‘We both grew up really poor on welfare’: With limited financial knowledge and no help, how can we determine the right amount of life insurance to buy for our family’s future?

Hi Money Minder,

My husband brings in around $60,000 per year, while I make $150,000 to $160,000 per year, depending on bonuses and such. We live in Tacoma, WA, so the cost of living is high. With two small children and no extra help, I’m considering a 30-year term life insurance policy ranging from $1.5 million to $2 million with a return of premium. I like the idea of getting the premium back, but it means higher monthly payments…I can’t help but think that money could be better invested elsewhere, like for retirement…

Both my husband and I come from humble backgrounds, growing up on welfare, and we have limited financial knowledge. We don’t have anyone else to turn to for advice, apart from hiring a financial advisor. As for debts, we have about $80,000 in student loans and $420,000 left on our house at a 2.9% interest rate. Luckily, there are no other debts to worry about (and huge shoutout to my husband for paying off $25,000 in credit card debt this year! Go husband!). Our cars are older but fully paid off.

Edit: In case it matters, my husband is 40 years old and I’m 37. I have about $2 million in coverage for myself.

Farewell, Seeking Advice

Response from THE MONEY MINDER:

Hello There,

It’s commendable to see your dedication to securing financial stability for your family, especially considering your backgrounds. Given your circumstances, it’s crucial to approach life insurance with a strategic mindset. While the return of premium may seem appealing, consider the opportunity cost of higher monthly premiums. Investing that additional money wisely could yield higher returns in the long run, contributing significantly to your retirement savings.

Regarding your liabilities, prioritizing the repayment of your student loans and mortgage, which carry relatively low interest rates, is sensible. Since you both have substantial life insurance coverage individually, focus on ensuring adequate coverage for your children’s care and the surviving spouse in case of unforeseen circumstances. A term life insurance policy with a face value that reflects your income disparity might be advisable. Consult with a reputable financial advisor to customize a plan that aligns with your specific needs and long-term goals.

Consider exploring alternative investment opportunities, such as tax-advantaged retirement accounts, after addressing immediate obligations. Your prudent approach to financial matters will undoubtedly lay a solid foundation for your family’s future. Remember, seeking professional guidance is a wise decision, given your limited exposure to complex financial concepts. Take proactive steps to enhance your financial literacy and secure your family’s financial well-being.

Best wishes on your financial journey.

THE MONEY MINDER