Life Insurance Again

[LivingAlmostLarge]

So I got to thinking yesterday as my DH had an accident at work, he's fine but upset of course. Last year we bought 20 years 1 million term life insurance for $448/year. I am now thinking I made a mistake and should cancel the policy and buy something more or add to it.

Should I buy an extra 1 million for another 20 years, $1 million for 30 years so extra 10 years of partial coverage, or should I go $2 million for 30 years and cancel old policy? Or is $1 million for 20 years enough?

I feel like I definitely need another $1 million because I'm not working and we're trying for a second child and we're definitely more on board with possibly 3-4 kids. I still haven't gotten any on myself so I probably should.

If it matters we owe $410k on our mortgage and $15k on a car loan. And we are 32 and my DH is turning 34 in a few weeks and our daughter is 21 months. We have around 1 year in cash now, but in February with bonuses it could be closer to 18 months, still hoping to relocate so this is not our final home and why I keep sitting on cash, and good retirement savings.

So thoughts?

[disneysteve]

You need to sit down and calculate what you want his insurance to cover if he were to die. Do you want to be able to pay off the house? Do you want money for college for the kids? Will you need to hire people to do things that he currently does, like mow the lawn for example? How much of an income stream will you need the insurance proceeds to generate going forward?

You can have more than one policy so it isn't necessary to cancel the current policy if you opt to buy another unless it is cheaper to do it that way.

And you should definitely have insurance on yourself as well.

[artwest]

In my opinion $1 million should be enough.

You owe $410k on your mortgage and $15k on your car for a total of $425k in debt. If you spend $10k on funeral expenses, you will still have $565k to live off of. Remember that your debt should continue to decrease which will increase the amount of life insurance left for you to live off of.

If you feel like you need more insurance, I would suggest that you keep what you have and simply buy an additional policy. As to the length of the policy, in my opinion, it never hurts to have it for too long than not long enough. I would look at the 30 year term.

[MonkeyMama]

Agreed with Steve. It depends what you need it for. Work backwards from how much you think you will need (& for how long).

In a temporary stay-at-home situation, it might be best just to get a more temporary policy. We have 30-year-term life we bought in our 20s (GREAT price) and I added an annually renewable policy (on myself) while my spouse is home (initially thinking for childcare costs, as well as *time to get back into the workforce at my income level* kind of thing). Of course, I initially thought it would only be for a couple of years.

& of course I have a life insurance policy on my non-working spouse. Insurance is just so dirt cheap these days. If IT was more expensive, one could maybe argue it's unnecessary for a more long-term non-working spouse. (I could certainly live without, now that daycare is out of the equation - older kids). But, paying $200/year for that extra peace of mind? Very worth it. If nothing else, we can have time to deal with our grief and now worry about having to work.

[LivingAlmostLarge]

I am thinking more that we're going to move and buy a slightly more expensive home. I'm not sure how much income I'd like to generate, depends on where we are savings wise.

The extra $500k or $1 million doesn't seem too much more to add. I may add it for 25 years.

[snafu]

The general rule of thumb for life insurance coverage is at least five times your annual income. Does DH have a life insurance policy from his employer?

[disneysteve]

Originally Posted by snafu

The general rule of thumb for life insurance coverage is at least five times your annual income.

Actually, the rule of thumb I have always heard was 8-10 times income. That said, I would use 10 times income as a starting point and then sit down and figure out what those proceeds need to cover as I mentioned above and work up or down from there.

[LivingAlmostLarge]

10x is $1.5M. I think 25 years instead of 20 years, and I can't decide between $1.5 and $2M instead of $1M. We do have some insurance through work but it's 2x the income free.

Assume a $750k home, and $750k extra. Investing that for life and using the %300k from work for a few years of living while getting back into the work force. That would probably work. So $1.5M?

For me I think $500k to $1M for 20 years adequate. $233, $315 for $750k, and $398 for $1M.

[disneysteve]

I would ignore the coverage provided through work. If you need 1.5 million, buy 1.5 million. Let the work coverage just be a bonus. You can't count on that coverage. He could change jobs. They could eliminate that benefit. And you could be left underinsured. Insurance is so cheap it doesn't make sense to skimp. Buy the full coverage needed on your own.

[LivingAlmostLarge]

My DH is against life insurance for me. So why does someone who doesn't work need life insurance? Any answers? I need rebuttal. He's very against paying $233/year for 20 years for $500k. Says that the money can be saved instead in a savings account. It's a 1% chance I'll die, but the likelyhood is much lower.

So arguments I can make for him other than peace of mind? His answer is since he makes the money what does he need insurance on me for? He can pay for daycare. It will mean no retirement savings for a bit, but only until he starts making more.

So what use there for it? If needed how much?

[disneysteve]

Originally Posted by LivingAlmostLarge

My DH is against life insurance for me. So why does someone who doesn't work need life insurance? Any answers? I need rebuttal.

Make a list of all of the tasks you do around the house:
Child care, cooking, laundry, cleaning, shopping, whatever else you can think of. Those are all things that he would either need to do himself or pay someone else to do if you were to die. Add in money for a funeral and cemetery plot. If after looking at that list, he feels his income is high enough that it wouldn't be an issue for him to cover those costs, maybe you don't need coverage. Or maybe 100K would be sufficient. 500K sounds like a lot to insure a non-working spouse.

Of course, not to be morbid but the flip side of the argument is what would he save if you were to die. For example, he could sell one vehicle, lower auto insurance, lower health insurance, spend less on food, clothing, personal care items, medications, etc. So he could be thinking along those lines that his cost of living might actually be lower with one less person to pay for.

[MonkeyMama]

WEll, I'd think childcare is a HUGE consideration at this point.

Also, you do not have to keep the policy for 20 years. If you never work again, odds are you won't keep it for 20 years. You are just locking in a low rate for if you want to keep it that long. I wouldn't get so caught up in "having to pay that premium for 20 years." (We have a 30-year policy because it was just dirt cheap. I highly doubt we will keep it 30 years. BUT, it will be there *if* we feel we still need it).

My spouse's earnings have been very crucial to where we are financially, today, whether he works TODAY or not. For us, at this point, life insurance merely replaces those future earnings. On my own, I can't save near as much for retirement in the long run. The fact that he is not working today means little in that regard. That said, if it becomes clear he will never work again, I'd probably drop the insurance. I am just not there yet - I have college to pay for and may want to work less with younger children, if something happened to my spouse. For the same quality of life, I'd probably have to hire a nanny. My kids are getting old enough where they don't need expensive childcare, BUT, I am used to someone doing all the grocery shopping, cooking, cleaning, errands, etc. I am not sure I want to work full-time and do ALL That in such a time of upheveal and grief. I am not sure if I even COULD. The life insurance also gives me the option to take time off work, or switch to part-time. Just more options. Who knows how one will react in a situation like this. I think options are what are important. All I know is I wouldn't be worrying about money in that situaion.

Mortgage is also something to consider. YEs, I can shoulder the mortgage just fine without my spouse, and I probably would not even pay it off with life insurance proceeds. BUT, I would have to refi the mortgage to remove his name. What if interest rates doubled? I just don't have to worry about all that. If I have 3% mortgage now and rates are 9% if something happens, I just pay off the mortgage.

Just all things we thought about when insuring my stay-home spouse. Mortgage, retirement and college are the biggies. I can handle all of these myself, if push comes to shove, but $200/year to not worry about that in the worse case, is fine by me. I am not a big believer in insurance just for insurance sake. I do believe strongly in catastrophic insurance. We also didn't raise our kids with a full-time at-home spouse just to be happy with the idea of, "Mommy has to work like crazy and you will never see her, and let's lessen your college options, because something happened to daddy." $200/year for that financial peace of mind if just priceless, to me. For $200/year, in the worst case, mommy can be home when kids aren't at school, and kids can go to any college they want. & retirement savings won't suffer. I can't say the same if my spouse was uninsured. I could probably handle all of the bills, but the kids would suffer more than necessary.

[MonkeyMama]

P.S. Though odds are slim, I suppose I know way too many young/dead parents. I totally understand where your hubby is coming from. But I have watched several childhood friends lose one parent. My aunt passed on very young. My prior boss is raising his nephews/nieces because their parents passed very young. The odds just don't seem that astounding to me. From my own experiences.

Thinking to my ex-boss, also reminds me one reason my spouse is insured. Our chosen guardian lives in an insane high cost of living area. I don't want caring for our children to be a financial burden, if something happened to us. They'd likely need to spend a fair amount of money to buy a bigger home, for one. So we have thought of our combined insurance in those terms. Though I suppose me just getting a bigger insurance policy would work to the same end.

On the flip side, I totally agree with Steve. If the insurance is not useful, don't buy it. Everyone's situation is extremely unique.

[Denisem1]

The more coverage you buy, the more premiums you need to pay. You have to consider whether you really need that much coverage. Most life insurance experts will tell you to buy what you need, and put the rest of the money in savings where your money will grow interest.

I would suggest you sit down and count your debts, work out your annual living expenses and any future savings that you want to safeguard such as college fees for your children, etc. You should include these amounts in your coverage. If you want the death benefits to last you a lifetime so that you never have to work, speak to a financial advisorwho can guide you into making the right investments using your death benefits.

If you still feel you need more coverage, I would suggest you buy a term life policy with an adjustable coverage. This would allow you to buy what you need right now and add/reduce coverage according to the changing circumstances of your life without having to prove insurability.

Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.

[LivingAlmostLarge]

Interesting points. Sadly I'm on antibiotics for a sinus infection right now so I shouldn't have had my physical. Apparently they could end up refusing to cover me for "elevated liver enzymes."

I think we're going to split the difference. I am going to cover myself because in case we both die I want our kids to be well taken care of. Our potential guardians do need money because they couldn't do it without everything we leave behind. New cars, home, It wouldn't be fair to expect them to change their lives so much.

I guess maybe $250k for me and $2M for DH. I may not keep it for 20 years like MM said but for now something would be great to allow my DH to not struggle or worry for say the 5 years until the kids are in school.

[Robert742]

A single 20 year term policy on your husband for 2 million should be less expensive than paying for two 1 million policies. DON"T cancel your husband's current policy until the new policy is issued. It's not enough to submit a new application with a premium payment. You want to wait until your application is accepted by the insurance company and the policy is delivered to you.

You may want to price a 3 million policy for your husband. Suze Orman recommends term policies at 20 times annual income. Your husband is the sole wage earner, and if you lose him 10 years from now, when you have 3-4 dependent kids, it would help to have a lump sum to take care of you for the rest of your life.

A 30 year term policy might be a good idea, depending on whether you anticipate having dependent kids (kids in college) more than 20 years from now.

A policy on you may be optional, based on your husband's anticipated financial needs, but it's human nature to not realize how important insurance may be to you until you need it. Your husband may be able to get by financially, even with the extra cost of daycare for 3-4 kids, but having life insurance proceeds may allow him to take time off from work, and allow him and your kids to focus on dealing with the grief of losing you, rather than have the stress and worry of working full time, suddenly being a single parent, and coping with his loss and emotions. I know you want the peace of mind of having a life insurance policy for you, but hopefully I have given you a point of view which will help you explain it to your husband.

250k on you should be fine. But maybe look at a 3 million 30 year term on your husband, and decide if the extra coverage is worth the cost of the insurance?

[LivingAlmostLarge]

I haven't cancelled anything and I think I'm doing $250k on me for 20 years. I am going to do at least 25 years for my DH because by then our kids should be at the youngest 18-19 years old. We should be completely financially secure by then.

Yes at the expense of college, cars, and a weddings we are right now focusing on saving for us and our retirement versus college, weddings, cars. It's been suggested we aren't saving enough for college for my daughter and at our income we should be saving a lot more. Probably true. But I feel better knowing we are channeling that into our retirement and taxable accounts and paying cash for stuff now than saving for college.

I might research a larger policy than 2 million. 20x income seems like a lot.

[Robert742]

Originally Posted by LivingAlmostLarge

I haven't cancelled anything and I think I'm doing $250k on me for 20 years. I am going to do at least 25 years for my DH because by then our kids should be at the youngest 18-19 years old. We should be completely financially secure by then.

Yes at the expense of college, cars, and a weddings we are right now focusing on saving for us and our retirement versus college, weddings, cars. It's been suggested we aren't saving enough for college for my daughter and at our income we should be saving a lot more. Probably true. But I feel better knowing we are channeling that into our retirement and taxable accounts and paying cash for stuff now than saving for college.

I might research a larger policy than 2 million. 20x income seems like a lot.

Yes, it's tough with so many competing needs, you have to decide what are your most important financial goals. Personally, I think funding your retirement is more important than college saving.

You will appreciate going with 20 x income if you are unfortunate & need it. I think it is best to look at the ideal life insurance option for you, then adjust it based on cost, and the value you place on the extra coverage, versus using the money for some other need.

I was a little concerned in your initial post when you mentioned you were considering canceling your husband's life policy and applying for another policy, but since you know enough to avoid problems like being on antibiotics for the paramed exam, it sounds like you know what you are doing, or you're being helped by an experienced agent.