When we bought our house last year it forced us to review our finances. In particular our term-life insurance. As we reviewed various term life insurance quotes it led to various discussions over the AMOUNT that I should be insured for.
How much Life Insurance?
Whenever I’ve thought about life insurance, way back when I was in full-time employment, the amount of my life insurance covered our debt. It compensated for the lack of income me no longer being around earning that money.
All in all it was a simple calculation.
Now, life has moved on. Three children. A move overseas. A new house. And I am now self employed.
The water is a little murkier on the amount I should be covered for. Or even if I should be covered as a stay-at-home parent.
Having a husband work in banking, risk in particular, his answer is always a resounding yes. He’s all about mitigating the risk – financial or otherwise. But his reasoning floored me when it came down to just how much he would insure me for.
Calculating the right amount
Most places recommend using various algorithms, including ten times your salary, but if you don’t have a salary this can be a little misleading.
When it came down to it, ignoring my tangible income from my self employment, we decided that the amount would need to be based on my husbands salary.
A stay-at-home parent often allows for the other to expand their career. Which is definitely the case here. The SAHP is around to do the sick days, the pick up, the childcare, the cooking, the cleaning, the taxiing around, and numerous other jobs. In fact, economists believe that a SAHP salary would be equivalent to $116,022 if they were in paid employment.
Even though I would be the one that was gone, the impact it would have on my husband’s earning ability would be huge. He’d need time off with grieving children. He would need to organise childcare, taxi fares and being around more. The decision would need to be made between living life as an expat or repatriating.
The upheaval on life would be so much more than losing a parent. It would be losing a home, a job, an income.
Which is why, when it came down to it, the actual calculation was the exact same amount as my husband is insured for. Because, regardless of who earns more, the financial impact is devastating upon our family no matter who happens to shuffle off first.
