Deciding how much life insurance you need is the hardest part. It can be daunting to sit down and go through your current expenses, not to mention forecast into the future in terms of how much you might need to put your child through college, what your mortgage/home costs might be (in our case, we hadn't yet purchased our first home), and what other costs you might want to cover when you have a family.
Settling on our life insurance policies
In our case, working with a financial planner to come up with how much coverage we were comfortable with was essential. Of course, you don't have to work with a planner online calculators can help.
In the end, though, we ended up coming up with a number that included putting our child through an in-state public college (the costs of which were projected out 18 years from then), as well as covering the remaining costs of our would-be starter home and implementing either my or my husband's salary for a certain number of years to allow the living spouse to get back on their feet.
That number, not surprisingly, turned out to be fairly high. We decided to split our insurance coverage into a certain amount in a term life insurance plan (which is fairly cheap, at roughly $80 per month for both of us), as well as a whole life policy (which is much more expensive, at almost $500 per month for the two of us, but the bulk of which we'll be able to recoup at the end of the policy). We felt pretty good about that coverage valued at $1 million each so we signed the plan and moved on.
Less than a year later, I was pregnant with my second child. Having just gone through the process of settling on a policy, we felt, to be honest, a bit tired. Shaking things up again to increase our coverage especially when we were looking at increasing our expenses in general with a second child seemed extra stressful. Our financial planner recommended upgrading our policy, but in the end, we decided not to, at least for the time being.
Why we left our life insurance coverage alone after our second baby
We had received an inheritance
Sadly, my mom passed away when I was about seven months pregnant. This was, obviously, an incredibly stressful and emotional time for us, but it did leave us with a lump sum of inheritance money, which we deposited directly into our daughter's 529 college savings account .
This gave our first daughter a significant leg up in terms of her college plan, which meant we felt, at least for the time being, like we were in a good place as far as that aspect of financial planning was concerned.
We had a better idea of our housing costs
By the time our second daughter was born, we had already purchased our first house with 20% down and would have lived in it for a little over a year and a half by the time she was born.
This meant that we had a decent amount of equity in the house and, if one of us needed to, could purchase it outright without taking a significant chunk out of our life insurance money.
We were making more, and therefore we were saving more
A year and a half into our life insurance policy, both my husband and I were making more money than when we initially set the account up, which meant that we were able to save more in a traditional savings account and towards our retirement accounts and our daughter's 529.
Although we may change our policy in the future if we think it's necessary, for now, this plan seems plenty for us, and it definitely helps both of us sleep better at night.
