A few things to consider, especially when you have a kid
a)You’ll spend a lot of money raising the kid and sending to college. Don’t be surprised if the college tuition reaches $300k by the time your kid goes to college.
b) If something tragic happens to you, chances are your spouse is NOT going to be working full time, but rather mostly spending full time raising a kid, at least for the first couple of years until your kid reaches say junior high.
c) Consider inflation of the U.S. dollar
d) Don’t know how many kids you end up having. Plan for at least 1 more kid, just in case.
Imho, you should at least consider having total life of $1million at this point in your life. You have a $650k obligation + $350k that it will probably cost to see your kid go through college (even that is way underestimated)…Would you really want your wife to deal with moving,relocating,etc at the time of your death which would already be pretty stressful for her?
As your kid gets older, your family builds up financial reserves, you can taper your insurance off.
For me, my insurance consists of the following:
1) 2x salary insurance provided by employer
2) $300k supplement life insurance from employer (with cheap premiums)
3) $500k separate 20 year term life insurance
3) Two additional $100k term life from associations with group rates.
I split this up this way because as my kid get older, and as I have more financial reserves, I’ll cancel some of the policies. By the time my kid is on her own, all the policies are finished.
….
If you work at a large company/institution, I’d consider getting part(but not all) of your insurance as supplemental insurance (say 25-30% ), because usually it’s the cheapest route. The drawback is that if you leave your employer for any reason, you either can’t carry the policy with you OR if you do, your rates are going to be dramatically higher. Also, usually employers for FTE have 2x salary coverage provided by the employer.
b) Definitely get a policy independent of your employer. Term life, 20 year at least $500k. If you are in good health and do not have pre-existing conditions, try to get $1m. I regret not getting a larger policy, because I found out I have a pre-existing condition a few years after I bought my policy. even if I wanted to buy more, it’s either not possible or going to cost a fortune. Big mistake on my part.
c) If you belong to any associations, they usually offer some $100k policies here and there for reasonable rates.
As your kid gets older and you build up your financial assets, you can start cancelling policies bit by bit. For instance, once you pay of your mortgage, get rid of the supplemental insurance from your employer. Once your kids go to school, get rid of the smaller policies. The term life policy you bought should be the last one you get rid of, because all the other plans can change.
Try to avoid complex insurance products unless you really want to understand how they work. Agents love trying to sell you a variable annuity or something like that.
While you’re in the mood of planning for the unexpected, you probably should also look into (if you haven’t already) a living trust, sooner rather than later. Some thing you might also want to consider.
You *might* consider leaving some of your money to your kid explicitly, under the guardianship of your wife (and some alternative backups) versus giving all of it to your wife directly…not so much because you don’t trust your wife…But consider the situation in which your wife gets everything directly, your wife gets remarried to a horrible man, subsequently gets goes through a divorce, and who then proceeeds to comes after her assets. Not only does your wife get the shaft, but so does your kid….Versus if she is just the one who is a guardian of your kid’s fund, it’s not “her assets” for the new hubby to go after…And furthermore, she could withdraw from being the trust guardian, which then the next person you name would have the responsibility. The same could be said for the reverse situation in which your wife passes away, you get remarried, go through a horrible divorce, and that new person decides she wants half of your assets.
