Term life questions, help me understand what I am ensuring against

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adam61
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Term life questions, help me understand what I am ensuring against

Post by adam61 » Tue Nov 03, 2015 11:05 pm

I am married 34 wife 37 no children. My original plan was to max out work options, and wait about 3-5 years so we would know for sure if children would happen we would also be debt free at this point. Utilizing rolled over debt payments we've diligently worked to pay through some small cc debt, student loans, finished 3 cars off (only 2 currently owned) over the last 7 years and now make large extra payments on our 15yr 2.9% mortgage with 3.5 years left. A financial mistake but we are very debt averse and peace of mind is a powerful siren.

So of course plans changed I changed positions and they consider only base salary(only a little over half of pay), are more expensive and my wife's changed life insurance providers and rates are about 20% higher so the equation has changed and I'm less comfortable kind of band aiding until we are debt free and know the final child situation ( both would be known in 4 years).

A couple of questions assuming a nothing changes environment after getting some quotes from sites suggested here I'm looking around 500k each for 20yr term (expires at 54/57) $650 annual combined or 30yr term (expires at 64/67 perfect retirement age) but is about $1000/yr. 500k assuming my knowledge is correct and is tax free represents about 7-8yrs of the deceased's salary and my goal is no financial hardship to accompany the survivors immense grief and loss of direction (had a family member and friend go through this recently which brings it home as well).

So questions after my life story...

1) does covering until retirement (30 yr) make sense with the higher premiums or would using workplace plans or nothing at all in the 7-10 years before retirement be ok?? Seems like a risk to derail retirement with a huge unexpected hardship just years away.

2) If we are able to have a child the additional needs would allow us to underwrite a new 500k plan for a total of 1m or dissolve the old plan and buy a single policy if that is less expensive?

3) my amounts are obviously round figures thrown around and seem reasonable to rule of thumb estimates, I'm ok with the decreasing value of the 500k over time as our retirement accounts should be pretty large and it would just grease the wheels to make it to retirement and still not slow plans. Do these seem like appropriate figures? Wasting premiums seems silly, but no protection and leaving the loved one in an immediate pinch is unacceptable.

Love your thoughts this is obviously not an exciting topic mentally to dive into, but we recently completed wills and other estate documents we've put off for years and would like to just kind of close the loop a couple years earlier than expected with the recent changes mentioned above.

sco
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Re: Term life questions, help me understand what I am ensuring against

Post by sco » Tue Nov 03, 2015 11:28 pm

Personal opinion here...
Insure against what you know today. Figure if you have a kid you will have a 20-25 year commitment there, but you'll get 9 months notice...
For now, insure for what your spouse would need if you fell over tomorrow, to get her to retirement comfortably.. And Insure her to get you through..

If children become a variable, add to that coverage as needed. Whenever that happens the coverage may be higher, but you can just add it on top of whatever you have today..

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Watty
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Re: Term life questions, help me understand what I am ensuring against

Post by Watty » Wed Nov 04, 2015 12:51 am

adam61 wrote:I'm looking around 500k each for 20yr term (expires at 54/57) $650 annual combined or 30yr term (expires at 64/67 perfect retirement age)
It would be best to plan on being financially able to retire well before you are 64 and 67 since there can be health or career setbacks(like layoffs) that might mean that you can't work that long. I have seen this happen to a number of people.

In addition you might get unlucky and have lower than expected investment returns and not be have as much saved up as you hoped. You really don't want to get to be that age and have to try to work a few more years to finish building up your nestegg.

With a house that is just about paid off I would think that saving up to be able to retire in 20 years at 54/57 would be possible and you can still work after that if you enjoy your jobs and want the extra money.

nanoanalyzer
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Re: Term life questions, help me understand what I am ensuring against

Post by nanoanalyzer » Wed Nov 04, 2015 11:53 am

Don't forget about payments from Old Age, Survivors, and Disability Insurance. You may also be able to self-insure at 54/57 with retirement account balances (you won't need them when you are dead...). And this policy would not be inflation-indexed, so the 30-year is less effective in the last 10 years.

All things considered, I would go with the 20 year and invest the difference in premiums.
"If you think stocks are like physics, you believe there must be smart people who can measure exactly where the Dow Jones Industrial Average will be in five months." -Morgan Housel

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bertilak
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Re: Term life questions, help me understand what I am ensuring against

Post by bertilak » Wed Nov 04, 2015 1:07 pm

I basically agree that "Insure against what you know today" and add insurance in the future as needed, but there is one additional thing to consider. I know because I ran into this personally.

You may become un-insurable due to health issues. If you are planning (hoping?) for children you may want to take out enough term insurance to cover that even before the need is absolutely certain.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Independent
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Re: Term life questions, help me understand what I am ensuring against

Post by Independent » Wed Nov 04, 2015 1:21 pm

adam61 wrote:
A couple of questions assuming a nothing changes environment after getting some quotes from sites suggested here I'm looking around 500k each for 20yr term (expires at 54/57) $650 annual combined or 30yr term (expires at 64/67 perfect retirement age) but is about $1000/yr. 500k assuming my knowledge is correct and is tax free represents about 7-8yrs of the deceased's salary and my goal is no financial hardship to accompany the survivors immense grief and loss of direction (had a family member and friend go through this recently which brings it home as well).
Your title says you're having trouble figuring out what you're insuring against. I am, too.

It seems that you each have incomes in the $60k-$65k range. If one of you dies, the survivor will still have his/her income, and will have a nearly paid for house. I can't locate any financial hardship here.

There is a psychological hardship. Maybe enough money to let the survivor feel that he/she could take off work completely for a year, just to get his/her head around the idea of losing the spouse, would help. That would be about $50k, not $500k.

I agree that you might have an insurability issue. You could buy the amount you think you'll need if you have a child just to be really conservative. Or, you might say that you'll wait to buy until you're ready to start a family. A really serious medical issue might make one of you uninsurable, but that same issue might make you decide you really don't want the family.

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