Sunday, November 19, 2006

how much life insurance is really necessary?

When talking with our investment advisor, we approached an interesting topic - were we buying too much life insurance?

This is far different than our conversation with our accountant, who recommended doubling our insurance coverage - he anticipated that our incomes would continue to grow and we should by term coverage now while it was cheap (we being younger and interest rates lower).

Our advisor's point is that our family can live primarily on the earnings of one parent - a large portion of the earnings for the other partent go to savings.

Do we really need to buy enough life insurance to cover 20 times the earnings of each parent if the extra money would not be needed for ongoing expenses?

For the moment, we've decided to keep what we've bought - our thinking is this:
  1. some of the insurance would replace the money we had otherwise planned to save for future expenses like college, weddings, etc....
  2. if one of us were to die, the other would hardly be productive and most likely be very distracted from work, the money would provide a bit of protection from work related issues.

What are your thoughts?



1 comment:

Super Saver said...

I carry enough life insurance to pay off the mortgage and survivor income insurance. With Social Security benefits for a widow with children, that will let my spouse continue the same lifestyle we've always had.

We carry only small amount on my spouse (for funeral expenses) since we are a single income family. The assumption is that I don't need any additional income.

I think your finacial advisor has a good point. For reference, my life insurance portion is for two times my income, which I think is sufficient given Social Security and survivor income insurance.