20 year vs. 30 year Term Life Insurance

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mass88
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20 year vs. 30 year Term Life Insurance

Post by mass88 » Sun Aug 06, 2017 3:55 pm

My wife and I have begun to shop around for life insurance. We have a daughter, who is 2 months old, and plan on having 1 more child in the next 2 years. We both work and make roughly the same annual income. We each have small life insurance policies through our employers but want our own in addition so that way if we change jobs, or benefits get cut we know we will have something that will not change over the duration of the term.

I am 32. She is 31. We both work. We have a mortgage and each have car loans. Car loans will be paid off in the next 4 years and the mortgage still has 28 years left. Which term makes the most sense? 20 years or 30 years?

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Taylor Larimore
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"How to Buy Life Insurance"

Post by Taylor Larimore » Sun Aug 06, 2017 4:08 pm

Mass88:

You will find this article by Boglehead Jim Dahle (The White Coat Investor) helpful:

How to Buy Life Insurance

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

letsgobobby
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Re: 20 year vs. 30 year Term Life Insurance

Post by letsgobobby » Sun Aug 06, 2017 4:08 pm

I think 20 is fine if you are an agressive saver/investor. If you are more of an average saver/investor, or worse, then 30 years is safer.

We went with 20 and it's worked out well. That said, 20 years isn't that long. We're already down to 11 years remaining on one of our policies and that doesn't feel like 'forever.'

Rupert
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Re: 20 year vs. 30 year Term Life Insurance

Post by Rupert » Mon Aug 07, 2017 7:09 am

Get both -- a larger 20-year and a smaller 30-year. If you discover you no longer need insurance after 20 years, let the 30-year policy lapse.

ResearchMed
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Re: 20 year vs. 30 year Term Life Insurance

Post by ResearchMed » Mon Aug 07, 2017 7:16 am

Rupert wrote:Get both -- a larger 20-year and a smaller 30-year. If you discover you no longer need insurance after 20 years, let the 30-year policy lapse.
This ^^

As you have fewer years left in the term, you'll also have less need.
So ladder the coverage with two or more separate policies, of staggered lengths.

RM
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alfaspider
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Re: 20 year vs. 30 year Term Life Insurance

Post by alfaspider » Mon Aug 07, 2017 7:31 am

We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.

gr7070
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Re: 20 year vs. 30 year Term Life Insurance

Post by gr7070 » Mon Aug 07, 2017 7:39 am

20.

By the time you're 50-something you'll each have larger incomes relative to CoL. You'll also have much higher net worths, which itself could take the place of life insurance should both of you die. Plus you'll be 20 years closer to no mortgage.

Most folks carry too much life insurance for too long. Some buy too soon even.

Spend some time thinking about what you want to accomplish with life insurance. Then calculate how much that will cost.

Pay off mortgage? 6 months salary-not working? 6 months half salary, part-time work? Pay for half college x2 kids? Fudge factor?

Calculate the scenario if one of you dies and then if both die.

CppCoder
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Re: 20 year vs. 30 year Term Life Insurance

Post by CppCoder » Mon Aug 07, 2017 8:42 am

All insurance products are about covering risk. The difference between a 20 and 30 year term life policy is the duration you want to cover the risk (of dying unexpectedly). Actually, it's even more subtle than that. The difference is really your hedge on your need for the policy over the additional term (choosing 30 over 20) and your ability to qualify for life insurance at the same rates after 20 years. If you can qualify, you can always purchase a 10 year term policy after your 20 expires if you still need it, but at what cost? You can also buy 30 year term now and drop it after 20 years if you no longer need it, but what's the monthly premium difference? If you can't answer the uncertainty questions about your risk (not the uncertainty that you'll die in the period but the uncertainty of whether you'll need coverage), then your best bet is probably to hedge as suggested above and take some of each. At the end of the day, though, the optimal decision is very personal. The generic advice is probably that term insurance is pretty cheap, so better to be a little overly conservative and have slightly more coverage than is necessary than short change yourself and not have enough if you really need it. Just remember, statistically, you're more likely to become disabled than to die early...make sure that's covered too...

inbox788
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Re: 20 year vs. 30 year Term Life Insurance

Post by inbox788 » Mon Aug 07, 2017 10:35 am

alfaspider wrote:We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
I'd go with 20. You can be more aggressive saving if you don't spend more money on unnecessary insurance. The more you spend on insurance, the less you can save.

ResearchMed
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Re: 20 year vs. 30 year Term Life Insurance

Post by ResearchMed » Mon Aug 07, 2017 10:46 am

inbox788 wrote:
alfaspider wrote:We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
I'd go with 20. You can be more aggressive saving if you don't spend more money on unnecessary insurance. The more you spend on insurance, the less you can save.
Term insurance is pretty inexpensive if purchased when relatively young and also healthy.

What happens if the person under your scenario gets disabled (or passes) in, say, 5 years?
There aren't 15 more years to "save".

That isn't going to help with whatever expenses that additional 10 years was desired for... living costs for children born after the policy started... college expenses for any/all children.

They could always drop the policy if savings are great 15- 25 years ahead.

RM
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alfaspider
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Re: 20 year vs. 30 year Term Life Insurance

Post by alfaspider » Mon Aug 07, 2017 11:04 am

ResearchMed wrote:
inbox788 wrote:
alfaspider wrote:We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
I'd go with 20. You can be more aggressive saving if you don't spend more money on unnecessary insurance. The more you spend on insurance, the less you can save.
Term insurance is pretty inexpensive if purchased when relatively young and also healthy.

What happens if the person under your scenario gets disabled (or passes) in, say, 5 years?
There aren't 15 more years to "save".

That isn't going to help with whatever expenses that additional 10 years was desired for... living costs for children born after the policy started... college expenses for any/all children.

They could always drop the policy if savings are great 15- 25 years ahead.

RM
If someone is merely disabled, then life insurance isn't going to pay out. I suppose you could become disabled and then expire after the end of the 20-year term (but before 30 years), but the idea is after the end of the 20-year term your dependents are adults (or very close to) and no longer require much. Also, the advice is for a dual income household. If only one partner becomes disabled, you still save by adjusting lifestyle.

Obviously, your savings today and family planning have an impact on this. If I became disabled today and my child inherited my current assets as a teenager, my assets would be plenty to get him a few years to adulthood.

ResearchMed
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Re: 20 year vs. 30 year Term Life Insurance

Post by ResearchMed » Mon Aug 07, 2017 11:06 am

alfaspider wrote:
ResearchMed wrote:
inbox788 wrote:
alfaspider wrote:We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
I'd go with 20. You can be more aggressive saving if you don't spend more money on unnecessary insurance. The more you spend on insurance, the less you can save.
Term insurance is pretty inexpensive if purchased when relatively young and also healthy.

What happens if the person under your scenario gets disabled (or passes) in, say, 5 years?
There aren't 15 more years to "save".

That isn't going to help with whatever expenses that additional 10 years was desired for... living costs for children born after the policy started... college expenses for any/all children.

They could always drop the policy if savings are great 15- 25 years ahead.

RM
If someone is merely disabled, then life insurance isn't going to pay out. I suppose you could become disabled and then expire after the end of the 20-year term (but before 30 years), but the idea is after the end of the 20-year term your dependents are adults (or very close to) and no longer require much. Also, the advice is for a dual income household. If only one partner becomes disabled, you still save by adjusting lifestyle.

Obviously, your savings today and family planning have an impact on this. If I became disabled today and my child inherited my current assets as a teenager, my assets would be plenty to get him a few years to adulthood.
Sorry i wasn't more clear.

If the person gets disabled, then all of that projected savings (the reason the extra life insurance "wasn't going to be needed") probably goes "poof".

RM
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inbox788
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Re: 20 year vs. 30 year Term Life Insurance

Post by inbox788 » Mon Aug 07, 2017 11:20 am

ResearchMed wrote:If the person gets disabled, then all of that projected savings (the reason the extra life insurance "wasn't going to be needed") probably goes "poof".
Not seeing how a higher cost 30 year policy helps much in this scenario, other than expiring between years 20-30. Annual risk of that event any given year for young healthy folks is quite low. I'm guessing it's 2-5% chance this decision even matters, so the vast majority will benefit from shorter term. But if you're that unlucky small percentage or are concerned enough about it, by all means buy the insurance. IMO it's relatively poor value. 80/20 rule.

ResearchMed
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Re: 20 year vs. 30 year Term Life Insurance

Post by ResearchMed » Mon Aug 07, 2017 11:30 am

inbox788 wrote:
ResearchMed wrote:If the person gets disabled, then all of that projected savings (the reason the extra life insurance "wasn't going to be needed") probably goes "poof".
Not seeing how a higher cost 30 year policy helps much in this scenario, other than expiring between years 20-30. Annual risk of that event any given year for young healthy folks is quite low. I'm guessing it's 2-5% chance this decision even matters, so the vast majority will benefit from shorter term. But if you're that unlucky small percentage or are concerned enough about it, by all means buy the insurance. IMO it's relatively poor value. 80/20 rule.
For some/many of us, that's what insurance is for... to cover the substantial costs of a very low probability event.

But each of us has individual decisions about what the costs are, what the benefits are, and what they view the probabilities are.
And then there is, "what are the consequences of getting it wrong?"

Then we each make our decisions.

I was simply clarifying that my comment was not dependent upon the 20 year policy paying out in case of disability.
The previous comments had suggested "saving more" during the first 20 years of earnings, rather than getting a separate and smaller 30 year term policy (which adds to the first 20 years' coverage, plus some for the next 10), which is great, assuming that all goes well during those 20 years...

RM
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alfaspider
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Re: 20 year vs. 30 year Term Life Insurance

Post by alfaspider » Mon Aug 07, 2017 12:18 pm

ResearchMed wrote:
alfaspider wrote:
ResearchMed wrote:
inbox788 wrote:
alfaspider wrote:We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
I'd go with 20. You can be more aggressive saving if you don't spend more money on unnecessary insurance. The more you spend on insurance, the less you can save.
Term insurance is pretty inexpensive if purchased when relatively young and also healthy.

What happens if the person under your scenario gets disabled (or passes) in, say, 5 years?
There aren't 15 more years to "save".

That isn't going to help with whatever expenses that additional 10 years was desired for... living costs for children born after the policy started... college expenses for any/all children.

They could always drop the policy if savings are great 15- 25 years ahead.

RM
If someone is merely disabled, then life insurance isn't going to pay out. I suppose you could become disabled and then expire after the end of the 20-year term (but before 30 years), but the idea is after the end of the 20-year term your dependents are adults (or very close to) and no longer require much. Also, the advice is for a dual income household. If only one partner becomes disabled, you still save by adjusting lifestyle.

Obviously, your savings today and family planning have an impact on this. If I became disabled today and my child inherited my current assets as a teenager, my assets would be plenty to get him a few years to adulthood.
Sorry i wasn't more clear.

If the person gets disabled, then all of that projected savings (the reason the extra life insurance "wasn't going to be needed") probably goes "poof".

RM
Right, but what I'm saying is that I'm not relying on "projected savings." Our current assets wouldn't be enough to raise a small child to adulthood (which is why we need life insurance), but they would be plenty to get a 16-year old through college. Even if we can't save a dime from here on out, our assets are enough if both of us die right after the expiration of our 20-year policy. If things got so dire that we were forced to start drawing down our current retirement savings, we'd probably also have to skip life insurance premiums too.

Another consideration is the financial circumstances of your relatives who would raise the children if you were to die. If they are well-off, the consequences of being under-funded are less dire for the child (with due respect for the fact that you'd be imposing a financial burden on them). And, it's also worth reiterating that the advice for a single wage earner is very different from a dual income household where both spouses could support the family independently if need be. With a single wager earner, I'd say 30 year is absolutely appropriate because you will need to provide for your partner's retirement.

gregwils
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Re: 20 year vs. 30 year Term Life Insurance

Post by gregwils » Mon Aug 07, 2017 2:36 pm

If you are planning on having a second child, even in the near future, then more than likely you will have insurable needs beyond twenty years. Buying the 30 year policy will ensure you have a policy in place to give you protection. If you don't need it at some point beyond 20, then simply stop paying. You can always buy the 20 and defer your decision or buy a little of both as one poster suggested (novel idea, BTW), but the least risk would be to buy the 30 year plan now when you know you are insurable. Just make certain it's level premium.

mass88
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Re: 20 year vs. 30 year Term Life Insurance

Post by mass88 » Mon Aug 07, 2017 8:56 pm

Thank you for all of the comments and suggestions. We are leaning towards a 30 year policy - we like the idea that we would be covered until our early 60s when (hopefully) our children are fully financially independent.

fasteddie911
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Re: 20 year vs. 30 year Term Life Insurance

Post by fasteddie911 » Sat Aug 12, 2017 7:49 am

We were recently debating between 20 vs 30 year term life, or laddering, and ultimately decided to go with 30 year. The cost savings of laddering vs just a 30-year was pretty minimal, and we were fine paying a little more for peace of mind and having that extra coverage for years 20-30 just in case. LIkewise, the price difference between a 20-year and 30-year was a little more, but we were ok paying that extra amount for the 30-year for peace of mind in case our savings don't go as planned or something else happens. Term life is relatively cheap and it came out under what we expected anyways.

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TxAg
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Re: 20 year vs. 30 year Term Life Insurance

Post by TxAg » Sat Aug 12, 2017 1:26 pm

alfaspider wrote:
Mon Aug 07, 2017 7:31 am
We were in a similar situation and wend with 20-year. The only reason why we bought life insurance is to provide for our child in the event of our untimely demise. In 20-years we will no longer have a huge remaining financial commitment. College will have been saved for, and our retirement accounts will be big enough to meet any remaining needs. But, as a poster above stated, it works better if you are an aggressive saver.
+1

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