Conversation about... Necessary Life Insurance Coverage
Here is one way to think about the life insurance coverage you might need:
| Lump sum sufficient to pay for all remaining tuition: | $200,000 (8 years at 25k/year) |
| Lump sum sufficient to pay off mortgage: | $250,000 |
| Lump sum sufficient to pay for weddings (gulp): | $90,000 |
| Lump sum sufficient to be added to current retirement capital of approximately $800,000 so that you have a lump sum of $xxx,xxx for your wife to live on for life. | |
| A 4.5% draw on this sum would equal: | $YYY,YYY |
Example: If you would like your wife to have $135,000/year of income, you would need to have principal of $3,000,000. You have $800,000, so you would need an additional $2,200,000 to get there.
Keep in mind that much of the $135,000 she would get would be taxed at lower rates than you are paying on current income. Also, remember that she would draw Social Security at age 62.
If you adhere to the savings plan established in our recent conversations, then at age 65, you will have plenty of retirement capital, will have paid for college and weddings and will be debt free. At that point, your wife would not need a lump sum from life insurance. So, term insurance is definitely a wise choice for you. In fact, between now and then, you may be able to drop the amount of coverage you have. When you do this, the insurance company reduces the premium.