Name: How Much Life Insurance Do I Need (as a FIRE Seeker)? | Eat Sleep Breathe FI
Brand: eatsleepbreathefi.com
SKU: eatsleepbreathefi-com-4
Availability: OnlineOnly

critic

How Much Life Insurance Do I Need (as a FIRE Seeker)? | Eat Sleep Breathe FI

preview

Figuring out how much life insurance you need doesn’t have to be difficult. (If you’re having trouble getting started, there’s a plethora of&nbsp;articles&nbsp;and&nbsp;calculators&nbsp;to help.)However, in the FIRE community, we do things a little differently, so mainstream financial advice often doesn’t work for us. That’s why I wrote this post—to share a FIRE-focused method to help you calculate your life insurance needs.Like mainstream retirement advice, mainstream life insurance advice tends to be focused on multiples of your income. This calculation may be simple but it’s faulty.&nbsp;FIRE seekers know that basing such calculations on income is inaccurate for two reasons:&nbsp;Income has little correlation to how much money we actually need to live on.&nbsp;Looking only at income doesn’t consider whether we spend or save most of it.&nbsp;Therefore, if you’re spendy, X times your income could leave your loved ones vastly underinsured. But if you’re a saver, you could be paying for more coverage than you need.&nbsp;Neither of these outcomes is desired nor ideal. It’s far better to base your life insurance coverage on your spending and needs—NOT your income.&nbsp;This leads to a far more accurate calculation for FIRE and for how much life insurance we need. In turn, we end up paying for the right amount of coverage and are neither over nor underinsured. 👍As mentioned, calculating how much&nbsp;life insurance&nbsp;you need isn’t difficult. I’ll take you step-by-step through the process my husband and I used to figure out how much we needed.Here’s a summary of the steps:&nbsp;Below, I’ll break down each step in detail and point out areas where FIRE considerations come into play.Before you can work on the numbers, you first need to think about the type of lifestyle your beneficiaries will have after you’re gone. Getting clear on this will make the rest of the life insurance planning process that much easier.Below are some questions you’ll want to consider:I recommend taking your time with this step before moving on to the others. It’s important to get very clear on what you want your beneficiaries’ lives to look like should you pass away.&nbsp;Doing so helps to ensure that you won’t spend more than necessary on life insurance. Or worse—leave your beneficiaries with an inadequate payout at their time of greatest need.&nbsp;When my husband and I discussed our life insurance options, we agreed that we didn’t want the survivor to have to go back to work. Instead, we wanted the remaining spouse to reach FI with the death benefit.In the short term, this would give the survivor time to grieve, care for the kids, and deal with the estate. In the long term, it would give them all the flexibility they’d need to consider what the rest of their life will look like.&nbsp;Interestingly, in all the years that we’ve been buying life insurance, this scenario has never been discussed as an option! It’s always assumed that, after a period of mourning, the survivor will go back to work.I acknowledge that some people do genuinely want to go back to work. They may want the distraction, purpose, and routine of returning to the workforce. But even if that was the case, wouldn’t it be nice if going back to work was a choice and not a necessity?&nbsp;That’s why I suggest purchasing enough life insurance to allow the surviving spouse to reach FI. That way, the decision to go back to work (or not) is 100% on their terms.&nbsp;&nbsp;Your FI number is how much you need to have invested in order to achieve financial independence. I’ll go over how to figure out your FI number below.&nbsp;But first, a caveat—depending on your situation, your FI number may or may not be important in your life insurance calculation. You can jump to Step 6 to see some scenarios when your FI number may not be necessary.If you find that your FI number will be needed for your life insurance calculation, here’s a quick way to do it: annual spending x 25 = FI numberFor example:For more on how to calculate your FI number, see my post,&nbsp;4 Simple Steps to Financial Independence.&nbsp;Once you’ve worked out your FI number, make a note of it, then move on to the next step.If you have any debt, it should be factored into your life insurance calculations. But how you factor it in will depend on how you intend to handle it:Add up any debts that you’d like paid off by the death benefit, then save the number to add to your life insurance calculation.&nbsp;For debts you’d like to maintain as a regular expense, add up the payment amounts, then save the number to use in the next step.&nbsp;For more info on life insurance, here are my previous posts on the topic:This step is optional—think about all the extras or ‘nice to haves’ that you’d like your death benefit to cover. Some ideas for extras include:Add up the cost or dollar value of all the extras you want to include in your coverage, save the number, then move on to the next step.To ensure you don’t over-insure yourself, you’ll need to factor in all the assets and future income you’ll have or receive. This could include:Create an inventory of all your assets and sources of income, then add them up. The total could be significant, and will help to decrease how much life insurance you’ll require.&nbsp;&nbsp;This is the last number you’ll need—you’re now ready for the sixth and final step!You’ve worked through all the previous steps, and are all set to calculate how much life insurance you need. Here’s the calculation:&nbsp;FI Number + Debt + Extras – Assets = Coverage amountYou can also adjust the formula as needed. For example:And that’s it—you now have a solid number to use when&nbsp;getting life insurance quotes.As a FIRE seeker, you’re likely an optimizer like me. To make the most of your money, you should revisit your expenses regularly (including your life insurance) and trim them back as needed.&nbsp;You may be able to reduce your life insurance coverage if:My husband and I reduced our life insurance coverage every two years as we got closer to FI. In turn, we invested the savings, which helped us reach FI faster.&nbsp;However, don’t be too hasty when reducing your coverage. Remember that when you first purchased your policy, you were that many years younger.&nbsp;As we all know, age is a big factor in calculating life insurance premiums. You’ll never again get your policy as cheaply as you did originally!Therefore, if you change your mind and want to increase your coverage later, it could cost you a lot more. So, proceed thoughtfully when considering a reduction in coverage.If you want to ensure your loved ones are taken care of after you pass away, life insurance can help with that. However, it’s crucial to purchase the right amount. You neither want to be over nor underinsured.&nbsp;By going through the six steps in this post, you’ll arrive at a number that’s just right and tailored to your situation. In addition, it’ll be based on your actual needs and wants—not on an arbitrary multiple of your income.&nbsp;Once you calculate how much life insurance you need, you’re ready to get some quotes. (I would suggest&nbsp;PolicyMe; not only are their rates competitive, but their quoting process is quick, easy, and all online.)Related:&nbsp;PolicyMe Review—Canada’s Best Way to Buy Life Insurance&nbsp;If you purchased life insurance in the past, how did you figure out how much coverage you’d need? Are there factors you included that I didn’t cover? Or, if purchasing life insurance is new to you, do you have any questions?If you liked this article and want more content like this, please support this blog by sharing it! Not only does it help spread the FIRE, but it lets me know what content you find most useful. (Which encourages me to write more of it!)&nbsp;You can also support this blog by visiting&nbsp;my recommendations page&nbsp;and purchasing through the links. Note that not every link is an affiliate link—some are just favourite products and services that I want to share. 🙂As always, however you show your support for this blog—THANK YOU!Comments

Figuring out how much life insurance you need doesn’t have to be difficult. (If you’re having trouble getting started, there’s a plethora of&nbsp;articles&nbsp;and&nbsp;calculators&nbsp;to help.)However, in the FIRE community, we do things a little differently, so mainstream financial advice often doesn’t work for us. That’s why I wrote this post—to share a FIRE-focused method to help you calculate your life insurance needs.Like mainstream retirement advice, mainstream life insurance advice tends to be focused on multiples of your income. This calculation may be simple but it’s...

How Much Life Insurance Do I Need (as a FIRE Seeker)? | Eat Sleep Breathe FI

No article scores yet.

CRITIC REVIEWS

PUBLIC REVIEWS