Headshot Martin A. Scott

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There are three groups who always need life insurance: married couples, people with dependents, and co-business owners.
I advise married couples to get enough life insurance each to cover any debts, including mortgages and student loans.
Those with dependents should get enough life insurance to replicate your income for a specified period of time, such as through your child’s 18th birthday.
For co-business owners, each should obtain enough life insurance to “buy out” a co-owner’s heirs if one partner should die.
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Life insurance is an integral part of financial planning, and you’ll need it if anyone depends on your income (including a spouse, child, family member, or business partner). Beyond knowing if you need it, it’s important to evaluate how much life insurance is appropriate. 

There are so many ways to approach this question, but for the purposes of this article I’ll address the needs of three groups: married couples, anyone with a dependent, and business owners. 

There is no right and wrong answer, as every financial situation is unique, but here is how much life insurance I advise my clients to get.

Married couples

For couples without kids, one approach to consider when deciding how much life insurance to buy is the amount of debt maintained by the couple, which can include items like student loans, mortgages, car loans, and credit cards. Let’s illustrate with a relatively straightforward example.

Jack and Sarah have been married for eight years, but decided early on in their marriage not to have any children. The couple has been diligent with managing their money as they have no car loan or credit card debt, but still maintain a mortgage of approximately $200,000. 

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Upon getting married, Jack and Sarah both decided to purchase $500,000, 10-year term insurance policies with each other as the beneficiary. Unfortunately, Jack dies after battling an illness, which is devastating to Sarah. Jack’s term policy is still in force, so Sarah receives $500,000. She uses these life insurance proceeds for mortgage payoff and invests the remaining amount $300,000 for retirement. The money will never replace Jack, but throughout her grieving, Sarah maintains peace of mind as she knows that everything will be OK financially.

Anyone with a dependent

The most common people in this group are those with children who are minors. The approach here is to obtain a life insurance amount with the purpose of income replacement for a specified period of time. In other words, the amount of money received by your heirs would be enough to “duplicate” your income if you were to die. Take the following example, which should provide more clarity.

Mark and Kate, a married couple, have a child who is 2. Their household income totals $200,000 (both of them have annual salaries of $100,000). They hire Sue, a financial planner, who recommends that …read more

Source:: Business Insider


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