Start with your total expected earnings over your career. For example, a 35-year·old earning an after-tax income of $100,000 with 3% annual increases, would expect earnings of around $4.75 million over the next 30 years. But that doesn't have to equate to needing that much life and disability insurance. Don’t necessarily use a rule of thumb such as 10 years of income when determining the amount of insurance. The key is to protect your family’s lifestyle.
For example, if your family is thrifty and lives on an annual budget of about $50,000 and the other spouse works, only $500,000 in life and disability insurance may be needed. If the both spouses are financially independent, they may not need insurance at all.
In addition, the need to insure income typically decreases over time because as people age, because they have fewer working years ahead. In most cases, it makes little sense to keep paying disability insurance when you are in your early 60s if the benefits are going to stop at age 65.
The issues can be more complex if both spouses have done sound financial planning, are financially secure and have retired, in this case, they may no longer have a need for such insurance. But, if they have an existing level term policy, they may want to keep it because the premium paid has a greater payout expectancy each year. A $1,000 premium has a much greater expected annual benefit at age 60 than at 25. The case to keep the policy is even stronger if one of the spouses has a life-threatening health condition.
In addition, the need to insure income typically decreases over time because as people age, because they have fewer working years ahead. In most cases, it makes little sense to keep paying disability insurance when you are in your early 60s if the benefits are going to stop at age 65.
The issues can be more complex if both spouses have done sound financial planning, are financially secure and have retired, in this case, they may no longer have a need for such insurance. But, if they have an existing level term policy, they may want to keep it because the premium paid has a greater payout expectancy each year. A $1,000 premium has a much greater expected annual benefit at age 60 than at 25. The case to keep the policy is even stronger if one of the spouses has a life-threatening health condition.