In a previous post I indicated a simple formula that can be applied to determine how much life insurance you need. I also went through a real life example (moi) and talked about how you should try your best to calculate how much insurance you need (and how long you need it for) and only buy that amount or even a bit less since your financial situation should improve over time which will lessen your insurance needs.
Sometimes people are tempted to buy large amounts of insurance because they want financial freedom if their spouse dies. Or in some cases they really believe they need an excessive amount of life insurance.
In my opinion the best level of life insurance is an amount that ensures that the surviving spouse can maintain their current lifestyle. Typically a million dollar 20 year policy will provide the surviving spouse with a large increase in their standard of living. Now you might be thinking that the monthly premiums are not that much larger for a million dollar policy than say for $750k but those monthly amounts add up. As well, getting a million dollar policy for 20 years will result in a lot more premiums being paid compared to someone who gets insured for $750k for 10 years and $250k for 20 years.
The problem is that they are paying extra money for premiums for extra insurance that will increase their standard of living. The reality is that they are extremely unlikely to collect this money so this extra money is similar to buying lottery tickets where typically someone might take a small amount of money ie $25/month and play the lotto in hopes of an unlikely payoff which will result in an increase in their standard of living.
The best insurance you can have is financial independence which is usually a long time coming for most of us but saving even $25/month on insurance premiums will hasten its arrival.