Do we need life insurance?

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goGators
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Do we need life insurance?

Post by goGators »

Hi,
My wife and I plan to retire soon and wonder if we should cancel our term life policies to save ~$1K/year.
We have two kids. Youngest is 8. If we both die today, our saving alone can support them until they finish college.
Your advice please. Thank you.
mcraepat9
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Re: Do we need life insurance?

Post by mcraepat9 »

What about your other expenses? If one of you were to die, would the other be able to pay all household expenses for the rest of their life without working?
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Topic Author
goGators
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Re: Do we need life insurance?

Post by goGators »

mcraepat9 wrote:What about your other expenses? If one of you were to die, would the other be able to pay all household expenses for the rest of their life without working?
yes
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mhc
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Re: Do we need life insurance?

Post by mhc »

If you don't need the insurance, then don't buy it. It is usually more cost efficient to self insure.

Insurance is to manage risk. If you are not at risk, then no need for insurance.
kithwang
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Re: Do we need life insurance?

Post by kithwang »

how much is the payout? I'm guessing you cancel today and ask for it next year, it will cost more than 1K a year
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JupiterJones
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Re: Do we need life insurance?

Post by JupiterJones »

Sounds to me like a textbook case of not needing life insurance: No burdensome financial impact from either or both of you dying.
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Grt2bOutdoors
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Re: Do we need life insurance?

Post by Grt2bOutdoors »

goGators wrote:
mcraepat9 wrote:What about your other expenses? If one of you were to die, would the other be able to pay all household expenses for the rest of their life without working?
yes
Household expenses today, what about in inflated dollars tomorrow? What about health insurance, college, general well-being of child and that is posed with the same question - in inflated dollars?, not today's cost.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
MathWizard
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Re: Do we need life insurance?

Post by MathWizard »

goGators wrote:
mcraepat9 wrote:What about your other expenses? If one of you were to die, would the other be able to pay all household expenses for the rest of their life without working?
yes
This was what got us. If we both died, I had enough ins through work to handle the kids through age 22., but not if just I died.

Kudos to you if you've saved enough so quickly. With such young kids, you (or at least your wife) must be much younger than
my wife and I.

I'd make sure that you've done the calculations correctly
stan1
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Re: Do we need life insurance?

Post by stan1 »

If you were both to pass away before the child is an adult would you want to give all money to them or leave some to a trusted caregiver? Multiple ways to handle this but one way would be to leave the inheritance to the child and the insurance payout to the caregiver. You may also be able to lower coverage (and premium) without going back through underwriting and do so periodically as the child gets closer to adulthood.

Since you are even able to consider this topic the $1000 per year shouldn't be a burden so it really is how you want to manage risk. You cannot take an actuarial view of this; you have to consider you and your spouse's current and future health prognosis as well as the circumstances of the alternate caregivers.
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Toons
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Re: Do we need life insurance?

Post by Toons »

I would self insure in your scenario :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
inbox788
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Re: Do we need life insurance?

Post by inbox788 »

goGators wrote:Hi,
My wife and I plan to retire soon and wonder if we should cancel our term life policies to save ~$1K/year.
We have two kids. Youngest is 8. If we both die today, our saving alone can support them until they finish college.
Your advice please. Thank you.
Maybe. Depends on cost. Without knowing the deal you're getting, the best guess is that it's a market rate, but if it only cost $50/year wouldn't it be a gimme? And if it were $5000/year, wouldn't it be too expensive?

How many years is the premium fixed? When did you start, and how many years left? Any riders or options at the end, or is it a simple term?

How much would it cost you today to get the same amount 10 year term? https://www.term4sale.com/
Toons wrote:I would self insure in your scenario :happy
Me too.

If you're unsure, then IMO, you shouldn't buy insurance! If you need it, buy it! If you don't need it, don't buy it. The longer and more insurance premiums you pay the farther away the day you can stop buying insurance. Once you stop paying premiums and put that extra $1k/year into a rainy day fund, every year, the threshold margin grows and makes it an even better decision.
Topic Author
goGators
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Re: Do we need life insurance?

Post by goGators »

kithwang wrote:how much is the payout? I'm guessing you cancel today and ask for it next year, it will cost more than 1K a year
1M each
Grt2bOutdoors wrote: Household expenses today, what about in inflated dollars tomorrow? What about health insurance, college, general well-being of child and that is posed with the same question - in inflated dollars?, not today's cost.
MathWizard wrote: I'd make sure that you've done the calculations correctly
We used Firecalc for different scenarios and results were ok.
stan1 wrote:If you were both to pass away before the child is an adult would you want to give all money to them or leave some to a trusted caregiver?...
I'm not fluent in trust terminologies but we do have trusts to handle this scenario. One of these trusts also takes care the insurance payout. I will need to contact my lawyer to see if dropping the insurance would cause any issue with the trusts.
Toons wrote:I would self insure in your scenario :happy
inbox788 wrote: ...The longer and more insurance premiums you pay the farther away the day you can stop buying insurance. Once you stop paying premiums and put that extra $1k/year into a rainy day fund, every year, the threshold margin grows and makes it an even better decision.
yes I like these.
inbox788 wrote:...
How many years is the premium fixed? When did you start, and how many years left? Any riders or options at the end, or is it a simple term?
How much would it cost you today to get the same amount 10 year term? https://www.term4sale.com/...
Me: $1M, 20 years(2004-2024), cost = $530/year fixed
Wife: $1M, 15 years (2013-2028), cost = $550/year fixed
I don't know answer for "Any riders or options at the end, or is it a simple term?"

For $1M 10 year term @ https://www.term4sale.com
Me: ~$1000/yr
Wife: ~$600/yr
Silk McCue
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Re: Do we need life insurance?

Post by Silk McCue »

Have you considered worst case scenarios that could come into play that would put your family at financial risk should you die unexpectedly after the worst case scenario plays out. I'll let you consider what those worst case items might be for your unique life, work and financial picture. If you have assets to make a $1 Millions dollar policy payout unnecessary I would have to conclude that this $1000 expense is a rounding error in your budget. If it's not a rounding error then I would just make certain that you are truly as financially set as you feel you are. Firecalc is great but it can make you think that it's all good from here to there. It's a great tool but life has a habit of taking unexpected turns. Wishing you the best.
inbox788
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Re: Do we need life insurance?

Post by inbox788 »

goGators wrote:Me: $1M, 20 years(2004-2024), cost = $530/year fixed
Wife: $1M, 15 years (2013-2028), cost = $550/year fixed
I don't know answer for "Any riders or options at the end, or is it a simple term?"

For $1M 10 year term @ https://www.term4sale.com
Me: ~$1000/yr
Wife: ~$600/yr
Overall survivability of first 10 years of retirement is surprisingly high, making any life insurance purchases poor bets, but that's not why we buy life insurance. The first few years of a term life insurance policy is especially poor, since you're buying future insurability and rate lock/guarantee on top of the actual insurance for the year. By the last few years, the premium may be less than the equivalent market cost of insurance for that year.

If you need $1M in insurance, and you've accumulated $500k in retirement savings that you won't be using if you go early, you really only need $500k in insurance. Does the policy allow dropping half the coverage for half the premium? As the kids grow older, your actual needs decrease, but the insurance folks like to play up the lifestyle creep, and protect your increased lifestyle, not just basic needs. YMMV.

If you can't drop all the insurance, consider dropping half the insurance if the current policies allow. Your wife could probably still get a $500k policy for about half the price on the open market. Your current rate is a good deal, so you might want to keep that one (and the longer you keep it, the better the deal), and cancel the wife policy given the implied risk from the current pricing. But only if that's consistent with your actual insurance needs and plans. Another risk is the remaining working/earning years that add to your net worth, so waiting till you retire may be another stopping point.
Topic Author
goGators
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Re: Do we need life insurance?

Post by goGators »

Davidk wrote:Have you considered worst case scenarios that could come into play that would put your family at financial risk should you die unexpectedly after the worst case scenario plays out...
Thank you very much for your advice. It makes us think about our worst case scenario in which both of us die and all of our savings are gone (e.g. market crash, identity theft). In that light, $1k/year is indeed an excellent investment.
inbox788 wrote:Overall survivability of first 10 years of retirement is surprisingly high, making any life insurance purchases poor bets, but that's not why we buy life insurance. The first few years of a term life insurance policy is especially poor, since you're buying future insurability and rate lock/guarantee on top of the actual insurance for the year. By the last few years, the premium may be less than the equivalent market cost of insurance for that year...
This is good. Thank you.
retiredjg
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Re: Do we need life insurance?

Post by retiredjg »

I think I'd wait a few years. Till the youngest is in high school maybe? Black swans and all. But if there is that much money available, I'm not sure that saving $1k a year is very important. I think I'd rather have the insurance.
huntertheory
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Re: Do we need life insurance?

Post by huntertheory »

I'd keep some sort of policy considering you still have an 8 year old child and you plan to retire but have not yet (and thus don't know exactly how that will plan out). I know you said you have enough savings to last the child through college but if one (or both) of you and your wife pass away then the surviving spouse will have a lot less time and less time often translates to more money. And as others have said sometimes life has a way of bunching some bad things together, like a large market drop combined with a family tragedy. Those are precisely the kinds of situations that insurance is there to protect. But as others have said, you may be able to reduce/change your policy to make it more appropriate for your lives.
Dandy
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Re: Do we need life insurance?

Post by Dandy »

What will happen if you die? Can spouse support herself and two young children? How about if she dies? In general I believe in life insurance when children are so young. You didn't mention the face amount or the size of your portfolio but often if you feel the amount of insurance is too high you can request a reduced face amount at a reduced price.
Caduceus
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Re: Do we need life insurance?

Post by Caduceus »

Seems like a fairly inexpensive amount for the coverage you are getting. Other factors you might want to consider are your current health (the less healthy you are, the better the "bet" on holding the term insurance). Also the possibility of keeping your term life insurance but dropping your partner's. If the numbers you are quoting on the open market are correct, the premium you are currently paying is significantly under-priced, whereas your partner's is only moderately under-priced.
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