How do I calculate how much life insurance I need with new baby?


Q: I’m a new mom and want to make sure my fam­ily is pro­vided for should the unthink­able hap­pen. I have read that you should have approx­i­mately 15X your salary in life insur­ance. My ques­tion is this: when fig­ur­ing out the amount, should you con­sider also your sav­ings and invest­ments — for exam­ple if I have money  in a 401k, can I reduce the amount of life insur­ance I pur­chase by that amount?  Thanks,

–Lind­sey, Colorado

A:  Con­grat­u­la­tions on being a new mom and for con­sid­er­ing the impor­tance of life insur­ance in the con­text of the new addi­tion to your fam­ily.  It’s always impor­tant to review your life cov­er­age when some­thing big hap­pens:  Baby, new job, new house, etc.

How much life insur­ance is enough? Well, even though I hear it a lot, I’m not a big fan of the income-multiple approach to deter­min­ing what you need.  While that approach may get you in the ball­park, we are all dif­fer­ent with dif­fer­ent goals and things we would want to see hap­pen if we’re gone.  So instead, I pre­fer using a needs-based approach because it pro­vides an amount of cov­er­age tied to your actual needs, rather than a some­what arbi­trary num­ber.  A needs-based approach typ­i­cally includes (among other things):

  • Exist­ing assets
  • Future income of sur­vivors (for exam­ple, Social Security)
  • Desired stan­dard of liv­ing for survivors
  • Debts to be paid off
  • Amounts needed to cover future goals (like col­lege funding)

As you see, this approach does take into con­sid­er­a­tion the amount of exist­ing assets you have, since in many cases they effec­tively reduce life insur­ance you’ll need.

Online cal­cu­la­tors make it fairly easy to assess what you need using this type of approach.  There’s one at usaa​.com and the VA web­site also has a cal­cu­la­tor.

Thanks for your ques­tion and con­grat­u­la­tions once again!


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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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