Stacking term life policies

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dandan14
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Stacking term life policies

Post by dandan14 »

I'm curious to get feedback on this.
My wife and I currently have 2 children with 1-2 more in the plans.
We each carry 1 million term (3 years into a 25 year term) on each other.

We're considering stacking another 10-15 year policy that would cover the time period where the kids are small and the surviving spouse would not be able to work. (Or if they did, would need to hire in-home help.)

Thoughts?
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

Dan, we've toyed with similar scenarios. I guess in your case, the question is whether you really need more than $1M right now. If so, then you should stack.

We're thinking of doing the opposite: we have about 15 years remaining on $1.5M policies/$500k policies (him/her) and are thinking of converting his (mine) to another 20 years $1M. We would probably rather have the extra 5 years of coverage than the extra $500k right now. However, I hate the thought of having paid for a twenty year term and not keeping it til the end. Kind of like we overpaid. On the other hand, the reason we are in a position to do this is because our net worth has increased in the last 5 years, making the extra $500k less important.
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

Makes good sense. When I discount the potential cash flows of a potential insurance payout, an extra 500k definitely gives me some more breathing room. It's all about the "cost of living" and "inflation adjusted returns" that I set in my assumptions.

The next 10-15 years are the most critical. After that, the kids are more independent and our net worth will have continued to build.
dhodson
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Re: Stacking term life policies

Post by dhodson »

letsgobobby wrote:Dan, we've toyed with similar scenarios. I guess in your case, the question is whether you really need more than $1M right now. If so, then you should stack.

We're thinking of doing the opposite: we have about 15 years remaining on $1.5M policies/$500k policies (him/her) and are thinking of converting his (mine) to another 20 years $1M. We would probably rather have the extra 5 years of coverage than the extra $500k right now. However, I hate the thought of having paid for a twenty year term and not keeping it til the end. Kind of like we overpaid. On the other hand, the reason we are in a position to do this is because our net worth has increased in the last 5 years, making the extra $500k less important.
while its true you overpaid. you didnt know that ahead of time. in essence you have paid more for insurability. i wouldnt sweat it much. if you feel at this point more years of coverage are necessary and you still have a good rating then id just make the switch.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

Dan, thank you for prompting me to call Accuquote. This has been on me to do list for sometime.

Got some figures today.

Right now I have 14.5 years left of a 20 year level term $1.5M policy, paying $760 per year. My youngest is 3.5 years so when the policy expires he'll be just 18. The purpose of getting longer coverage is because I'd feel more comfortable if he were a little older.

I can get:
$500k 20 year for $340-$440
$1M 20 year for $585-$785
$1.5M 20 year for $845-$1145

The prices vary depending on whether I can still get super preferred plus or am in the second highest tier. Won't know til after underwriting.

Simplest would be to replace current policy with the $1M 20 year term for about what I pay now, maybe less. That seems the most cost effective way to achieve goals. It's even better if I can get the best rate class.

Alternative would be stacking the $500k policy as that's all we'd really need in years 14.5-20 but it costs more and kind of overinsures us from now til 14.5 years out.

Based on portfolio growth the last five years we are comfortable dropping from $1.5M to $1M now.
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

Good thinking. I just ran the same scenario for me.

I have 22 years left on my policy -- which puts me either with a new 1.5 mil 20 year or 1.5 mil 25 year.
655/yr for 20 yr.
1080/yr for 25 yrs.
(Assuming preferred plus)

What a difference that extra 5 years makes.
Based on my cash flow calculations, I think 10 years of the extra 500k should carry us over the hump. After that 1 mil is plenty -- and then actually becomes way more than needed.

10 years 500k Pref Plus is $160.
15 years 500k Pref Plus is $195.

Sort of hard not to take the 15 year just for some extra wiggle room.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

With 1-2 more kids on the way, is 22 years enough? You might end up about where we are, with the policy expiring before the youngest hits college.
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

I believe it is.
My spreadsheet shows a yearly prediction for:
Children's age, mom's age, dad's age,
salary (which is 0 for 10 years or so while the kids are young), SS benefit, Yearly need -- all inflation adjusted
PV of amount needed to cover need (brought back by a nominal return set in my assumptions section): currently set to 6% (nominal return)
Nestegg needed: sum all all future PVs
Invested assets: what we already have
Insurance needed: Nestegg needed minus what we already have
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

you're much more advanced than me. Maybe I should try your spreadsheet. Also, I always neglect SS survivor benefits, but 18 year olds don't get any, right? It would just be my wife?
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

Sure...I'll PM you a link. But let me play around with it a little bit more and make sure this logic all works.
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Epsilon Delta
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Re: Stacking term life policies

Post by Epsilon Delta »

letsgobobby wrote:you're much more advanced than me. Maybe I should try your spreadsheet. Also, I always neglect SS survivor benefits, but 18 year olds don't get any, right? It would just be my wife?
18 year olds in full time high school can still get survivors benefits, so you may count on an extra few months.
Your wife only gets "young widows" benefits if caring for your child under age 16. She can get "'old' widows" benefit if she's over 60. In most cases there is an "in between" where she doesn't get anything.

The family maximum can also come into play. If this is limiting the family benefits then when a child reaches 16 or 18 one persons benefits will drop but others will increase. Sometimes the total family benefit stays the same, it's just allocated to family members in a different way.

Just a few more things to go into the spread sheet. :wink:
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

In the worst case scenario, I die in 15.5 years when my son is 18.5 and during the summer before he starts college. My wife would be 53 years old. Will she receive any SS survivors benefits? Since my earned benefit will be more than 2x her earned benefit, how/when can she collect based on my earnings record?

I actually read Mike Piper's SS book but I can't recall the answer off the top of my head.
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

I'm no expert (even after Mike's book) -- but I believe there would be a gap there for her because I believe survivors benefits only pays for a child (<18) and a spounse caring for that child up until they are 16. (Unless it is a child with a disability.)
So she'd have a SS gap until her retirement age at which point she could claim your (or her) benefit amount.

here's what SSA.gov says:
Your widow or widower can receive:

reduced benefits as early as age 60 or full benefits at full retirement age or older.

benefits as early as age 50 if he or she is disabled AND their disability started before or within seven years of your death.

receive survivors benefits at any age if you take care of the deceased worker's child who is under age 16 or is disabled and receives benefits on the worker's record.
.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

thanks for that, so it really sounds like I need to get those additional few years covered if my assets alone will not do it.
Topic Author
dandan14
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Re: Stacking term life policies

Post by dandan14 »

sending you a PM now with a link.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

finally got my underwriting done and qualified Preferred Plus. 20 year rates are:

$500k $355
$1M $645
$1.5M $935

My current policy expires in 14.25 years and my son will only just have turned 18. Wanting to cover through college.

Should I add on to my current policy, or replace?
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G-Money
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Re: Stacking term life policies

Post by G-Money »

Depends. You'll save a little bit of money (~$770 over 20 years) by stacking a $500K policy on top of your current $1.5M policy. But in 14.25 years + 1 day, you'll only have $500K in coverage, rather than $2 million. How much coverage do you want to have then?

Stacking more than $1M on top of your existing policy will cost you more, so only do this if you want more than $2M in coverage now, and more than $500K 14.25 years from now.

Personally, I like to keep things simple. I don't use spreadsheets, don't do heavy-duty projections of future income, SS benefits, etc. I just ballpark the need, round up (so I can sleep well at night), and call it done. I bought a single, 30-year term policy. When our needs changed, I bought a replacement 30 year policy.
Don't assume I know what I'm talking about.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

I'm sorting through these quotes and have discovered an anomaly.

Currently: 14+ years remaining, benefit $1.5M, premium $760.

Despite being 5+ years older, I can now get:

14.75 year, $1M, $395
19.75 year, $500k, $325

Which means I am getting as much coverage as I have now, plus an additional five years of $500k, even though I am five years older, for $40 less per year.

I thought term life policy rates had stopped going down?
dhodson
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Re: Stacking term life policies

Post by dhodson »

letsgobobby wrote:I'm sorting through these quotes and have discovered an anomaly.

Currently: 14+ years remaining, benefit $1.5M, premium $760.

Despite being 5+ years older, I can now get:

14.75 year, $1M, $395
19.75 year, $500k, $325

Which means I am getting as much coverage as I have now, plus an additional five years of $500k, even though I am five years older, for $40 less per year.

I thought term life policy rates had stopped going down?
its not really an anomaly. To begin with, you dont know for sure that you would again qualify for the best rate. They make it tougher as you get older. Most people assume they will continue to get the best rate but the odds go down with slight changes. second is that term is very competitive vs the other non transparent products and some companies can use real time data for their pricing. Thus even if the older mortality tables might over predict costs/deaths, if they have enough data then they can use this instead. Mortality is likely slowly improving still. I wouldnt be surprised that there are better deals today then when you purchased the policy based on mortality. The only part i find harder to compute is that the investment side of the equation probably doesnt look better for the insurance company then it did when you purchased the original policy.

Best thing to do is go through underwriting and see what happens. You dont have to purchase.
snowx800
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Re: Stacking term life policies

Post by snowx800 »

I bought term 500k (me) -250k (wife) 20yr When we were 33.
Then at 43 new we needed more so I got a 1mm 20yr on me.
My wife has breast cancer couldn't get insurance. She is doing great
One thing I would consider is put the same on you both just to take
Care of the kids. It would take a lot to replace what she does.
bsteiner
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Re: Stacking term life policies

Post by bsteiner »

letsgobobby wrote:...I can now get:

14.75 year, $1M, $395
19.75 year, $500k, $325
Can you actually get a term policy for 14.75 years or 19.75 years, or is this the cost for 15-year and 20-year policies?

If you can actually get a term policy for a term other than a multiple of 5 years, can you provide a link to information on it?

That would help in determining the value of an existing x-year policy (for a healthy person) if you consider the value to be the difference between the present value of the future premiums on the existing policy and the present value of the premiums on a new policy for a term equal to the remaining term of the existing policy.
letsgobobby
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Re: Stacking term life policies

Post by letsgobobby »

bsteiner, that was actually my awkward shorthand for a save date policy. I'm sorry for the confusion.

Dhodson, I have been underwritten at preferred plus so those are now my personal quotes.

Does this suggest others should also reexamine their existing policies for opportunities to save money?
dhodson
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Re: Stacking term life policies

Post by dhodson »

that is always the case with everything. you can re-examine tv, internet, wirelss, gas, elect, all insurances or anything that you are paying for that has competition on a regular basis. At some point you have to determine what your time is worth and how likely are you to get a better deal. There are people who are willing to call and pretend to cancel cable 5 times in order to save 5 bucks a month for a 1 year promotion and others who wont. The trouble becomes with many of these things is you dont know how much is possible to save until you invest a bunch of time. Id say re-examine all types of insurance every couple of years. It isnt just about cost. It might be that you need to change the amount of coverage or some other factor as well.
dhodson
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Re: Stacking term life policies

Post by dhodson »

dhodson wrote:that is always the case with everything. you can re-examine tv, internet, wirelss, gas, elect, all insurances or anything that you are paying for that has competition on a regular basis. At some point you have to determine what your time is worth and how likely are you to get a better deal. There are people who are willing to call and pretend to cancel cable 5 times in order to save 5 bucks a month for a 1 year promotion and others who wont. The trouble becomes with many of these things is you dont know how much is possible to save until you invest a bunch of time. Id say re-examine all types of insurance every couple of years. It isnt just about cost. It might be that you need to change the amount of coverage or some other factor as well.
also its only still applicable if the underwriting was recently done.
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