Quite frequently when I’m working with clients, I am asked the question – how much life insurance do I need?
Like any good lawyer, my answer is “it depends.” There’s no set answer.
Personally, I have $1,500,000 on my life. And, by the way, it’s not payable to my kids or my ex if something happens to me. My life insurance is payable to a trust for the benefit of my kids that they wouldn’t get control over until they are mature. But, the money never comes out of the Trust. It stays in protected from potential lawsuits and divorces they may later be involved in. You should do this too.
Ok, so what does the “how much” decision depend on?
Well, it depends on how much you’d want your loved ones to have after you are gone and what their needs would be.
You can use the nifty calculator here, which will help you calculate how much your loved ones would need after you are gone.
I hear a lot of people say they want enough insurance to pay off their home if their spouse died, but that’s not necessarily the best use of insurance money. You absolutely do want to make sure there would be enough money coming in to support the mortgage payments, property taxes, and maintenance of the house, but paying off the house isn’t always the best idea.
A house payment has tax advantages and a paid off house is a lot of money just sitting there not earning any return on your investment. In a low interest rate environment, it’s better to have the mortgage and invest the money in income producing assets.
I strongly recommend that you don’t make any of these sorts of decisions without the guidance of a trusted family advisor. And, I personally believe that the best advisor for your family is a Personal Family Lawyer who is totally on your side and will help you to make the best decisions throughout life and then be there for your family when you can’t be.