While some financial professionals suggest that there is an ideal amount of life insurance to carry (i.e. 5x-10x your annual salary), top experts suggest that the answer to this question isn't that simple. The answer to how much life insurance should you carry is truly dependent upon your wishes should you pass away prematurely. When considering the amount of life insurance to carry as new parents, ask yourself the following questions:
- Dual Income Households- If both parents are currently working full time, would one parent desire to stay home with the child in the event of the other parent's premature death? If the surviving parent desires to continue working, what would the monthly or annual cost of child care be, if any?
- Debt- What debts would the surviving spouse want paid off in part or in full?
- Home- Would the surviving parent desire to stay in the same home? Or, would they sell the current family home and move or downsize?
- College- Is it your desire to set aside funds to pay for your child's college in the event of your premature death?
- Surviving Income Needs- Should one parent die prematurely, are there surviving income needs to cover financially? This instance typically occurs when one parent earns less than the other, or has chosen to become a stay at home parent. For example, if your income is currently $50,000 per year, and you would like to cover this entire amount for your surviving spouse, the amount of life insurance face amount required would be $1,000,000 earning 5% per year. This amount would be in addition to any other areas outlined above that you have deemed important to cover with your insurance proceeds.
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