How often have I been asked if there is a formula for determining how much life insurance a person should carry? Plenty of formulas out there from the simple, 10x annual income to the ridiculously complex, but what really answers the question? Needs analysis spans from logical to emotional.
I have to be honest here and let you know that with me I’ve used logic and facts and rounded up from there based on emotions. I’m not suggesting that you should go completely over the deep end, or even that you should go one inch beyond logic and facts, but for most of us we are talking about what we are doing to make sure the one we love is going to be OK if something happens.
And what is OK? Is OK if the house is paid for and she has some money for retirement, but still has to work? Is OK when everything is paid off and there’s enough left that she doesn’t have to work ever again? Is OK when she has all that and has money for travel and gifting to grandchildren and whatever charitable giving she might be inclined toward?
The truth is that there isn’t anything you can do monetarily to make up for dying when you weren’t supposed to if you are truly loved.
But you can make life easy! I see too many guys trying to figure out how little life insurance they get by with when, dang it, it’s cheap. I’m not talking about men who can’t afford it. Even Dave Ramsey admits in his Financial Peace University that he bought a few million more just because of the way he feels about his wife.
I had one client that likened it to the wilderness hiking mantra, “leave no trace.” Not that you want your wife or children to forget you, but you ought to make sure, at the very least, that there are no messes left behind to clean up. Mortgage paid off, debts paid off, enough money to pay for a nice retirement, enough to make sure there are no final expenses.
Bottom line. My formula is an emotional formula. If I die prematurely my wife can go do whatever she wants and not think twice about it. That makes sense to me given all of the richness she has added to my life.