Insurance: How Much Should You Own?

Truth is, despite some slick sales presentations you’ve probably seen, no cookie- cutter answer to that question exists. Instead, ask yourself how many dollars your family will need every month to continue its current standard of living if your income, or that of your spouse, is suddenly snatched away by the Grim Reaper?

If you have children, there should be some monthly Social Security Survivor's Benefits for them based on the parent's Social Security status. See, www.ssa.gov for more information. Those benefits won’t cover everything, so take a few minutes to do some basic calculations.

Open your check book and get out your recent credit card statements and list amounts paid over the past several months for recurring bills: utilities, food, mortgage/rent, car payments, college funds, etc. Then average the total to arrive at a close estimation of your family's "must have" dollars each month. Add in some cash to cover unexpected expenses such as a new roof, major plumbing bill, termite bond renewal, etc.

If both spouses work, what will the loss of either's spendable income be to the "must have" monthly total? (Do not use your gross income; use your actual take- home pay.) So, how much insurance should you own? The answer is, "Enough to cover the short fall" of the missing spouse’s income. You might also build in an inflation cushion since you can't come back later to feed the kitty.

For example, an investment of $500,000, earning 5% per year, after taxes, provides approximately $2,083 per month in income. If death of one spouse would take away $2,000 per month in spendable income, then it would make sense to cover that spouse with $500,000 of life insurance (or some principal sum made up of life insurance and other assets), which would, in the event of his or her passing, be invested at the targeted after-tax interest rate.

Adjust the life insurance amount to fit your own family's situation. If both spouses work, do the math assuming either's contribution to the family's monthly income is lost.

This overview has been a very general treatment of the "How Much" subject, but it’s the best place to start. Contact me at: ksmith6288@aol.com or 904-273-5704 for answers to your specific questions.
I’m sure you’ll have plenty, but it’s so much better for your loved ones if we explore all the options now...rather than explaining the “if only’s” when it’s too late.