Life Insurance

[Noah930]

Because you guys were helpful in offering insight on the other insurance thread I posted, I thought I'd ask about life insurance. (Because most of you guys are older than I.) In short, how much do I buy? And for how long?

I'm planning on a term life policy.

The point is to financially cover my family (Mrs. Noah, and the little Noahs) in case I die before I retire, right? Before my kids are old enough to fend for themselves financially. So do I guesstimate the sum of what I'll make for the rest of my career before I retire, and use that as a baseline amount? For example, if I think I'll make a million dollars before I retire, do I use that as how much life insurance policy I buy?

And do I purchase a policy that (timewise) covers me for the rest of my working days? That's a little bit harder to figure, as it seems most places where I've browsed for online quotes give me either a 10-year or 20-year option. I plan on working for maybe another dozen years. So just aim for a 10-year policy? Or do I factor in the length of time remaining on my mortgage? On paper it's supposed to go on until 2042, but i overpay a little, so I think realistically I have about 18 years remaining. There's a big difference in premium between 10-year vs 20-year policies.

Thoughts? Wisdom?

[asphaltgambler]

My experience: 20 yr term insurance is cheaper overall than going for 10 and then re-upping for another 10. Obviously the older we get the closer we are to leaving this earth. Amount? enough to pay off any debt and mortage remaining plus 'X' years times your current salary + likely yearly increases over that.

The rest of the coverage amount would depend on your assets, monetary resources.

[Rick Lee]

I bought a 10 year term policy when I was 42. So I have four years left on it and don't know what I'll do then. Mrs. Lee still needs my income to pay some of the bills, but we have no kids and the mortgage will be paid off in another 10-12 years. Hell, I sell whole life insurance and still don't know what the best plan is. If your true goal is just to have your family taken care of in case you die prematurely, then term is probably fine for you. Once the mortgage is paid and the kids are out of school, you probably don't need life insurance anymore. There are some exotic products out there other than term or whole life. You can prepay them, earn dividends, have some of the cash value tied to some stocks, etc. But you really, really need to know what you're getting into with those and, IME, most people who have them have no idea what those products are.

[LWJ]

Ok. Funny. I am re-doing this now. Rates are cheap if you are healthy.

Figure 5% spent off your net worth annually. That is the amount you either retire on or your heirs have to live on.

Meaning: $1000000 x .05 = $50000 annual spendable income.

If your family can live on $100k, and you have liquid assets of $1MM, then buy $1MM life insurance. That give them $2MM to live off.

Buy the life insurance for a term until you don't need it.

Make sense?

[Zeke]

^^^^ When do you not need it?

[Dantilla]

Originally Posted by Zeke

^^^^ When do you not need it?

When my father died, he left enough income-producing assets to provide for my mother very well.

Early on, dad had a 20-year term policy. By the time 20 years had passed, there was no need for insurance.

[Zeke]

^^^Good answer.

[scott540]

I would go 20 year term for an amount that
Is 20 x your current income. After 20 year, kids are
Out of school or close. Mortgage is paid off or close to it and you should have enough savings so no need for insurance. We just started letting some of ours cancel. I underwrite for one of the big carriers

[SeanPizzle]

I would say 20x your current spending, not income

[LWJ]

Thanks Dantilla. Correct. It is a financial crutch to get you through until which time you have enough not to need it.

Ideally? You would be financially independent and NOT need life insurance.

[Noah930]

Originally Posted by LWJ

Ideally? You would be financially independent and NOT need life insurance.

Isn't that what defines when I retire?

[Jim Richards]

Originally Posted by Zeke

^^^^ When do you not need it?

In our case, when we were debt-free and the surviving spouse had enough assets to last until the surviving spouse croaked. Our kid was already self-sufficient, so no need to provide money there. We dropped our life insurance when we retired.

[Jim Richards]

Originally Posted by Noah930

Isn't that what defines when I retire?

Just the part about being financially independent and when you're ready to chuck the working class in favor of being in the leisure class.

[LWJ]

Noah930, sure. Get financially independent, cancel life insurance, and retire.

Exactly. No need to insure as you don't have any risk.

[VincentVega]

Some tough questions to ask yourself. If you are gone, will she want to stay in the house? Maybe get something smaller/simpler? Will selling the house cover that? Do you plan to pay for edu for kids? Do you already have that $$? Does she have $$? Use insurance to fill in the gaps. Check your benefits at work, I know I get 1-1.5x salary for free, less but also free coverage from credit union.

[Rick Lee]

Originally Posted by VincentVega

Check your benefits at work, I know I get 1-1.5x salary for free, less but also free coverage from credit union.

What you get from work is usually group term that goes away when you leave that job. And what you get from your bank, when it's free, is usually accidental only. It's free because it will never pay. You have a better chance at winning that face amount with scratch off lottery tix. Just last week I saw a policy from a customer's credit union that read "common carrier only." You pretty much have to die in a plane or bus crash for those to pay. Get into a car accident, spend 24 hrs. in the hospital, die a week later of your injuries, and that's no longer an accident per the policy. Around here lots of final expense companies offer free accidental riders as an incentive to buy and tell people they have that amount in life insurance. It's a total scam.

[on2wheels52]

From Dad:

"If you can afford all the insurance they say you need, you can afford to self-insure."

[wildthing]

Disclaimer: I am not a CFP.

Buy term. Don't smoke. Stay healthy.

You are in the right frame of mind, thinking about kids, taking care of the wife. Things to consider: age of your kids, whether you want to set them up for life (expensive) or enough to get them to college (less expensive), enough to get through high school and let them apply for aid and loans (minimum). Mortgage. Enough to pay off the outstanding balance if you want them to keep the house, or enough payments until they can downsize (minimum). Any other debts that need to be paid off immediately, car, credit card, estate taxes? Wife. Do you expect her to work after you die (minimum)? Do you want her to be set for life (expensive)? Other expenses: funeral costs, lawyer/executor fees.

General rule of thumb is 3x your annual salary as a minimum. I get 2x at work so I have an extra 1x term.

Good overview here: https://www.fool.com/retirement/how-much-life-insurance-do-i-need.aspx

[Noah930]

Originally Posted by on2wheels52

From Dad:

"If you can afford all the insurance they say you need, you can afford to self-insure."

Thanks. I know people mean well with their advice, but if I followed some of the aggressively covered recommendations on this thread (I got a quickie quote from the Costco life insurance website) I'd be paying almost $880/month for the next 20 years!

[Rick Lee]

Nah, won't be that expensive. I have $500k for $560/year. But it's a 10 year term and I'll be a lot closer to having my mortgage paid off when it expires. If you want your family to be set for life, that will cost you. If you just need your income and debts covered for a while, it will be a lot cheaper and temporary.