Working on an idea - opinions?

[pearlieq]

I've been turning an idea over in my head for a while and I wonder what everyone here might think of it.

DH and I intend to start a family this year. He is 30 and I am 27.

DH is diabetic. It is well controlled and he generally enjoys good health. However, he is overweight and his blood pressure hovers around borderline. Life insurance is not an option for him. We've searched extensively and come up empty. He has about 100k of coverage through his work, and that is the max available.

DH is the primary wage earner. I currently work but intend to stop when the baby comes and be a SAHM.

DH is planning on taking a second job this year and we will also have a surplus in the budget when he gets his raise this year. We had been intending to put all extra money toward paying off his student loans (38k at 4.25%, interest not deductable due to income).

With the hope of a baby on the way and the life insurance situation, I've been wondering whether it would be better to put the extra money toward the mortgage (200k at 5.5%) and/or maybe even a taxable account.

We have no other debt aside from the mortgage and student loans. We have an emergency fund of about 20k and we fully fund 2 Roths, my 401k (this will be the last year), and DH's government pension (won't be vested for 5 more years).

My rationale is that if DH were to die (God forbid) his federal student loans would be discharged. My understanding is that they would not come after his estate for the balance.

If the worst were to happen, it seems like we would be better served by a lower mortgage balance or a taxable account to use for expenses. I would go back to work, but would only be able to replace about 40% of DH's salary. We would also have his social security death benefit.

What do you think of the idea? Given the situation, would you:

1.) Go ahead with paying off the student loan anyway
2.) Use extra money to pay down the mortgage
3.) Put away extra money in a taxable investment account
4.) Another idea I haven't thought of?

I would appreciate any advice or opinions!

[tinapbeana]

Re: Working on an idea - opinions?

What do you think of the idea? Given the situation, would you:

1.) Go ahead with paying off the student loan anyway
2.) Use extra money to pay down the mortgage
3.) Put away extra money in a taxable investment account
4.) Another idea I haven't thought of?

I would appreciate any advice or opinions!

alright, i'm offering a 5th alternative (of sorts): sounds like DH isn't high on the life insurance list b/c of weight and BP. perhaps take some of the extra income and use it towards increasing DH's 'insurability', i.e. dropping some pounds and lowering the BP.

otherwise, i would make sure to have fully funded roths for you and DH both and then consider putting $ towards the mortgage. but that's just me.

[vsjhoc]

Re: Working on an idea - opinions?

It's great that you've had a sensible financial plan, including having an EF and maxing out contributions to the retirement funds. You're way ahead of many people. You've also given a lot of thought to something that very few people are willing to confront and plan for (ummm, that death thing. You do have wills, living wills, and POAs, right?!).

I know others will disagree ... and this is why we have the forum ...

I think the best plan is to think of what your needs are in the next one, two, five, and 10 years, instead of planning for an event that might not happen for 50 years. I'd opt for putting more money in the EF (or setting up a separate baby fund ... those kids are expensive!), and paying down the student loans. Next in line is the taxable account and/or starting a college fund.

[Broken Arrow]

Re: Working on an idea - opinions?

I'd beef up the EF and/or set up a Baby Fund. Children are very costly for the first 4 to 5 years. All those diapers, formulas, furniture, and child-proofing are some of the things that will need to purchased, and it would be a great idea to start saving up for it now.

Otherwise, it sounds like the both of you have it well-covered.

(Oops! I just realized that vsjhoc already mentioned it. )

[pretty cheap jewelry]

Re: Working on an idea - opinions?

wow, what a planner! So financially speaking, what follows is my common sense opinion. Not expert or very educated

While DH is around, you are required to continue to pay the student loan at the normal rate.

For the extra money, will reducing the mortgage give you most peace of mind?

Of course, some years in the future your mortgage will be significantly reduced and you will have few tax write offs. If hubby is still alive and kicking just think of all the (pleasant) headaches trying to find new tax shelters! (College funds for the unborn babies???)

Just one teeny tiny other comment-having the kids was not as expensive as we worried. I also stopped working and did the SAHM thing. It took a couple years to adjust fully as I married late and was pretty far into a professional technical career. In fact, this is the first year I am back to a daily work schedule. (It was part time for about 7 years). We have 2 little kids 6 and 8 yo. There are a billion ways to be creative with the reduced income, you will be okay.

[disneysteve]

Re: Working on an idea - opinions?

I don't think prepaying the mortgage makes sense. If DH were to die, you would still have the same monthly payment due (just not for as many years) so that wouldn't help with day to day living expenses.

Does DH get vested if he dies? I think some plans have that type of provision, so you might be entitled to some type of survivor benefit. Just something to look into.

Otherwise, I agree with the others. You need to build a substantial EF so you have funds to draw on if you were to lose DH.

Be sure that you carry adequate life insurance on yourself. Even though you plan to be a SAHM, you still have financial value to the household. If you were to die, your DH would need to pay to replace you - child care, perhaps housework, etc. And be sure your wills are up to date and, once you have kids, that you've named a guardian.

I know it is normally a bad idea, but have you checked into the insurance offered by the mortgage company? They might have a plan that you guys could sign up for to handle the loan if he were to die or become disabled.

Don't forget that contributions to your Roths can be withdrawn for any reason without penalty, so that money is always available to you.

Sorry for rambling a bit. A lot to think about here.

[pearlieq]

Re: Working on an idea - opinions?

sounds like DH isn't high on the life insurance list b/c of weight and BP.

The diabetes is actually about 95% of the battle. His new medicine has been helping him drop weight so there's a possibility that maybe, maybe, maybe if everything else (weight, cholesterol, BP) was perfect we MIGHT be able to ge a small, expensive policy. Which I guess would still be better than nothing.

At think point I think I really have to plan to make do without.

[tinapbeana]

Re: Working on an idea - opinions?

The diabetes is actually about 95% of the battle. His new medicine has been helping him drop weight so there's a possibility that maybe, maybe, maybe if everything else (weight, cholesterol, BP) was perfect we MIGHT be able to ge a small, expensive policy. Which I guess would still be better than nothing.

At think point I think I really have to plan to make do without.

well, in that case i would definitely agree w/ whomever said to get a policy on you. also, perhaps take a certain amoutn each month and start buying 6 month or year CDs as a way to piggy-back on your EF.

and i also agree on an actual baby fund.

[pearlieq]

Re: Working on an idea - opinions?

I don't think prepaying the mortgage makes sense. If DH were to die, you would still have the same monthly payment due (just not for as many years) so that wouldn't help with day to day living expenses.

That makes sense. I think I was thinking more about the possibility of selling off the house if I were to lose DH. I'm not sure I'd be able to afford to keep this one without him, we'd probably have to downsize into a townhome or something.

But come to think of it, I wonder how much that would even save in this real estate market? Plus moving may not be something we would want to do if the kids were older and well ensconced in the school.

The mortgage company policy is probably worth checking into. I wonder if they qualify based on health?

I did check on his pension. If he is not vested all I get are his death benefits and a refund of his contributions. Once he becomes vested I get a choice between the death benefit and a surviving spouse pension (50% of what he would have gotten if he had retired on the date of his death.)

[safari]

Re: Working on an idea - opinions?

I've seen lots of advertisements for term life insurance policies that don't require a medical exam. Have you tried searching online? Another option, like Steve mentioned, is to obtain life insurance through your lender.

[pearlieq]

Re: Working on an idea - opinions?

I've seen lots of advertisements for term life insurance policies that don't require a medical exam. Have you tried searching online? Another option, like Steve mentioned, is to obtain life insurance through your lender.

I've seen a lot of those too, but most of them seem to be the Colonial Penn type where they're for folks 55 and older and the coverage is pretty low. I think they might be more for folks looking to cover funeral expenses.

I'll keep looking, but we've been trying since DH was diagnosed 4 years ago. We've checked around online, worked with brokers, and asked our financial planner and no luck.

I hope someday they might relax the underwriting standards for diabetes a bit. DH was diagnosed when he was 25 and aside from taking his pills and skipping dessert he's just like you and me. I don't know how they seriously expect him to keel over in the next 10 years! There must be a better way to handle this...

[Fern]

Re: Working on an idea - opinions?

I agree with most of the others here that contributions to the EF are the way to go, if you have a baby on the way. Kids are always more xpensive than you planned on.

Is it possible that when you quit your job to stay ta home with the baby that you would then meet income requirements to deduct the interest you're paying on those loans?

I think DH owes it to his family, if not to himself, to seriously work toward shedding some weight this year. Being overwieght is the catalyst for all sorts of related health problems. You need him around!

[cschin4]

Re: Working on an idea - opinions?

Do you intend to stop work forever? Can you continue PT or don't you want to? I really dont' think you can plan for everything in life that may happen. Personally, I would put extra money toward the mortgage.