Investor · BARRIE, Ontario · Member since 2014 · 52 posts · 15 votes
Hey!
Just curious what peoples thoughts are on increasing your life insurance policy payout to keep covering the cost of newly acquired assets? Or does this seem redundant given the sale of those properties should cover the outstanding mortgages?
Brokers really push Mortgage Insurance, but I find term life insurance is much cheaper with less rules.
Insurance Agent · Maitland, FL · Member since 2015 · 397 posts · 244 votes
10y
The technical answer is easy. How much do you want your family to receive if you die early and for how long. Then do a present value calculation. Use an easy no risk cd as your interest rate (more aggressive if you like). Set the periods as the amount of years you want that amount to pay out. Set future value to zero.
Never ever ever buy life insurance to pay off creditors. If you die, F them. I don't care if Wells Fargo ever sees one more red cent. But my family I want taken care of. So don't buy to cover debt. Buy life insurance to replace income.
So for mine. $120,000 a year will replace my income without my expenses/taxes. My son is 1. So I have 30 years of need. Assuming a large cd can get 3%.
That makes my total need $3.5 Million (yes that's much more than the 10 times your income, but present value calculations are more precise than rules of thumb). My parents bought me $500,000 in permanent years ago. So I have $3M need unfunded. I purchased my $3,000,000 policy for less than $2400 a year.
In other words I can guarantee my family will be fine. My kids can afford my Alma Mater. I did it for 2% of my salary. Anyone should if it's less than 5%. (I mean come on if you went to Vegas, someone said hey, I guarantee you win $100,000 a spin as long as you stand here, and if you just take $5,000 after each spin, and set it aside, if you ever leave for any reason, I'll make sure the $100,000 keeps coming, it's no brainier).