When considering life insurance, there’s two seperate things you should look at – the coverage amount, and the coverage type.
The coverage amount is dependent on what you’re trying to protect. For couples with incomes and no financial dependents, we’re normally trying to protect our surviving spouse’s standard of living. Lets look at what that entails.
Our standard of living is dependent on our income. If we pass away, we need to insure the portion of our income that is consumed by our spouse, or the portion that lets them maintain their standard of living. An estimate of the total coverage required would be 10-15 times that amount.
An alternative to this estimate would be to cover the amount of any mortgage, plus 10%. Paying off the mortgage means the surviving spouse can continue to live in the family home, but will continue to meet any other expenses out of their own income.
Secondly, we need to look at coverage types. There are two basic types of life insurance – term life insurance and permanent. Term life insurance is for coverage requirements that have an end date – you would maintain the insurance for a period of time that’s less than your entire life, after which point you would cancel the coverage. Permanent life insurance is intended to be maintained for your entire life. Many couples will assume that they need to provide coverage until about retirement age, or until they’re financially self sufficient and not dependent on their income. This gives us an end date and means that term life insurance is the appropriate type of life insurance in your circumstances.