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When Do You Need Life Insurance? And How Much?

when do you need life insuranceOkay, life insurance is pretty fricken boring, and nobody really wants to spend more money each month on something that they’ll likely never benefit from, but you know what? It’s also pretty fricken important! Do you know if you need life insurance? Do you have the right amount if something would happen? These questions are important and it’s time to stop avoiding them!

When Do You Need Life Insurance?

Liz and I are both 30 years old, we have a child on the way, and we do not have life insurance….but we should. Some people think that everyone needs life insurance, while others hardly give it a thought. How did I ultimately decide that Liz and I need to have life insurance? It really is quite simple.

The rule of thumb is this – if you or your spouse are dependent on the others’ income, then they should insure their lives for 10 years’ worth of living costs. Having all your expenses covered for 10 years would surely give you enough time to figure out the rest of your life, right? I would certainly hope so.

Husbands or wives that bring home the majority of the income certainly need insurance on their lives, but what about stay-at-home moms and dads? Are their lives really worth insuring since they don’t bring home the bacon anyway? In my opinion, absolutely yes. Stay-at-home moms and dads provide a very valuable service.

First and foremost, they watch the children and alleviate the need for daycare expenses. Beyond this, they probably run most of the errands, balance the checkbook, and use their time to find deals on necessary purchases. They might not earn an income, but their services are probably worth $30,000 or more each year. Therefore, they most certainly sign themselves up for life insurance.

How Much Life Insurance Do You Need?

Liz and I keep our costs low on purpose. We would rather live simply without anxiety than lavishly and in constant fear of paying the bills each month. Because we paid off all of our debt, we really only need $25,000 or so each year to live on. When the child comes, maybe we’ll need $30,000 a year (that’s just a flat out guess – I honestly have no idea how much this kid will cost, but I can assure you we’ll be keeping the expenses down). If that’s the case, then Liz and I either need to have $300,000 in the bank, or we need to have enough insurance to cover the difference.

That’s pretty much it. When you’re wondering if you need life insurance, just think about the value of your life to your spouse and children (either via an income or valuable service), then check to see if you have that amount in your savings account. If you don’t have the full amount, then it’s official, you need life insurance.

If, for example, you have $50,000 saved up and your yearly expenses are $50,000, then you can successfully self-insure your life for one year. That’s great! But, just don’t forget to buy life insurance for the other nine years ($450,000).

So do you need life insurance? When do you think you can do without it?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. The wife and I have gone back and forth on this one. The companies we work for provide a modest amount but nothing like what can be bought. Being that we are past our 40s, its becoming more cost prohibitive; not unaffordable yet but heading that way. I think you have to look at your current situation, income, children etc, and base the decision on those definitely.
    8-10x your current salary on term life is generally the norm. But I also think that even if its just a small amount, its better than nothing at all.

    • Hi Whiskey. Ideally, this is how it would work – in your 30’s, you’re just starting to get some traction. You own a house, have a kid or two, but don’t have a ton in savings should there be a catastrophe. This is when you absolutely need life insurance and when it’s the most affordable. Take out a super-cheap (like $12 a month) 20-year term insurance policy that will last you until you’re in your 50’s. Then, by saving and investing consistently over those two decades, you should be able to accumulate enough to self-insure your life (ie. have enough in the bank to cover all the costs on your own, without the insurance company’s help). I hope this helps, whiskey!

  2. Daycare runs about $12-$18K per year until the start of full day school. After that, it’s cut down to around $5K. If you intend to continue to work, then the stay at home spouse should have about $100-$125K per child under age 10. You could probably get a renewable term life insurance for less than a 10 or 15 year term at your age.

    On the working spouse, I want ~10 years worth of expenses taken care of outside of retirement accounts, not just 10 years of expenses in total net worth.

    • I agree Hannah – the amount deducted from the life insurance total should be liquid assets, NOT investment funds! For Liz and I, we have cash to invest in a rental house right not. That’s the only money that I would consider liquid enough for us to deduct from the total life insurance we would need. Thanks for the comment!

  3. Agreed. If you have children and you are still in the wealth building stage of your life then you should without a doubt purchase term insurance. Get enough to replace your income for at least 10 years.

    If you’re building wealth and don’t need life insurance don’t buy it. If you do then a term policy is your best solution.

    If you are wealthy you don’t need life insurance unless your wealth is illiquid because you are self-insured. If you are wealthy and decide to purchase it anyway to maximize what you leave your heirs, do yourself and your heirs a favor and buy the no load variety in case you change your mind. If you own a permanent policy I suggest you look at switching to a term policy.

    • All good advice Carlos. Sounds like you’ve thought about this once or twice. 😉

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