How much term life insurance?

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lvrpl
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Joined: Wed Feb 25, 2015 3:38 pm

How much term life insurance?

Post by lvrpl » Tue Jan 03, 2017 6:07 pm

I’ve been doing some thinking about my level of term life insurance and would welcome any input on how much term life insurance I should be carrying. Here are my details:

– 33 years old, married with two young kids
– wife stays at home and doesn’t earn a salary
– current income is $205k base, ~$60k annual bonus (not guaranteed but usually quite likely), ~$60k in annual equity grants
– $370k left on mortgage with no other debt
– $100k in tax-advantaged retirement savings
– Current annual spending (excluding retirement savings) is ~$95k (mortgage comprises ~$35k of that)


I’ve currently got $2M in 30-year term but have started wondering if I need more. In the event of my demise, my wife could go back to work and earn a moderate salary (think <$70k), but we’d definitely like for her to be able to stay home with the kids while they’re little at least (and longer if feasible).

Do you think I’m under-insured? Thanks for any thoughts.

pintail07
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Re: How much term life insurance?

Post by pintail07 » Tue Jan 03, 2017 6:22 pm

Term insurance is so cheap doubling your coverage would cost little compared to the value if something happened. I would also look to max out privately owned disability coverage. Disability can be devastating.

jbird11
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Re: How much term life insurance?

Post by jbird11 » Tue Jan 03, 2017 6:26 pm

To me, I would think you might be a little over-insured actually.

I think a 20-year, maybe even a 10-year plan might get you there (by there I mean debt-free and kids mostly grown). At $2M, she can pay off the house and be left with only $60k per year of spending.

At $260K/yr salary and only $100K in spending... the extra $160K should build nicely each year you don't pass away.

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simplesimon
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Location: Boston, MA

Re: How much term life insurance?

Post by simplesimon » Tue Jan 03, 2017 8:22 pm

lvrpl wrote:I’ve been doing some thinking about my level of term life insurance and would welcome any input on how much term life insurance I should be carrying. Here are my details:

– 33 years old, married with two young kids
– wife stays at home and doesn’t earn a salary
– current income is $205k base, ~$60k annual bonus (not guaranteed but usually quite likely), ~$60k in annual equity grants
– $370k left on mortgage with no other debt
– $100k in tax-advantaged retirement savings
– Current annual spending (excluding retirement savings) is ~$95k (mortgage comprises ~$35k of that)


I’ve currently got $2M in 30-year term but have started wondering if I need more. In the event of my demise, my wife could go back to work and earn a moderate salary (think <$70k), but we’d definitely like for her to be able to stay home with the kids while they’re little at least (and longer if feasible).

Do you think I’m under-insured? Thanks for any thoughts.
If you died tomorrow, your wife and children would have a paid off house, $100k in retirement savings, and $1.6 million in cash. Annual spending would be $60k (since there's no mortgage), maybe less with you out of the picture. It doesn't sound like you need more than what you already have.

Agree with another poster that you should be sure to have a good long term disability policy.

John Laurens
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Re: How much term life insurance?

Post by John Laurens » Tue Jan 03, 2017 8:57 pm

You didn't mention your wife? I would have 500k on her since your children are young. Replacing what she does for your family costs 10's of thousands every year. 2 million is a little on the lower end with your income/net worth/young children/stay home mom, but in just a couple of years it will be plenty.

Regards,

John

Tal-
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Re: How much term life insurance?

Post by Tal- » Tue Jan 03, 2017 9:14 pm

You're probably in the right range. I could be talked into anything from $1M to 3M. This means that $2M is a viable number, but going up another $1M doesn't seem unreasonable.

If you do increase your life insurance, I would go with a shorter term than 30 years. I think a 10 or 20 year plan for 1M on top of your 30 year, 2M plan is probably sufficient.

With that said, I'm unclear (and even nervous) as to why your net worth isn't bigger. With 300K in income and 100K in expenses, you should have a net worth quite a bit higher than 100k. There are plenty of good reasons for this to be the case, but generally speaking, your net worth should be jumping by leaps and bounds at this point in your life.
Debt is to personal finance as a knife is to cooking.

lvrpl
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Re: How much term life insurance?

Post by lvrpl » Wed Jan 04, 2017 9:56 am

John Laurens wrote:You didn't mention your wife? I would have 500k on her since your children are young. Replacing what she does for your family costs 10's of thousands every year. 2 million is a little on the lower end with your income/net worth/young children/stay home mom, but in just a couple of years it will be plenty.

Regards,

John
Great point - I actually neglected to mention that I've already got a 20-year $500k policy on her. Thanks for catching that.

lvrpl
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Re: How much term life insurance?

Post by lvrpl » Wed Jan 04, 2017 10:04 am

Tal- wrote:You're probably in the right range. I could be talked into anything from $1M to 3M. This means that $2M is a viable number, but going up another $1M doesn't seem unreasonable.

If you do increase your life insurance, I would go with a shorter term than 30 years. I think a 10 or 20 year plan for 1M on top of your 30 year, 2M plan is probably sufficient.

With that said, I'm unclear (and even nervous) as to why your net worth isn't bigger. With 300K in income and 100K in expenses, you should have a net worth quite a bit higher than 100k. There are plenty of good reasons for this to be the case, but generally speaking, your net worth should be jumping by leaps and bounds at this point in your life.
Very helpful, thanks.

And on your point about my net worth - I graduated from business school 3 and a half years ago, which has two implications: 1) I've only had this income for a few years (and, in fact, was closer to $175k three years ago out of business school, so I haven't been at my current income level for even the entire three years); and 2) I've been digging out of the $200k student debt hole, which I just got done paying off. Hopefully that makes sense.

mw1739
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Re: How much term life insurance?

Post by mw1739 » Wed Jan 04, 2017 10:07 am

My situation isn't terribly different from yours (similar age, less income, but more assets) and I have a $2MM 25 year policy. I wish I had laddered my policies, but don't plan to change anything right now.

Gropes & Ray
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Re: How much term life insurance?

Post by Gropes & Ray » Wed Jan 04, 2017 10:16 am

Did you look up what Social Security would pay your children (through age 16) and your wife as their caretaker? When I calculated the coverage that I needed, I did not consider social security and over purchased.

Tal-
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Re: How much term life insurance?

Post by Tal- » Wed Jan 04, 2017 10:26 am

lvrpl wrote:
And on your point about my net worth - I graduated from business school 3 and a half years ago, which has two implications: 1) I've only had this income for a few years (and, in fact, was closer to $175k three years ago out of business school, so I haven't been at my current income level for even the entire three years); and 2) I've been digging out of the $200k student debt hole, which I just got done paying off. Hopefully that makes sense.
Perfect! In that case, your net worth seems both in good shape, on track for retirement. And if you're been digging out of a 200K student debt hole, your net worth has already been jumping, and you should already be congratulated.
Debt is to personal finance as a knife is to cooking.

Da5id
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Re: How much term life insurance?

Post by Da5id » Wed Jan 04, 2017 10:31 am

Gropes & Ray wrote:Did you look up what Social Security would pay your children (through age 16) and your wife as their caretaker? When I calculated the coverage that I needed, I did not consider social security and over purchased.
This is a good point, and it is substantial amounts of money to your wife and kids. You can look at your annual or online social security statement to see how much. And under current rules, she could also collect some fraction of your social security at 60 if not remarried (but might be a bad idea, unless that + collecting her own at 70 is a better total deal).

A sizable addition to your wife's expenses if you were to die could be open market health insurance once your COBRA goes (and COBRA might be quite expensive too depending on the amount of your companies subsidy). While she might be eligible for ACA subsidized care, the future of that is to say the least murky.

There also is your kid's college costs to consider. With a large hunk of taxable money and a paid off house, private schools will likely drain a fair bit of it. It is hard to project into the future, but at current growth rates it will cost your kids over a million each probably, though I can't believe tuition/costs will actually continue to grow at faster than inflation forever.

Taken as whole, I'd say your $2 million is likely enough, but if you are concerned upping it is probably not THAT expensive for level term...

LarryAllen
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Re: How much term life insurance?

Post by LarryAllen » Wed Jan 04, 2017 10:34 am

I'd get a separate policy, with a different company, for a mil or two. Maybe a 10 or 20 year term. You can not have too much money sitting around if you die. Take care of your family. Make life easy for them. No, I don't sell life insurance. I have lived in a house where the main breadwinner died when I was kid though. I thus speak from experience. More is better.

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