I am married with two children, ages 8 and 10. My wife and I both work to meet expenses. How much life insurance do I need?
Valerie RumboughLife insurance is a product that insures against the loss of someone that others are financially dependent upon. There are three basic items to look at to determine how much you need to replace that loss (at least financially): 1) immediate need, which covers funeral expenses, time away from work, incidentals, etc.; 2) monthly income gap, which is the amount of income lost if one spouse dies, less the reduced expenses (if any), multiplied by the number of months until retirement or other event; and 3) future expenses, such as college education and/or weddings for the children, car or other purchases, etc. When considering the gap created by the loss of one spouse’s income, sometimes a couple will examine their budget and consider purchasing enough insurance to pay off a large debt, such as the mortgage, with the insurance proceeds, thus reducing their monthly income requirements and hopefully allowing the family to be able to live comfortably on one salary. As you sit down with your spouse to figure these things out, don’t forget that you depend on both salaries to make ends meet, so insurance is necessary for both of you. The key is knowing what you need, making provisions to meet that need, and then turning it over to God to allow Him to bless your efforts.
Editor’s note: In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purposes. Rumbough, CPA, CFP, is vice president of finance with the Baptist Foundation of South Carolina. For more information, call 800-723-7242.