Life insurance for those with dependents
To understand the role of for those with dependents, let’s review the case of Dick and Bruce. Yes, they are popularly known as Robin and Batman. Both their parents died tragically, leaving them alone in this world.
Robin was left totally alone with no relatives, and I assume no inheritance. He was adopted by Bruce Wayne or else he would have gone to a foster home. If his parents had life insurance, that coverage would have been his safety net. It would have been substitute for an inheritance or money that will help him continue his current life even without his parents.
Bruce on the other hand, inherited a lot -- a mansion, Wayne Enterprises, and who knows what else. Being wealthy, there’s no need for the Waynes to have a safety net. But guess what, life insurance plays a different role here! If Bruce’s parents didn’t purchase life insurance, a huge portion of their estate would be reduced by estate taxes. Life insurance for wealthy guys/gals with dependents is for an efficient wealth transfer.
Wait, where is this story going? How much do we need as life insurance if we have dependents?
For safety net purposes, how much will it take for your family to move on to a new income source? This amount will be significantly higher if your dependents are still babies, and lower if your kids are near graduation or about to enter the workforce. This is why those “how much life insurance you need” calculators have so many forms. You can use any of them now that you understand the concept behind them, or you can do it old school and calculate how much your family is spending on a monthly basis, how much education will cost, etc.
For wealth transfer purposes, I would say it depends on how much taxes you are willing to pay to transfer your estate.
Hint: most would want zero or minimal. There are other strategies aside from insurance here such as gifting and buying properties named to your kids, but these are out of my expertise and experience – best to consult someone with estate transfer specialty.