Paycheck Chronicles

Figuring Out Your Life Insurance Number



That’s how much your kid is going to cost.

I hope you’re sitting down because that shocking number — published in the USDA’s Expenditures on Children by Families report —includes housing, food, and transportation among other expense categories, but it doesn’t include college.

I’m not sure my own experience validates the number the USDA came up with for the annual report, but if things get tight in retirement, we may be asking for a little payback … with interest. (Kids, I’m just joking.)

Actually, that big number had me thinking about the potential price tag on other major events that dot the landscape of our lives. Understanding those costs can help answer the most important life insurance question: How much do I need?

Let’s take a look:

Raising a child: $245,340. This is the number I led with, and it’s scary. I’m not saying you need a quarter of a million dollars of life insurance for each kid you have, but you certainly should account for raising them. Also remember that Social Security provides survivor benefits to children of qualified workers through age 17 (and for their caretaker), so there’s a little help on this front when you’re thinking of protecting your loved ones.

Sending a child to college: $80,000. Multiply one year of the College Board’s estimate of the in-state cost of tuition, fees, and room and board at a four-year public university and you come up with a pretty hefty number. Not all parents are interested in fully funding their kids’ educations, but if it’s on your list, that’s a big number to plan around.

Paying off the roof over your head: $320,744. In June, the Mortgage Bankers Association reported this as the average loan size on a new home. For most of us, the mortgage is the biggest debt we’ll ever have. One key purpose of your life insurance may be to pay off your mortgage and other debts.

Replacing the bacon you’re bringing home: $45,000. That’s the average earnings for U.S. workers today, according to the Bureau of Labor Statistics, but you may make more or less. If you’re gone, your salary will be too. What’s your plan for those left behind?

So, do you just take those numbers and add them up? Of course not. But they could all be a part of the calculation you use to get the “right” number. You’ve also got to factor in available assets, your existing insurance and benefits through Social Security, the VA and your employer.

A cautionary note: what’s right today might not be right tomorrow. Marriage, divorce, job changes and other circumstances could force you to rethink your number. Make sure your coverage keeps pace with your life.

Thankfully, there are calculators like the one on that can do the heavy lifting. Spend a few minutes today and see where you stand.

Joseph "JJ" Montanaro is a financial planner with USAA's Financial Planning Services and is a CERTIFIED FINANCIAL PLANNER professional (CFP®). He is a native of Kansas City and earned his Bachelor's degree in Engineering from the United States Military Academy, West Point, New York. He is a member of the Financial Planning Association.

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Montanaro has more than twenty years of experience in the financial services industry as a financial planner and joined USAA in 2002. Before entering the financial services industry, he served in the US Army for six years on active duty and in 2009 he retired as a Lieutenant Colonel in the United States Army Reserve.

JJ's daily focus has been to help families realize their goals and his advice has appeared in numerous outlets including the Wall Street Journal, USA Today, and the New York Times. He writes monthly personal finance columns for Military Spouse Magazine and American Legion Magazine.


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