Term life insurance question

yellow heel · #1 (**permalink**) 12-07-2007, 08:32 AM

Hello,

You have been very helpful to say the least!
I was wondering if guys can give me some guidance on this issue.

I want to get term life for myself now that I am married. I have been busy and have put it off for over an year... I know.

1. What is the best way to shop for term life insurance? Any website or personal experience I will appreciate very much!

2. What should I look for when researching?
What sort of stuff should I be looking out for in the fine print.

3. What is a good price?
I am planning to get 20 years for about $750k. I understand that this will depend greatly on your age and health (family history) etc but a general idea is great. I am a healthy 29 yrs old.

4. Can 401k/Roth IRA be cashed out to the spouse without penalty at the time of the other spouse's death if she is the beneficiary?
For the Roth IRA, I know I can withdraw the amount principal amount...
The answer to this question will change the amount that I want to insure.

Sorry for all the question but I will appreciate any input you can give me.

TIA!

MClinton · #2 (**permalink**) 12-07-2007, 10:38 AM

Dave Ramsey suggests searching for term life at Zander insurance. He recommends 15 or 20 year level term at around 8 to 10 times your income.

Sorry I can't be more help, but good luck!

-Matt

disneysteve · #3 (**permalink**) 12-07-2007, 08:22 PM

I have a question. You mention being married but you don't mention dependents. Do you have children? Is your spouse financially dependent on you? If the answer to both of those is no, you may not need insurance. On the other hand, if you own a home and your spouse wouldn't be able to afford to stay there if you were to die, than insurance is a great idea.

Quotesmith.com and intelliquote.com are 2 good starting points.

10 times income is a decent rule of thumb. Start there and adjust up or down based on your particular needs.

yellow heel · #4 (**permalink**) 12-08-2007, 02:40 AM

Thank you for the reply.

No, we don't have any kids yet.

Yes, my spouse is totally dependent on my income.

I will check out the sites you guys have mentioned.

Anyone know the answer about what happens to the 401k/roth ira after death?

Thanks!

sweeps · #5 (**permalink**) 12-08-2007, 06:53 AM

Quote:

Originally Posted by yellow heel

Anyone know the answer about what happens to the 401k/roth ira after death?

Some info here.

jIM_Ohio · #6 (**permalink**) 12-10-2007, 07:40 AM

Quote:

Originally Posted by yellow heel

Hello,

You have been very helpful to say the least!
I was wondering if guys can give me some guidance on this issue.

I want to get term life for myself now that I am married. I have been busy and have put it off for over an year... I know.

1. What is the best way to shop for term life insurance? Any website or personal experience I will appreciate very much!

2. What should I look for when researching?
What sort of stuff should I be looking out for in the fine print.

3. What is a good price?
I am planning to get 20 years for about $750k. I understand that this will depend greatly on your age and health (family history) etc but a general idea is great. I am a healthy 29 yrs old.

4. Can 401k/Roth IRA be cashed out to the spouse without penalty at the time of the other spouse's death if she is the beneficiary?
For the Roth IRA, I know I can withdraw the amount principal amount...
The answer to this question will change the amount that I want to insure.

Sorry for all the question but I will appreciate any input you can give me.

TIA!

I would contact the person you get car insurance or house insurance from.

750k is a lot. Why the high amount? Does your wife work? What are you insuring against?

For example, my wife and I discussed this... we each have 300k 20 year term policies. Both have 4 year degrees, both work. We agreed if one of us died, the other would keep working. The purpose of the 300k was to cover debt (at the time). Now that debt is paid off, but we have a much, much bigger house. The 300k would go a long way towards freeing up close to 3k per month in the budget should one of us die.

We also have 25k permanent policies... we created these policies for two reasons.

1) the 25k covers the cost of funeral expenses
2) this need never goes away, and when the 20 year polices expired there was no guarantee the term would renew. If it did, the costs looked quite high, so in long run we saved money by buying permanent now (permanent now at age 30 is cheaper than rates for 50/60 yo getting term).

#2 is highly debatable by many. Do what makes sense for you. You need to decide what the insured amount is designed to cover. Our 25k policies are indexed to S&P 500 index- the cash value increased 2% per year or the return of the S&P 500 (without dividends reinvested) capped at 8%. Within 20 years or so, the insurance can be paid from the cash value account and we won't have to pay it anymore. If we need to estate planning, we can also overcontribute this policy if needed. Our life insurance is thru Indianapolis Life. large and reputable firm from what I learned 5 years ago.

750k covers a take home salary of around 30k for life if invested well. This would be tax free.

as far as the IRAs, my understanding is
a) a 401k transfers as a 401k to spouse. The withdraw rules change, I think.
b) a Roth transfers as a Roth to spouse. The withdraw rules change.

The issue with the withdraw rules suggests what happens if you want money before age 59.5. I would read up on the IRS web site (pub 590)

Publication 590 (2006), Individual Retirement Arrangements (IRAs)
an excerpt

Quote:

Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:
Treat it as your own IRA by designating yourself as the account owner.

Treat it as your own by rolling it over into your traditional IRA, or to the extent it is taxable, into a:

Qualified employer plan,

Qualified employee annuity plan (section 403(a) plan),

Tax-sheltered annuity plan (section 403(b) plan),

Deferred compensation plan of a state or local government (section 457 plan), or

Treat yourself as the beneficiary rather than treating the IRA as your own.

Treating it as your own. You will be considered to have chosen to treat the IRA as your own if:
Contributions (including rollover contributions) are made to the inherited IRA, or

You do not take the required minimum distribution for a year as a beneficiary of the IRA.

You will only be considered to have chosen to treat the IRA as your own if:
You are the sole beneficiary of the IRA, and

You have an unlimited right to withdraw amounts from it.

However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. For more information, see When Must You Withdraw Assets? (Required Minimum Distributions), later.

disneysteve · #7 (**permalink**) 12-10-2007, 08:32 AM

Quote:

Originally Posted by jIM_Ohio

750k is a lot. Why the high amount? Does your wife work? What are you insuring against?

Whether or not 750K is a lot depends on a whole bunch of factors. My current policy is for $1.25 million. I previously had a $1.5 million policy and I downgraded a few years ago because we determined that our needs had changed. When I was just married, had a newborn, had recently bought our home and had $100,000 in student loan debt and very little in savings, my insurance needs were higher. Now, I've got no student loan debt, less mortgage debt, some college savings and a decent investment portfolio, I don't need as much and it may be time to downgrade the insurance amount again. I need to meet with my agent in the new year and run the numbers.

What I am insuring? If I were to die, I want my wife to be able to pay off the house. I want my daughter to be set for college. And I want my wife not to have to work unless she chooses to. So I need enough insurance to support her and my daughter, along with our own savings, for as long as needed.

Scanner · #8 (**permalink**) 12-10-2007, 10:13 AM

I have $400,000 level term that would pay off a $125,000 mortgage and a $7500 business loan and leave some money left over.

I have been actually thinking of buying another $400,000 policy since this policy will expire in my mid 40's.

So, I'd have 800K for awhile but then it would downgrade to 400K around age 43.

I guess I should do this before I turn 40 since the rate tables are based on age.

Maybe a 15 year term for $400,000?

I agree though - I have 2 children, 1 on the way and a college educated wife.

The money is just to help pay for daycare/nanny should something happen, along with securing the house.

jIM_Ohio · #9 (**permalink**) 12-10-2007, 01:31 PM

As Disneysteve and Scanner both point out, how much insurance is unique to each individual.

As further reading by me indicates, your spouse is 100% dependant on your income.

Here are some suggestions- take your income and divide it by .04 (or multiply by 25). This would suggest a ball park number which would last your spouse their entire lifetime.

examples- you earn 60k, take home 45k. 45,000/.04=$1.125M.

If your wife had 1.125 M, and withdrew 4% per year, she would have enough to live off of her entire life (50+ years).

If you had substantial 401k and IRA funds, you could include those in $1.125 M need, then reduce amount of insurance.

This might also illustrate need for reduced insurance over time (as 401k increases). If Bills get paid off (mortgage) the need might further decrease.

If you own a business, you might need more insurance.
You might want to insure your wife for the cost of child care until age 12 of kids. Think about what you need money for if one spouse passes. Think of different needs if other spouse passes.