How much life insurance do we need?

"How much life insurance do we need? I make about $100K; my husbank $50K; we have a daughter who is about 1 year old. We have no debt other than our mortgage which is $360K. I have a total of $985K term insurance and he has $600K term insurance but I think I may need more because I make more. Please advise."

Determining the right amount of life insurance depends on a number of factors. If you had no children, or your husband earned enough to support your current lifestyle for himself and your child, there might not be a need for insurance. But in your case the loss of your income would have a major impact on your family. Financial planners usually recommend you have enough life insurance to replace your income until your youngest child is 21. After that your widowed spouse will have only himself to provide for and will have had time to make a career change, if necessary, so that he is ready to do so.

You may qualify for a Social Security Survivor Benefit to replace some of that income. (See the Social Security Administration website to determine the number of quarters of work required for your current age.) Assuming you are age 35 and qualify, your family would receive around $1,760 per month in benefits until your child is 16. You also have not indicated if you have any savings which your spouse could use to supplement his income.

Not all of your income needs replacing, as some is lost to taxes. However you should consider whether you need to cover the non-monetary benefits you may get, such as health insurance and dental insurance. Also decide whether you want insurance to pay off your mortgage or provide for a college education.

Assuming you want to replace 75 percent of your income ($75,000). If you receive Social Security Survivor Benefits (21,000) you will need to replace $54,000 per year for 15 years, and $75,000 for 5 years (between your child's age 17 and 21, when no SSDB is received). With a 4 percent rate of return - about the average inflation rate - you would need a lump sum of $1.5million. Add in your mortgage and a college fund and the amount jumps up to about $1.9million.

This is just a rough estimate and you should consult a financial planner or insurance agent to make a more precise determination for both you and your husband. It is most important not to cancel any current policies before you have put new policies in place and remember that the younger and healthier you are, the less life insurance will cost.