When you become a parent, everything changes, especially your outlook on money. Instead of just taking care of yourself and a spouse or partner, you now have a tiny little life in your hands. Things only get more complicated and more expensive as soon as you have other children, and this is exactly the scenario this Redditor in r/ChubbyFIRE is thinking of right now.
In this particular post, this Redditor is about to have a baby, has a $1.7 million net worth, and is wondering about life insurance. More specifically, they are wondering about looking into term life insurance that would provide either a 20- or 30-year life insurance policy in the hopes of setting up the family should something befall this person.
This post intrigued me because I was in a similar scenario. As my home’s sole earner, I took out a life insurance policy when my first child was born. I felt it was an absolute necessity to make sure my wife (and now two children) would be okay if something awful happened to me.
The Numbers
So, let’s break down exactly what we know from this post. We have a 31-year-old male single earner with a spouse and soon-to-be-born baby. The Redditor notes that he has a net worth of $1.7 million and annual earnings between $150 and $300K, which is a considerable difference.
On top of his yearly income, they owe about $600,000 on their current home and have around $750,000 that could be liquidated “fairly easily.” It’s worth noting that anytime someone says money can be liquidated, there’s always a bit of a catch before you can get your hands on this amount of cash. We don’t know anything about their expenses, retirement money, or anything other than what’s mentioned above. In other words, we’re a little limited in information as far as understanding their true financial position.
Some Observations
While this person wants to know exactly how big of a policy he should get, it’s important to understand the two types of life insurance. Please note that this is not financial advice. Term life insurance, at the core of this Reddit post, only provides coverage for a set period and only pays out if the husband dies during the policy term.
This differs from Whole Life Insurance, which costs more and can grow as time goes on to help increase the overall policy size. Term life insurance is undoubtedly more popular, likely because it costs less.
In this Redditor’s case, I believe they should likely have an equivalent of their net worth of $2 million. This is the most responsible way to ensure the family is set should anything happen. We don’t know their FIRE number, but if we did, we might calculate the life insurance policy based on the total FIRE number minus the current $2 million net worth. With this info, at 31 years old, presumably healthy, a $2 million policy shouldn’t require an astronomical monthly cost.
Key Takeaways
In my opinion, having a life insurance policy here is a no-brainer. The couple’s debt on the home is already equivalent to around one-third of their total net worth, which is not insignificant. A safety net of another $2 million should allow for increased comfort, provided the wife and child live modestly.
If this were me, I would tell my wife that another $2 million is available. This is equivalent to at least six years of the highest potential income the husband earns and 12 years at best. Both timeframes should give the wife plenty of opportunity to find out how to properly invest the available money so she can live off interest with a proper budget and not have to worry immediately about entering the workforce.
The husband should also feel good about a $2 million policy, knowing he’s doubling his wife’s available money. In other words, the wife and the kids should never worry in his absence. This feels like a win-win for everyone.
Are You Covered?
Even if you’re in a similar financial position and unsure about the exact amount of coverage needed, it’s always wise to get a quote and explore your options.
A quick, no-obligation quote can provide valuable insight into what’s available and what might best suit your family’s needs. With affordable rates and customizable policies, life insurance is a simple step you can take today to help secure peace of mind for your loved ones tomorrow.
Click here to learn how you can get a quote in just a few minutes.
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