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Aug 24 2009 12:00AM

Question

We just purchased our first home and my husband just began his first job. We have a three-month old child and need to get life insurance for my husband. He has a limited amount through his job. What is the best type and how much do we need? Our mortgage is $380,000.

Answer


According to FPA member, Scott P. Noyes, CFP®, of Noyes Capital Management, you should purchase a 10-year term insurance policy that is guaranteed renewable. "This is typically the best type for young couples," he said. "If all goes well, you can replace it with similar coverage in 10 years. If there is a problem, you are guaranteed to be able to purchase insurance, albeit at a higher price. It is also a low-cost solution."

As for the amount, he said you should purchase as much as you can from a reputable insurance company with a solid credit rating. At a minimum, consider purchasing a policy with a death benefit at 10 times expected salary. He noted that $1 million of coverage typically cost around $600 to $800 per million for a 30- to 40-year old male.

Other financial planners have different opinions about what you should do. FPA member, Perry Weyser, CPA, CFP®, of H.D. Vest Investment Services, suggests that you purchase a 30-year term insurance policy. How much you need to purchase depends on factors such as income, expenses and saving habits. In the absence of knowing those details, he said the amount of coverage should be equal to or greater than the amount of the mortgage plus 10 times your husband's salary plus $100,000 for your child's college education fund. "So if your husband makes $50,000 per year, I suggest insurance in the amount of $1 million," he said.

In addition, Weyser suggests that you consider purchasing life insurance for yourself. "If you were not there to take of your child, what would your husband spend on child care?" he asked.

FPA member, Harry K. Foote, CFP®, of Smart College Solutions noted that many details have to be analyzed before one can say with certainty how much life insurance your household needs and what type. For instance, are you working? And if so, if something happened to your husband – if he died or became disabled and was unable to work – could you earn sufficient income to support the family? "If the answer is no, then insurance will be needed to cover costs of a funeral, all debts, education funding and possibly estate taxes," he said. "Don't forget to include what it would take for you to have the time to get your life back in order. If the answer is yes, you can or do earn a salary, then you can deduct part of your earnings from the living needs." If you have a budget that is a good place to start, he noted.

That said, Foote noted that the cheapest form of insurance would most likely be the insurance that your husband can get from work. "Perhaps he can purchase additional insurance from his employer, say a multiple of his salary. If not, then term insurance is the next least expensive."

In addition, age and health are two critical factors in obtaining insurance. "Ideally if you are both healthy, a permanent insurance policy could be used while you are living to help fund education for your child and also retirement, but this is much more expensive," he said.

When you shop for insurance, Foote recommends to "Shop. Don't just go to one company or agent. There can be and usually are, significant price differences especially if the insured is a smoker or has health issues."

A financial planner can help you determine a life insurance policy that's right for you and your family.

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