life insurance how much does one person need??

Snoopy2645 · #1 (**permalink**) 08-31-2006, 10:28 AM

Ok I am married with 3 kids & oldest has a different father so I need to make sure she is taken care of too if I died tommorrow with 3 kids & a husband should I go with a big policy or a smaller policy thier is not much difference in cost but I am a penney pincher some months I squeeze my pennies to get all I can out of them!!

pearlieq · #2 (**permalink**) 08-31-2006, 10:36 AM

It really depends on what your family's needs would be if you were to pass away (God forbid).

Do the kids already have college funds? Would your husband need child care if you were to pass on or are the kids pretty much old enough to be without?

Do you provide income to the family? Would that need to be replaced if you died?

Ima saver · #3 (**permalink**) 08-31-2006, 11:04 AM

I have no insurance because my husband does not need my income. I had a 10 year term policy of my husband, but after the 10 years, the premium went to $1600 a year. We have decided to just save as much as we can and self insure ourselves!

Joan.of.the.Arch · #4 (**permalink**) 08-31-2006, 12:13 PM

We bought term policies (several different ones put togeterh for an overall plan) none of which will extend past the youngest child being 18. Parental income would be hard to do without before high school graduation gives kids the ability to work full time if necessary. I would say our coverage was minimal. We did not get enough to pay for college. Just enough to pay for the house and minimal expenses of raising the kids to adulthood. Of course the value the term insurance will pay declines over time, but that is okay---the amount we need to raise the kids to adulthood is small as the years to adulthood become smaller.

Don't forget to re-evaluate along the way, though. Not only do needs change, but rates on policies change. You might actually get a better deal in the future.

TBH · #5 (**permalink**) 08-31-2006, 02:13 PM

I would recommend going through a couple of online life insurance calculators.

MSN's life insurance calculator
Dinkytown.com (lots of great financial calculators)

There are several others out there.

In our case, we wanted enough insurance so that whatever parent was left could pay off the house, invest the rest of the insurance payout, and use the proceeds to supplement but not completely replace lost income. The principal could then be used for college.

TBH · #6 (**permalink**) 08-31-2006, 02:14 PM

And yes, I am definitely in favor of term policies.

Saving in So Cal · #7 (**permalink**) 08-31-2006, 02:48 PM

I have insurance at work in an amount that will pay off the house and cover my daughter's college. My husband would receive my survivors' benefits from my pension and my daughter would receive some SSI, so I haven't worried about covering my income, especially since the house and college are covered.

My husband's insurance situation is basically the same except that we pay for his policy entirely on our own.

RJB1180 · #8 (**permalink**) 08-31-2006, 03:02 PM

Insurance is great but with your living situation, you should have a lawyer prepare a will so that your other daughter is covered, including future custody arangements etc.

Snoopy2645 · #9 (**permalink**) 08-31-2006, 03:23 PM

Well in our state their is a joint custody law so if I die she would go straight to her dad so no worries for her in who she would live with. But I had a 100k policy & switched to 250k I am just wondering if I need that much KWIM I will be honest here I dont bring in much income but without me here I am not sure dh could keep the kinda hours he does he works from 2pm to 3am sometimes 8 days in a row might be hard to find childcare with those kinda hours ya know so that is a big part of it. BTW kid are 2, 5, & 11

greedy4chips · #10 (**permalink**) 08-31-2006, 10:54 PM

Snoopy,

If your DH won't be able to work or work much less hours then you should figure in a term policy based on 10x his income minimum. The idea is the surviving spouse will be able to be a stay at home parent and live off the insurance if need be. In your case I would think a 20 yr term policy would be the best so that your youngest is 22 when it expires and hopefully done with college expenses.

Crystallas · #11 (**permalink**) 09-01-2006, 04:12 AM

250k will be a mamouth of a diffrence over 100k in 20 years. But as it is called insurance, you can also set up other funds with those extra pennies that could arguably be worth more by the time you were to pass away and also serve as an emergency fund while you are alive.

Snoopy2645 · #12 (**permalink**) 09-01-2006, 06:17 AM

thats what I keep wondering should I be putting money into an EF or to life ins & yes I did sign up for a 20yr term policy

poundwise · #13 (**permalink**) 09-01-2006, 06:27 AM

I believe in term life insurance, however, I would all-but-completely ignore the usual recommendations from insurers and agents. They aren't exactly fair estimators. I often hear the figure of 10x your annual income. For most people, I think that's nonsense unless your spouse is, and will be, completely reliant on your income.

I think its a good idea to have enough to cover any of your 'final' expenses, pay off any debts and the house, and supply some cash based on perceived need.

Don't get caught up in getting the most you can afford or providing for absolute worst-case-scenario. Get a good amount and then focus on taking care of your present finances to make your bank and investment accounts as healthy as possible.

Another consideration, put all of your wishes in writing (will, etc.) and, if you are the one who takes care of the finances in the household, make sure you provide adequate information to your spouse to sort it out as easily as possible. This is just as important as the money. If your husband/wife just lost you, they don't need hassles.

sweeps · #14 (**permalink**) 09-01-2006, 07:05 AM

Keep in mind also that life insurance proceeds are not taxable. So a benefit of X times your annual income is actually worth more than working X years at that salary (and getting taxes taken out).

TBH · #15 (**permalink**) 09-01-2006, 08:18 AM

Quote:

Originally Posted by Sweepsplayer

Keep in mind also that life insurance proceeds are not taxable.

Are you sure, Sweeps? If you own a policy ensuring someone else's life and you're the beneficiary, it's not taxable. If they own a policy ensuring their life, and you're the beneficiary, it is taxable like any other inheritance.

Married spouses who inherit do not have to pay inheritance taxes. Anyone else does.

My spouse and I are unmarried, and we didn't know when we bought our life insurance policies that we should each buy insurance on each other. So we each own our own insurance policies, and the proceeds will be taxable in the event that we need them. Of course, we hope never to need them, but still.

Just wanted to add that so people in our situation would know that your statement doesn't apply to them.

This also means if you both die and your kids are the secondary beneficiaries, they do have to pay taxes on the proceeds. So you may want to take that into consideration when deciding how much to buy.

sweeps · #16 (**permalink**) 09-01-2006, 08:34 AM

I've been burned before on life insurance questions, so anything is possible. But according to the IRS:

Quote:

Generally, if you receive the proceeds under a life insurance contract because of the death of the insured person the benefits are not taxable income and do not have to be reported.

Frequently asked question 4.9
Tax Topic 422

TBH · #17 (**permalink**) 09-01-2006, 08:39 AM

Wow, I should find out for sure about this. But I do know as unmarried folks we need extra life insurance because I'd have to pay taxes on all his assets, including his half of our jointly-owned house and his half of our joint bank accounts.

Before anybody asks, yes, we would get married if it was only a financial consideration. But we have ethical reasons for staying unmarried, and for not taking advantage of the fact that we live in a common law state. We would be common law married by now except that we're unwilling to be legally married at all. But this is too OT for this forum.

sweeps · #18 (**permalink**) 09-01-2006, 08:48 AM

Best to consult an estate planner and/or lawyer. I probably shouldn't have even commented on this topic because there are so many different laws, loopholes and exceptions that making general comments about life insurance and estate planning is almost useless.

What state you're in, the size and type of assets in your estate, your marital status, your beneficiaries' needs, the current (and future expected) state of tax laws, and the creativity of the estate professional you're working with are all factors in making estate planning decisions.

sweeps · #19 (**permalink**) 09-01-2006, 08:58 AM

By the way, I think we're both right. Generally speaking, beneficiaries do not pay income taxes, but they may have to pay estate taxes. Source

But again, an estate planning professional should be called in if you have a sizeable estate. This stuff can become very complex very quickly.

rob62521 · #20 (**permalink**) 09-02-2006, 05:26 AM

This is a good question because my mom died Thursday. She did not have enough insurance to cover her funeral costs and we did not pick out anything expensive. We are doing barebones. I'm currently trying to sell furniture and some of her dishware to cover the rest. Four years ago when my mother-in-law passed on, we made the arrangements and they said to pay when we could. Now the funerals homes are asking for the money before or the day of the service. I assume that's because they've been stiffed too many times.