Am I underinsured (life)?

[Leo]

We are planning to start a family soon and have a baby. We are both 30 years old. I earn about 170K a year and my wife 35K a year. Our take home is around 11K, and expenses around 5K here in LA.

My wife does not have any life insurance. I have $300,000 life insurance death benefit from work. I want to get term life insurance outside work but it is expensive for me because I am prediabetic (with family history) and they label me as a smoker (occasional celebratory cigar), maybe $50 a month for couple hundred grand death benefit?

Currently our net worth is almost 400K (half in retirement) with no house and no debt. If something happened to me and my wife needs to raise a baby, is a net worth of 400K + 300k life insurance not enough? If that happens, I'm sure my wife would want to move else where to a LCOL area like Las Vegas and buy a house there.

I saw that AAA offers accident insurance and I can get it for $17 a month and pays out around $190,000 if I die in an accident (automobile / as pedestrian / airplane). Should I get that as a supplement or are there other strategy that we should do?

Thanks a lot!

[disneysteve]

You are certainly underinsured. Any benefit through your job is simply extra. It should never be your primary coverage since if you leave/lose the job, you lose the coverage. It's unlikely but your job could also decide to stop offering that benefit. So that means that right now you essentially have no life insurance on your own.

A good rule of thumb is 8-10 times annual income, so somewhere around $1.3-1.5 million for you, especially if there are kids on the way. Your wife doesn't make much and once there is a kid or two in the picture, she'll either need to stop working or you'll have day care costs to pay for. Either way, she'd burn through 700K pretty fast if you were gone.

I would suggest you shop around. Check selectquote.com or accuquote.com and see what you can find and buy the best deal that shows up that fits in your budget.

You might also want to ask your HR folks if there is an option for you to purchase additional coverage through the job. See what that would cost but only do it if you are able to continue that coverage even if you leave the job.

[kork13]

In addition to what Steve suggested above, I'd generally warn against any form of life insurance except straight up term life. The rest is either some form of wicked expensive cash-value junk, or an overly expensive (per $100k coverage) gimmicky policy.

I'd label any "accidental death" policy (such as you refer to) in that column, while likely not necessarily as heinous as other random forms of insurance out there. If you have trouble getting life insurance and have a mortgage, another policy often available is a mortgage life policy, such that it pays off your mortgage if you die. That's one's similarly expensive/gimmicky, but it's generally at least sizeable enough to make a difference for your family (they end up with a paid-for home), and those policies are typically guaranteed-issue (regardless of your health). Guaranteed issue policies are easy to get, but typically fairly low-value (<$50k), and significantly more expensive (per $100k).

When you're shopping for insurance, look for the lowest annual cost of coverage per $100k. So if you pay $50/mo ($600/yr) for $300k in coverage, that's $200 per $100k (fairly expensive, but average for a smoker). I know it's trite (sorry), but you could always just quit the cigars, and your life insurance costs would drop by 50-70% within a couple years.

[Captain Save]

We are planning to start a family soon and have a baby. We are both 30 years old. I earn about 170K a year and my wife 35K a year. Our take home is around 11K, and expenses around 5K here in LA.

My wife does not have any life insurance. I have $300,000 life insurance death benefit from work. I want to get term life insurance outside work but it is expensive for me because I am prediabetic (with family history) and they label me as a smoker (occasional celebratory cigar), maybe $50 a month for couple hundred grand death benefit?

Currently our net worth is almost 400K (half in retirement) with no house and no debt. If something happened to me and my wife needs to raise a baby, is a net worth of 400K + 300k life insurance not enough? If that happens, I'm sure my wife would want to move else where to a LCOL area like Las Vegas and buy a house there.

I saw that AAA offers accident insurance and I can get it for $17 a month and pays out around $190,000 if I die in an accident (automobile / as pedestrian / airplane). Should I get that as a supplement or are there other strategy that we should do?

Thanks a lot!

Define expensive ...

There are plenty of life insurance carriers that would take someone who is "pre-diabetic" although not at "preferred" rates but maybe even standard
There are quite a few life insureres who don't classify an occasional cigar smoker as a "smoker"

Check into a producer who can offer Banner, Prudential

A banner 500k policy is $35/ month at standard rate
A Prudential 500k policy is $63/ month at standard ..

Mutual of OMaha is another one.
Other companies like AIG, Lincoln, John Hancock won't probably take cigars seriously but their underwriting can be a pain.

You are probably more likely to get a standard rate with Prudential ...but a banner substandard rate might still be more affordable. you may even get a better rate with PRU .. ie Standard plus or preferred.. but this is after a thorough underwriting of your "pre-diabetic" condition.


WIth all that said .. I think it's better for both of you to have a little rather than you being the only one covered. If she passes away .. you might have someone to do all that she does around the house (at least before you get settled in) .. and that's not cheap.

[Captain Save]

When you're shopping for insurance, look for the lowest annual cost of coverage per $100k. So if you pay $50/mo ($600/yr) for $300k in coverage, that's $200 per $100k (fairly expensive, but average for a smoker). I know it's trite (sorry), but you could always just quit the cigars, and your life insurance costs would drop by 50-70% within a couple years.

Respectfully I would disagree with this .. Do not go "price shopping" unless you have clear cut case.. just look for a term life insurance agent who can broker many different companies but more importantly who is well versed with underwriting .. when you have these underwriting issues such as "pre-diabetic" .or being a cigar smoker , you need someone who understands what each company is looking for.

Prudential is one of the most "expensive" term life on a quoter but they are very lenient with Cigar smokers .. and they are most likely to get a substandard person to preferred rates... (not all the time , which is why you need to speak with someone who's well versed"

There are plenty of independent online agencies who specialize in pre existing conditions. Do not go with the big names like Policy Genius or Haven (they have limited offerings) ..

Accidental life is just that .. a life insurance if you get into an accident .. the problem is if you die prematurely of anything other than an accident (which is far more likely) .. your loved ones are left holding the bag... It's neither a "cash value junk " or "overly expensive" .. but it's definitely not necessary if you can purchase a term life insurance policy

[Jluke]

Your wife should get term life insurance too. Before she gets pregnant.

if something happens to her you will need money to cover child care expenses etc.

I assumed from your post that you weren’t looking for her but you should.

[kork13]

Respectfully I would disagree with this .. Do not go "price shopping" unless you have clear cut case.. just look for a term life insurance agent who can broker many different companies but more importantly who is well versed with underwriting .. when you have these underwriting issues such as "pre-diabetic" .or being a cigar smoker , you need someone who understands what each company is looking for.

I'll admit I'm not super experienced with life insurance, but I was probably unclear -- definitely agree that an independent broker is the best way to go, versus trying to research and find the best rates on your own. TONS of options out there to sort through, and independent brokers can sort through dozens/hundreds of them very quickly/easily. I only meant to say that in general terms, absolute cost (annual premium per $100k) should be the #1 determining factor in selecting a life insurance policy, versus name recognition or any gimmicky marketing claims. And an individual's personal factors/situation will play into those costs depending on how each company rates various factors. As long as the insurer is financially sound, term life is term life. Unless I'm misunderstanding you & that's the cost bit is what you disagree with...?

[disneysteve]

Your wife should get term life insurance too. Before she gets pregnant.

if something happens to her you will need money to cover child care expenses etc.

I assumed from your post that you weren’t looking for her but you should.

Great point. I meant to mention that as well. Yes, she should be insured too. Childcare, future college costs, etc.

[Captain Save]

I'll admit I'm not super experienced with life insurance, but I was probably unclear -- definitely agree that an independent broker is the best way to go, versus trying to research and find the best rates on your own. TONS of options out there to sort through, and independent brokers can sort through dozens/hundreds of them very quickly/easily. I only meant to say that in general terms, absolute cost (annual premium per $100k) should be the #1 determining factor in selecting a life insurance policy, versus name recognition or any gimmicky marketing claims. And an individual's personal factors/situation will play into those costs depending on how each company rates various factors. As long as the insurer is financially sound, term life is term life. Unless I'm misunderstanding you & that's the cost bit is what you disagree with...?

You're definitely on the right track.. it's not about what you said per se but it's more about how term life insurance is talked about online on blogs, podcasts etc.. with that same type of language. If the OP research the lowest cost for coverage .. there is a high likelihood he gets a life insurer who has cheap rates on an online quoter but doesn't budge for the slightest underwriting issue ..

There is a also the potential for him to land on these blogs who talk about the cheapest rate and point to their affiliate link with Policy Genius or Haven .. while PG has many options .. they are limited compared to most
indpendent brokers. Zander would also fall in this category. haven is a direct company so there is only one option.

[LivingAlmostLarge]

We are planning to start a family soon and have a baby. We are both 30 years old. I earn about 170K a year and my wife 35K a year. Our take home is around 11K, and expenses around 5K here in LA.

My wife does not have any life insurance. I have $300,000 life insurance death benefit from work. I want to get term life insurance outside work but it is expensive for me because I am prediabetic (with family history) and they label me as a smoker (occasional celebratory cigar), maybe $50 a month for couple hundred grand death benefit?

Currently our net worth is almost 400K (half in retirement) with no house and no debt. If something happened to me and my wife needs to raise a baby, is a net worth of 400K + 300k life insurance not enough? If that happens, I'm sure my wife would want to move else where to a LCOL area like Las Vegas and buy a house there.

I saw that AAA offers accident insurance and I can get it for $17 a month and pays out around $190,000 if I die in an accident (automobile / as pedestrian / airplane). Should I get that as a supplement or are there other strategy that we should do?

Thanks a lot!

You are underinsured to start. And second you shouldn't have insurance through your company. That is a disaster waiting to happen. You need to have life insurance so if you aren't working or at a company that doesn't offer it you have something for your family. You should get some for your wife.

I didn't work and at 30 got $500k (at the time enough to cover our mortgage) on my for 25 year term for $237/year. Very good investment. My DH got $800 for $2M 25 year policy and 2 years later another $2M 25 year policy for $1032. It's now been 11 years into 25 years and our kids are 11 and 9. He has been without work 2015-2016 and thankfully nothing happened. But if it had we had insurance. Something if we didn't have it i can't imagine it would have gone well. Now he's at a startup and without "employer" provided insurance and again I'm super grateful to have insurance just in case. He's a very healthy43 year old male. But I have a large mortgage and not enough skills to afford our lifestyle. My $500k term if were to die would probably by him childcare for 3 more years and then the rest would go to kids for college and stuff.

I do believe it's possible I'm going to have wasted $60k in premiums for the 2 of us over 25 years. BUT at least I can sleep at night now and as long as I need it. So $60k peace of mind. We've already paid $24k, and nothing happened knock on wood. I'm probably happier to have paid it and nothing happened. But I've seen friends who get cancer or some other pre-existing condition and are uninsurable. And then it's horrible for their families.

[Leo]

Thanks everyone for the response. I will follow the advice and get a life insurance (outside work). I am thinking of doing that once I am vaccinated (less social exposure) and after we buy a house (hopefully that will happen soon) to not have the hassle of changing address.

My work offers $150k for free and the other $150k I am paying for like less than $10 a month (that was the max I can add without any medical or questions asked). I think I can convert this if I leave my job but I do agree that outside work life insurance is better. Once I have a term life insurance outside work, I will remove that extra $150k benefit.

I am only willing to pay maybe $25-50 a month for the term life insurance so I don't know if we can follow the 8-10x annual income rule.

Regarding a policy that does not label occasional cigar smoker as smoker, I'm worried that if something happened to me and they found out that I smoked cigar, I wonder if there are going to be a hard time claiming the life insurance. I think it's better that I do smoke celebratory cigar in writing, right?

We both work remotely now and I am still debating about getting a life insurance on my wife. If something happened (knock on wood) and she passed away, I can still take care of myself and a baby right? Why do we need to put life insurance on my wife if I am bringing the majority of the income? Thanks!

[disneysteve]

I am only willing to pay maybe $25-50 a month for the term life insurance so I don't know if we can follow the 8-10x annual income rule.

We both work remotely now and I am still debating about getting a life insurance on my wife. If something happened (knock on wood) and she passed away, I can still take care of myself and a baby right? Why do we need to put life insurance on my wife if I am bringing the majority of the income? Thanks!

Get the most coverage you can within your budget. 8-10x income is a general rule of thumb but isn't the right answer for everyone for various reasons, budget being one of them.

As for your wife, if she were to die, would you have to pay for childcare? Would you need to take any unpaid time off of work for things like doctor visits or if your kid is sick at home for a few days? There could also be some lingering medical bills and funeral expenses for her. Term life is so cheap it's worth getting at least a small policy for her, like 100K or so.

[LivingAlmostLarge]

Term really is cheap insurance. When I hear the prices i think it's crazy but for $200/year for insurance for $500k for me? That is less than $25/month for your wife. I bet if I had done just $100k it would have been a lot less.