Life Insurance Basics

**kork13** · 01-22-2014, 03:00 PM

Forget whole/universal/whatever else life insurance -- they're all overly expensive & lead you to confusing your objectives (use life insurance as life insurance, not as an investment)... Stick with simple plain old term life insurance. It's the lowest-cost option, and will easily provide for your needs.

As for the amount, the advice varies. Generally, the common suggestion is that you have enough term life insurance to pay off any debts (mortgage, private student loans, business debt, etc.) plus a multiple of your income (anywhere from 5-10 years... I personally use 7ish years then round up), enough to provide for your surviving family's expenses to give them time enough to sufficiently replace your former income on their own. You didn't tell us your personal income, but I'll assume approximately $50k/yr (basically, enough to cover your family's annual expenses). So working off of that, I'd recommend you have at least $500,000 in a term life insurance policy. I'm using round numbers, but that would be enough to pay off your $130k (-ish) mortgage, then put the remaining life insurance payment into savings & live off of it for 7-8 years, to give your husband time so he can raise his income enough to replace your income.

You should also do a similar calculation for your husband, though you should need a lower amount of insurance on him, because he has a lower income. For example, if he earns $30k/yr, you would want at least $350k of term life insurance on him ($130k for mortgage + 7-8 years of his income).

**jIM_Ohio** · 01-22-2014, 04:03 PM

Originally posted by ladonnarosso View Post

Since having our baby boy, estate planning has been foremost in my mind. We have a meeting scheduled with a personal family lawyer to talk about wills and trusts, but I wanted to poll you guys and see if you could give me a crash course on what kind is best. What is the difference between term and whole life insurance? How much coverage should I get? I'm 27 years old, very healthy, married. We have a mortgage on our home for $134,000 and monotony expenses of about $4000. My husband works as well, but I'm the primary breadwinner. I don't want him to be unable to keep our son in our current life if I'm not around...

To sustain life over 18 years (kids childhood), do 20X annual expenses (so $48k annual expenses is $1.25 million; 5% withdraw rate). This would leave reasonable principal behind for college as well.

Focus on term and building a portfolio large enough that life insurance is not needed.
Convert the term to whole life if you succeed for estate planning, most people would not need trusts for what you stated above. They need financial knowledge.

**disneysteve** · 01-22-2014, 05:23 PM

Term insurance definitely. Don't even think about any other kind. There are a few sites where you can get free quotes and handle everything without having to meet with a sales person who will try to talk you into other things like whole life.

How much? The rule of thumb, for what it's worth, is 8-10 times income. I think that's a good starting point and then adjust up or down based on your own particular circumstances and what you want the insurance to cover if you die. Do you want your husband to be able to pay off the house or just provide a stream of income to make the payments? Do you want to cover college for your son? Do you have any other debts? How much does your husband earn? How much would he need to pay the monthly bills? Run all the numbers and then figure out how much insurance is needed to cover all of it plus funeral costs.

Term insurance is cheap, especially at your age, so err on the side of too much rather than too little.

**Retired To Win** · 01-25-2014, 11:35 AM

You may want to look for a dual policy -- one that covers both you and your spouse, paying the benefit to the survivor. This is what my wife and I got specifically to cover the mortgage on our house. But you may want to get a policy for an amount that meets your income-replacement objective. In any case, the policy gave good value for the price.

Taking into account the future-looking perspective you have now, you may also want to set up or review your cash & emergency reserve plan to cover yourself in case of unforeseen happenings. You can read about what I've done for my reserves plan in my blog post "Making Over My Cash Reserves Plan" at http://retired-to-win.savingadvice.c...rves-p_106516/.

Good luck.

**snafu** · 01-25-2014, 04:39 PM

Terrific advance on Insurance question. I suggest printing out an on-line Will form to give you and DH a basis for discussion of most of the details to be included in a Will for the lawyer to proceed. We had the document add...'or current asset' to extend the longevity of the document since you could buy a different house, car, insurance policy, investment plan etc. You need to decide on baby boy's guardian and an executor should your spouse be incapacitated.

It's also important to have a written, signed Advanced Health Directive, sometimes called a Living Will so that wishes are clear. There is a horrid case in the media of a woman who has been kept on life support for a fetus with a long list of issues. The family is so upset.

**ladonnarosso** · 01-26-2014, 11:29 AM

Originally posted by snafu View Post

Terrific advance on Insurance question. I suggest printing out an on-line Will form to give you and DH a basis for discussion of most of the details to be included in a Will for the lawyer to proceed. We had the document add...'or current asset' to extend the longevity of the document since you could buy a different house, car, insurance policy, investment plan etc. You need to decide on baby boy's guardian and an executor should your spouse be incapacitated.

It's also important to have a written, signed Advanced Health Directive, sometimes called a Living Will so that wishes are clear. There is a horrid case in the media of a woman who has been kept on life support for a fetus with a long list of issues. The family is so upset.

I've been following that case closely, as I am a nurse and understand the importance of a health care directive. I can't believe that they didn't respect that woman's wishes until they FINALLY took her off of life support today. Thank you all for your advice! I look forward to getting our affairs in order.

Life Insurance Basics