Who wants to help me decide which life insurance to buy here?

[Goldy1]

Nothing exciting about buying life insurance but with our first child on the way me an dh got the health exam and our quotes for preferred non smoker AAA life insurance. quotes

Here are my options. I may buy 100K, 150K, or 250K of life insurance. I figure any amount is better than nothing, but frankly 100K isn't really jack squat in the event of needing it. I only plan to have this one dear child, and mortgage will be paid off before 5 years is over with minimum payments. I figure I won't need insurance as much, say, when the kid, is a teen b/c it own't affect our workiing hours/childcare needs. WE tend to be in the 55K ish income range but due to current lay off, we may earn less in the future. ????

Quotes

Term life (all quotes are for me 33 y/o female and 37 y/o man(dh) In other words the yearly rates I state are for both of us

100K term is $386 a year

150K term is $549 a year

250 K term is $702 a year

Return of premium quotes(we get all the money paid for policies back at the end of the 30 year term assuming no one dies and it is not used)

100K ROP is $772 a year

150K ROP is $1098 a year

$250K ROP is $1337.50 a year

My debate is whether to buy term or rop. Logic says "look this is life insurance, not an investment, buy term for 250K b/c if you need it that will be more"
Emotions say "WE probably won't use it statistically so buy buy rop and get all the money back. $116 for 250K is kind of a lot to commit for 30 years . You must pay it for 30 years to get it back so you are screwed if you cancel it (I would do anything to not cancel it)

[maat55]

I havent ran the numbers, but Dave Ramsey does not advize ROP. I would look at twenty year term if you are religiously investing for retirement. You should be able to up your coverage a little for less money.

Make sure you are not under insuring the breadwinner and over insuring the lesser earner.

[Alex_Adviser]

Well i would suggest you to go for a Term Life Insurance over ROP. Preferably a 150K term is $549 a year.

All the best................

[disneysteve]

Forget ROP. It is a rip-off. Buy insurance for insurance and nothing else.

As for the choices you gave, I'm not clear on what you listed. Is that 100K term for EACH of you for a TOTAL of $386/year? Or is it a total of 100K coverage for BOTH of you? Or is it 100K for EACH with a charge of $386/year for each, or $772/year total?

If you earn $55,000/year, I'm not sure any of your choices are adequate if that is total coverage for both of you. 250K is less than 5 times income. Rule of thumb is 8-10 times income, but that does depend on your situation, your personal savings and what expenses you'd want that coverage to provide for. I'd need to know more about the big picture.

[Goldy1]

When I said
250 K term is $702 a year for term
That would be both of us each have 250K of coverage(two policies, one for each of us with 250K coverage) and the $702 would pay for that coverage for both of the policies.

ROP is os much more expensive and I am not sur I want to pay that 30 years even if I do have the money.
I know 250K is not a ton of coverage but basically could cover daycare a few years and bills other than mortgage. I may technically be underinsured with guidelines, but it beats being UNinsured.

[simpletron]

the rop is rip-off. take the best case which is the 250K one. it is 90% more, whereas the others are higher percentage, which means the others are guaranteeing a lower rate of return. if you took the extra 635.5/year for 30 years and invested in a roth ira at 8%, you would end up with ~78K, which is almost twice the 40125=1337.5*30, you'll get back. they are basically guaranteeing a 4 to 4.5% return. if you can beat that, take your money elsewhere.

as for how much coverage, at a minumum I would get enough to pay-off all your debts and expenses for a year or two, if just one of you died

[disneysteve]

Of the 55K household income, how much of that is earned by each of you? In our house, I earn over 90% of the income, so I'm much more heavily insured than my wife. If she were to die, I really wouldn't face any significant financial hardship as a result. If I were to die, however, she certainly would. So I think that needs to be taken into account. You may not each need the same amount of coverage unless your incomes are pretty similar.

As I said, it really depends on what the insurance is for. If I die, I want my wife to be able to maintain our current standard of living. I want my daughter to have money for college. I want money to repay the mortgage and pay the bills. I don't want my wife to have to be forced to go out and work full-time. I want her to be able to stay home and take care of my daughter and herself.

If you just want the insurance to cover funeral costs and daycare, you'd certainly need a lot less coverage. Estimate how much daycare would be for at least 5 years until the kid is in school all day (and then perhaps before and after school care as well). Add in 10K for a funeral. Throw in a little more for incidentals and to ease things a bit. 100K each may well cover that for you.

[Goldy1]

thanks. you guys have been very helpful. In the past I have earned less income than spouse. It is likely to continue that way, but that is not certain.

I did kind of decide on the 250K. The math does mean I would have to get at least about a 5% returnn on the difference between the rop and straight term.
If one of us dies, I would want us to be insured for living expenses for a while too such as possible health care premiums, and to have extra cushion.

I am kind of leaning towards straight term. The whole "paying and getting my money back seemed too good to be true." with rop.
Also the money I would pay extra for rop is not liquid in any respect.

I figured I might as well lock in a 30 year term also b/c if I get a 20 year policy, even if I don't need life insurance after 20 years due to assets, it will cost a lot more due to inflation and us being in our 50's then to buy it, and it's just a "nice" comforting thing to have.

I bet Dave Ramsey (not that I have to listen to everything he says) would advise straight term.

Another thing I wonder;if one did buy rop, at the end of the policy term and the money is given back to them, would tax be due?

[disneysteve]

If one of us dies, I would want us to be insured for living expenses for a while too such as possible health care premiums, and to have extra cushion.

Good point. If one of you has the health insurance through the job and that person dies, the survivor loses health insurance and would need to have the money available to get coverage.

I think the 250K is the best choice of the ones given. Personally, I'd probably opt for more than that, but that's a real good start. You can always add onto it later.

[snafu]

Before making a committment you need to feel confident about your ability to sustain it over the long term. Is your employment dependent on the auto sector for example?

Do either your or DH have disability insurance as an employee benefit? Is Life Insurance a part of your benefits? If so, what sum? $250K term is nearly 4 times your current income, requiring a contribution of $15. per person per pay [presuming two pay periods ea. month]. Can you kick it up a notch to 5 times income?

Alternatively, consider $100.K term and start a dedicated savings a/c to fund a balanced mutual fund when sufficient to meet minimum investor requirements @ Vanguard or similar. You will be surprised how small amounts can be sustantial when it's important to your feelings of security. This has the benefit of keeping you in control of contributions

[coreys]

thanks. you guys have been very helpful. In the past I have earned less income than spouse. It is likely to continue that way, but that is not certain.

I did kind of decide on the 250K. The math does mean I would have to get at least about a 5% returnn on the difference between the rop and straight term.
If one of us dies, I would want us to be insured for living expenses for a while too such as possible health care premiums, and to have extra cushion.

I am kind of leaning towards straight term. The whole "paying and getting my money back seemed too good to be true." with rop.
Also the money I would pay extra for rop is not liquid in any respect.

I figured I might as well lock in a 30 year term also b/c if I get a 20 year policy, even if I don't need life insurance after 20 years due to assets, it will cost a lot more due to inflation and us being in our 50's then to buy it, and it's just a "nice" comforting thing to have.

I bet Dave Ramsey (not that I have to listen to everything he says) would advise straight term.

Another thing I wonder;if one did buy rop, at the end of the policy term and the money is given back to them, would tax be due?

ROP is currently tax free for the refunded premiums. The thing I would look into more would be those returns. If you got a 4.5% rate of return--is that compunded annually? I don't think it is. I would suggest just purchasing more death benefit if possible and place the difference in a small Etrade savings account. They're currently paying 3.01% APR. Good Luck!

[Merch]

I would go with 20 year term and invest the difference in the premium. I would also get 8 - 10 times your income in insurance. If one of you makes most of the money, you might want enough to pay off the house, burial expenses, and 7 years of expenses (especially if you have kids).

I have enough to pay off the house, college for both kids, and 10 years of living expenses.