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How to determine right amout of life insurance

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  • How to determine right amout of life insurance

    I am 36 year old healthy male, in the midst of buying into group, income as full partner 1.5-3M/year. Married, one child who is 4 years old.

    I currently have 2M 20 year term policy. 500K group life insurance. Also, 800K policy where group is beneficiary to cover any buy out costs.

    My wife does not work is 35 year old, no policies.

    How do you determine correct amount of life insurance? I am consider getting a 1M term policy for my wife, but my agent is trying to sell me more for myself, which I am not sure I need.

    Thank you for advice and guidance on this.

  • #2
    How much do you guys spend? How much would your wife be spending on an annual basis if you died? Any other obligations? How much would you want set aside for kid(s)’ college/other future costs?

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    • #3
      It’s pretty much a guess without running all of the numbers and comparing scenarios. For example, in the event of her death, what goals w/b changed? In the event or your death, what goals of hers would change? Would spending change? Would you have college already funded? Also consider that you lose your group policy if you change jobs (it happens, even to partners). Would you want to take off a significant amount of time to adjust, help the kid(s) grieve w/o financial pressures? What is the buyout provision for the surviving spouse in a practice in event of disability/death? So, so many considerations and I question whether an agent’s OSFA formula is really that helpful. It’s a start but it’s certainly not the end.

      Was explaining to an agent I really respect the other day about why our very high earning client d/n need additional LI, even though they have 2 small children and spouse is a SAH for the most part. But this particular client has built a significant net worth at a reasonably young age and is already FI. These things really matter and they fit together like a puzzle. ROTs are not OSFA.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Originally posted by Thedoc2049 View Post
        I am 36 year old healthy male, in the midst of buying into group, income as full partner 1.5-3M/year. Married, one child who is 4 years old.

        I currently have 2M 20 year term policy. 500K group life insurance. Also, 800K policy where group is beneficiary to cover any buy out costs.

        My wife does not work is 35 year old, no policies.

        How do you determine correct amount of life insurance? I am consider getting a 1M term policy for my wife, but my agent is trying to sell me more for myself, which I am not sure I need.

        Thank you for advice and guidance on this.
        3m per yearly relatively new out of residency? Sweet gig if true. What field

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        • #5
          Why the needs based approach? Term is cheap. Do you need to make $3M, or is that what you're worth?

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          • #6
            If you are looking for a very simple and not exact way of calculating benefit needs then this is what I recommend. The way I answer this is not how much you make, that is kind irrelevant, the question is how much do you spend? That is what needs to be replaced for your family if you get run over by the proverbial bus. Once you know what your outbound cash flow looks like that will help you determine the pool of assets your family needs in order to create that cash flow in your absence. Once you know the pool of assets then you can subtract current asset values to know the gap between what you have and what you need, that will get you the benefit amount. Now to determine duration of contract needed you simply need to look at how fast your assets are growing to see how much you will have at 10 years, 15 years, 20 years and 30 years respectively then buy tranches that work in an inverse relationship to that. In other words, as your assets go up your needs go down so you can own less and less coverage on those longer rate locks as time goes by typically.
            Scott Nelson-Archer, CLU, ChFC
            303-953-0263 Direct / [email protected]

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            • #7
              There is a goldilocks principle at play here: You want to buy enough life insurance so your family isn't too distraught if you pass away before your time but you don't want so much life insurance that someone is happy to see you go.

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