YNAB You Need A Budget

[symphonix]

I've recently come to the realization that I do not carry enough term insurance on myself - that's about to change. As many know, the recommendation is to carry 10 times your annual salary so that if you die, your spouse can invest the money in a mutual fund and, if he or she gets a 10% ROI, you've been replaced.

My question is this: how much term insurance is suggested for a stay at home mom? We have 5 kiddos ranging from 9 years to 3 weeks and my wife home schools them. If the unthinkable were to happen, I obviously wouldn't need to replace an income, but there would be major expenses incurred. Has anyone ever come across a formula that talks about this?

-Travis

[chrish]

My thoughts would be to calculated based off the persons 'value' not just 'income'. So if they provide childcare, what would it cost annually for an acceptable childcare replacement. Add in costs to send the kids to school, cook meals, clean the house, etc. That is the value you need to replace.

[symphonix]

Found something on Dave Ramsey's site where he mentions that he could hire a nanny for about $40k/year. Using my formula above, it looks like a $400k term plan would be advisable. My estimate is that the term would need to be 20 years for us (newborn), but for others, only until the kids are out of the house, then you could lower the coverage.

[momto4]

We have 4 children (2,4,6,8). I stay at home as well. We just got policy 5 months ago. It is a term for 20 years for 400k it is $22.89 a month I am 35 years old. We were thinking the same thing. Who would take care of the children in between school etc.Term is the way to go!

[thedgfg]

Hi, this is only my second post, but I was just perusing the boards and came across this question. I thought that I would mention to the OP that if the intent is for your heirs to be living off of the interest of your insurance proceeds (which is what is recommended and DR suggests), I would refrain from using 10% as your ROI rate. The reason being is that while 10% may be possible, it is only possible with considerable risk, and it really is not sustainable. Because your beneficiaries will need to be using this as income, they tend to choose not take that level of risk, and for that reason I would suggest 4 or maybe 5% as a more preferable rate. It will double the amount of insurance you would need to carry, of course, but you would be preserving your family's lifestyle with more safety and assurance.
Of course, use your own judgment, you know what your family needs are better than do I, but I thought maybe that I would offer up that as a suggestion.

Best,

-Joe