Should I do 20 or 25 Year Term Life Insurance?

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burnout454
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Should I do 20 or 25 Year Term Life Insurance?

Post by burnout454 »

Trying to decide between 20 or 25 year term life insurance.

Age: 34
Children: a 2-year-old and probably another in the next couple years. Probably both children would be age 18 by the time the 20 years policy ends.

$1M @ 20 Year = $36/mo (or $423/yr)

$1M @ 25 Year = $53/mo (or $623/yr)

Compare the cost in in today's dollars of a 5 year plan after the 20 year plan: $1M @ 5 Year at age 54 = $140/mo (or $1,500 year)

I'm having a hard time committing to the extra $200/year for the first 20 years of the 25-year plan.

Although the $200 extra per year for 20 years ($4,000 total) would be less than the cost of a 5-year plan after the 20-year plan at age 54 ($1,500 per year in today's dollars or $7,500 total), it's hard to commit money at this early point in my life when $200 means more. I expect that by the time I'm in my 50s I will be in a position where a 5-year plan at $1,500 per year isn't a big deal. I expect to have $1M saved by that point. Maybe I'd rather save the $200 per year now and pay more later.

One unknown is my health 20 years from now and whether I can get a good price.

Recommendations? Other factors?
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David Jay
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by David Jay »

By my mid-50s my investment portfolio was large enough to provide for my family so I cancelled all of my life insurance policies. I think a 20 year policy is fine.
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awval999
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by awval999 »

I would do 20.

I got a 30 year, but got it at 27. Mine costs $60/month for same $1M. Those are good rates.
Raggs
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Raggs »

Where will you be financially in 20 years? What will the need be in dollars at that point for the insurance? You could always do two policies. One $500k for 20 years and the other $500k for 25 years. Or $750k for the 20 and $250k for the 25 years. I hate to say this as an insurance agent but there are other things you can do to offset or reduce the need for life insurance. Prepaid burial is one. 529 for college education is another. There can be alternatives to offset other projected expenses. What will be the debt load you expect to maintain for 10, 20, and/or 25 years? Did you shop around with various agents or the direct life insurance carriers? There are some brokers who can quote 20 to 40 different carriers. What about your family history for illness? Will it likely affect you? If so then maybe a 25 year will be appropriate.
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BL
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by BL »

What is the cost if you split it 500k 20 years, 500k 25 years? You may not need as much after 20 years.

Don't count on being able to buy in 20 years.

Did you check with term4sale.com or an independent agent who can will shop for you?
ddurrett896
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by ddurrett896 »

burnout454 wrote: Thu Sep 07, 2017 9:18 pm Recommendations? Other factors?
I'd go with 20.
Valuethinker
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

burnout454 wrote: Thu Sep 07, 2017 9:18 pm Trying to decide between 20 or 25 year term life insurance.

Age: 34
Children: a 2-year-old and probably another in the next couple years. Probably both children would be age 18 by the time the 20 years policy ends.

$1M @ 20 Year = $36/mo (or $423/yr)

$1M @ 25 Year = $53/mo (or $623/yr)

Compare the cost in in today's dollars of a 5 year plan after the 20 year plan: $1M @ 5 Year at age 54 = $140/mo (or $1,500 year)

I'm having a hard time committing to the extra $200/year for the first 20 years of the 25-year plan.

Although the $200 extra per year for 20 years ($4,000 total) would be less than the cost of a 5-year plan after the 20-year plan at age 54 ($1,500 per year in today's dollars or $7,500 total), it's hard to commit money at this early point in my life when $200 means more. I expect that by the time I'm in my 50s I will be in a position where a 5-year plan at $1,500 per year isn't a big deal. I expect to have $1M saved by that point. Maybe I'd rather save the $200 per year now and pay more later.

One unknown is my health 20 years from now and whether I can get a good price.

Recommendations? Other factors?
I would go for the 25 year, but that's me. That would take you to 59 by which time hopefully your investments would cover any needs for your survivors.

Reasons:

- $200 pa is not a lot of money (and you might not actually invest it) c. $17.50 pcm

- future insurability is unknown - one brush with cancer etc. and you are basically uninsurable (except at very high cost)

One factor to consider is the role of inflation, because the policy will be worth say 12% less in 25 years time than 20 years if inflation equals 2% p.a.

It's the certainty of being able to get insurance now that tilts me towards the 25 year term. And having seen what my insurance rates are now, in my 50s, compared to what they were in my 30s. In fact due to a minor health issue (an accident with a blow on the head, no long term effects) I was not able to insure (at least for a while) and was only able to do so because the insurance that we took out with our first mortgage had an increase option.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

BL wrote: Thu Sep 07, 2017 9:37 pm What is the cost if you split it 500k 20 years, 500k 25 years? You may not need as much after 20 years.

Don't count on being able to buy in 20 years.

Did you check with term4sale.com or an independent agent who can will shop for you?
This is often a good strategy. 2 policies with a "step down" in coverage at a natural transition point.

And "split the difference" is generally a good strategy when faced with indeterminacy in financial issues due to significant uncertainty. Basically, it's more important to be at least 50% right, and not 100% wrong, than it is to be 100% right.
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greg24
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by greg24 »

I purchased life insurance at a similar age, and a similarly young child. We compared 20- and 30-year rates, and, like you, found the 20 year was much cheaper. We went with the 20 year, with the plan to self-insure and the goal of being in a financial place that we could survive without insurance after 20 years.

We are now 12 or 13 years in, and everything is going according to plan. Our nest egg is growing well. I'm glad we chose the shorter term and the cheaper rate, and will go without life insurance when the 20 years expires.
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lthenderson
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by lthenderson »

I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
bloom2708
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by bloom2708 »

Consider a ladder

$500k for 10
$500k for 20
$500k for 30

Each policy should be cheaper (by itself) and as your assets grow, your need for insurance declines as you age.
inbox788
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by inbox788 »

20 years is good enough. Covers most of your needs and adding 50% more to the cost to meet an additional single digit improvement isn't worth it.

How did you decide 1M was the correct amount? Why not 500k or 750k? Or 1.5M?

Insurance agents will try to sell you more insurance as you net worth grows, but IMO, you need less.
Veritas Simplex
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Veritas Simplex »

Many good suggestions here. I like the idea of splitting the insurance need into 2 or 3 policies. Either a 10 & 20 or a 10/20/30 year term. Most importantly, define the need for insurance. Is it to pay off debts, mortgage, etc.? Put kids through college? Generate income for stay at home spouse? Probably some combination of these and others.

As others have stated, unforeseen health issues may prevent you from buying insurance at a later date. This happened to me. I was glad to have purchased a 10 year & a 20 year policy at age 40.
Valuethinker
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
Life insurance hedges lost labour income in the event of premature death.

Suppose someone makes $100k a year, nets $70k post tax.

Loss of say 13 years of working life, halfway through a 25 year policy-- that's c. $1m.

Investing insurance premia just won't do that. To build up $1m over 13 years would take a fantastic savings rate. And most people who buy life insurance have insurable needs far above what they can save in only a few years.

Later in life, when your kids are self supporting, mortgage paid off etc, then the need for life insurance declines. But it would still make a significant difference to my spouse (financially negative) if I died before my targeted retirement age.

Life insurance is about protection, and term life is the cheapest way to buy protection. As long as you do not have a pre-existing condition and are under say 45 then life insurance tends to be very cheap. An advantage is that people who buy life insurance tend to live longer than the population as a whole-- middle class professionals, family stability, etc. Thus the risk pool is less risky than average-- benefiting rates. Also term life is quite transparent, low profitability for insurers, so it tends to have very competitive rates between providers.

Insurance rates were raised when AIDS appeared in the 1980s and was causing so many deaths. Deaths among professional educated men with life insurance, largely, at first. There was a windfall here for insurers in that rates were then cut as the drug cocktail became available and AIDS was no longer the death sentence that it had first been.

At some point I have little doubt we'll get another shockwave of early mortality-- perhaps a zoonotic virus or other pandemic. Antibiotic resistant bacteria are another likely source. Then we shall find out if the world life assurance industry is adequately reserved. Let's hope so.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by FrugalConservative »

lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
This is silly and makes little to no sense. What happens if you die at year 3; your kids have a few thousand in the bank vs a million dollar lump sum, thanks DAD! Doesn't seem too prudent to me and is poor advice at best.
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lthenderson
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by lthenderson »

FrugalConservative wrote: Fri Sep 08, 2017 1:37 pm
lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
This is silly and makes little to no sense. What happens if you die at year 3; your kids have a few thousand in the bank vs a million dollar lump sum, thanks DAD! Doesn't seem too prudent to me and is poor advice at best.
At the time, there was less than a 1% chance of that happening, i.e. that is how life insurance companies make money. Many industry experts say less than 2% of insured actually collect on their term life insurance. The odds of me investing any insurance premiums and ending up with a significant amount of money 20/25 years later is 100%.

Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
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Hyperborea
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Hyperborea »

lthenderson wrote: Fri Sep 08, 2017 4:16 pm
FrugalConservative wrote: Fri Sep 08, 2017 1:37 pm
lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
This is silly and makes little to no sense. What happens if you die at year 3; your kids have a few thousand in the bank vs a million dollar lump sum, thanks DAD! Doesn't seem too prudent to me and is poor advice at best.
At the time, there was less than a 1% chance of that happening, i.e. that is how life insurance companies make money. Many industry experts say less than 2% of insured actually collect on their term life insurance. The odds of me investing any insurance premiums and ending up with a significant amount of money 20/25 years later is 100%.

Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
Did you have insurance on your house at the time? If you did then why? The odds of making a claim are pretty low and the amount claimed on average is also pretty low. You would, on average, end up wealthier without buying home insurance.
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Minty »

My vote is 25, or 30. The way I look at it is, if you want to maximize, don't buy insurance at all. Insurance is a hedge, not a positive expectancy investment. But it may well be a huge problem if 18-year-olds no longer have the support of family income.
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burnout454
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by burnout454 »

BL wrote: Thu Sep 07, 2017 9:37 pm What is the cost if you split it 500k 20 years, 500k 25 years? You may not need as much after 20 years.
I've played around with the laddering options, but can't really find one that saves me money. For example:

500k @ 20 years = $21/mo
500k @ 25 years = $37/mo
TOTAL = $58/mo

It's cheaper ($53) just to have the $1M for the full 25 years.
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BL
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by BL »

burnout454 wrote: Fri Sep 08, 2017 9:58 pm
BL wrote: Thu Sep 07, 2017 9:37 pm What is the cost if you split it 500k 20 years, 500k 25 years? You may not need as much after 20 years.
I've played around with the laddering options, but can't really find one that saves me money. For example:

500k @ 20 years = $21/mo
500k @ 25 years = $37/mo
TOTAL = $58/mo

It's cheaper ($53) just to have the $1M for the full 25 years.
Ok. Scratch that with those amounts.
Maybe a smaller amount is enough??

You haven't said how you came up with $1 million:
Mortgage?
Does/can spouse earn decent wages? Need income for X years.

Have you looked at your SS statement lately?
Social Security for children covers through h.s. or to age 18.
SS covers caretaker spouse with child up to age 16 if low or no wages.

From https://www.ssa.gov/planners/survivors/onyourown5.html
We calculate a basic amount as if you had reached full retirement age at the time you die.
Widow or widower, any age, caring for a child under age 16 -- 75 percent.
A child under age 18 (19 if still in elementary or secondary school) or disabled -- 75 percent.
There's a limit to the amount that family members can receive each month. The limit varies, but it is generally equal to about 150 to 180 percent of the basic benefit rate.
Valuethinker
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

lthenderson wrote: Fri Sep 08, 2017 4:16 pm
FrugalConservative wrote: Fri Sep 08, 2017 1:37 pm
lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
This is silly and makes little to no sense. What happens if you die at year 3; your kids have a few thousand in the bank vs a million dollar lump sum, thanks DAD! Doesn't seem too prudent to me and is poor advice at best.
At the time, there was less than a 1% chance of that happening, i.e. that is how life insurance companies make money. Many industry experts say less than 2% of insured actually collect on their term life insurance. The odds of me investing any insurance premiums and ending up with a significant amount of money 20/25 years later is 100%.
No. The odds of you living another 25 years were high. But a single sample point is not a statistic. You either die, or you don't die. If you die, then the fact that there was 95% chance that you would not is irrelevant. I have next to no chance of being in a serious car accident in my lifetime (actually that's not true, but let's say it is for this purpose) but I always do up my seatbelt. When I go on holiday I have next to zero chance of needing emergency medical treatment. But I always buy travel insurance because being flown home privately etc. could get really expensive.


1. yes. Insurance is a business. If insurance companies don't make money, they go out of business.

Now you know why private insurers seldom do flood insurance. After a series of bad losses in the 1960s, they withdrew from the market.

2. over to life insurance. The reason it is cheap (at that age, it won't be in your 50s or if you have a pre existing condition) is because there is a low probability of death.

Term life is very cheap because it's a competitive market. Even correctly priced actuarially (and there's always a risk a life co will get that wrong) they don't make much money on simple term life-- it's fairly easy to compare quotes and the prices are therefore low.

The market is not "ripping you off" when it prices term life to you.

My father was in good health, btw, but was killed accidentally.
Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
You might be surprised to know that many are not in that happy situation. They are the sole or primary breadwinner, and parents and siblings have their own challenges.

In effect, you are saying you had no insurable need. Which is a different situation from people who actually buy life insurance.

Your advice in this situation is irrelevant, because you are not someone who needed to buy life insurance. Your family provided that insurance, instead-- although did you actually ask your siblings if they were happy to look after your family in the case of early demise?

Since this is America that most of the posters here are in, would it not also have worried you that you might have died after a long, expensive battle with cancer? That would have drained your life savings and left your spouse and children with little capital? At least in my understanding of how American medical insurance works, that seems to be a significant issue -- medical bills not covered by insurance?
indexonlyplease
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by indexonlyplease »

I woud do 30 year since it will be cheaper now. When it expires you will be FI and won't need it.

I had a 20 year plan when my son was born. I had to purchase another 20 yr when it expired. Lot more expensive even with premium plan. Now this will take me into 70. I do consider myself FI but at 50 I thought good idea to purchase. Still kind of cheap.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Coachrhino11 »

I know this regarding life insurance. My Aunt owns an extremely popular, almost famous restaurant here in Austin that has helped multiple siblings and many people financially. Her husband died of cancer at pretty young age and left her life insurance and that's how she started restaurant. We hope to never need car or home insurance, do you choose to not buy? If so, that's a you problem and dumb. Good luck for any thinking "investing" premiums instead of buying term will leave family any amount worth living on. I personally don't want to depend on family to support my family. Not to mention no one even brings up emotional state after spouse passing. Some of us have unbelievable marriages and they are also our lifelong best friends, I'd personally be crushed and might need extended time off from work, possibly resulting in losing job. The last thing I want to think about is damn money!

Just my 2 cents. Funny this came up because I just turned 39 and wife about to be 41 and I have 500k policy and wife has 400k policy plus we both get 2 years annual salary from employers on top. We are about 5 years in on a 20 year. I want us to have more insurance and maybe 5 more years. So, debating on keeping policies and getting another or once getting a larger one canceling these. Obviously we'll look at both options financially. Learned a lot from this site. We went through Zander or Insurance.com I believe last time.
Slacker
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Slacker »

My 15yr term policy (just picked it up this year at around age 41) includes optional coverage that decreases the policy amount at the end of the 15 years but with the same payment terms.

Year
1-15 full term amount
16 ~50% term amount
17 ~45%
18 ~41%
19 ~36%
20 ~33%

Until policy year 44 where I get $10k coverage and the rates start going up...but I'll certainly cancel the policy long before that time.

This works well for me, because we should be financially set by about year 10 or 11 of the policy, but just in case we have those extra few years that should definitely bridge any final gap. If I die before starting my pension, my wife gets to take my pension when I would have been old enough to take it myself which is at anytime from year 16 and on within this policy period.
Sweet Betsy
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Sweet Betsy »

I would err on the side of caution and go with the 25 year plan. This will get your children through college. Frankly I would go back to the drawing board and price out 30 year plans to get your children through college and their early adulthood.

The reason that my husband and myself have life insurance (more than we technically need) is to ensure that the other one doesn't have to worry at all about money while they grieve. This is a gift that we happily pay for each year to give to each other if the worst happens.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by aristotelian »

David Jay wrote: Thu Sep 07, 2017 9:22 pm By my mid-50s my investment portfolio was large enough to provide for my family so I cancelled all of my life insurance policies. I think a 20 year policy is fine.
We did 20 for that reasons. Kids should be independent or close to it. Our retirement savings by that time should cover any needs the might have.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by TheHouse7 »

20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

burnout454 wrote: Thu Sep 07, 2017 9:18 pm Trying to decide between 20 or 25 year term life insurance.

Age: 34
Children: a 2-year-old and probably another in the next couple years. Probably both children would be age 18 by the time the 20 years policy ends.

$1M @ 20 Year = $36/mo (or $423/yr)

$1M @ 25 Year = $53/mo (or $623/yr)

Compare the cost in in today's dollars of a 5 year plan after the 20 year plan: $1M @ 5 Year at age 54 = $140/mo (or $1,500 year)

I'm having a hard time committing to the extra $200/year for the first 20 years of the 25-year plan.

Although the $200 extra per year for 20 years ($4,000 total) would be less than the cost of a 5-year plan after the 20-year plan at age 54 ($1,500 per year in today's dollars or $7,500 total), it's hard to commit money at this early point in my life when $200 means more. I expect that by the time I'm in my 50s I will be in a position where a 5-year plan at $1,500 per year isn't a big deal. I expect to have $1M saved by that point. Maybe I'd rather save the $200 per year now and pay more later.
As you note below, this is the key problem. The reality is if you need insurance when you are 54 it is quite possible that you either cannot obtain it, or it is too expensive.

One cancer, even in remission. One accident. Just because you are unlikely to die in the next 20 years does not mean you have an equally low risk of an illness which would make buying new insurance impossible.

Or disability (a much higher risk). Then you won't be making the savings that you plan to make for your family, and you would have that worry that if you died prematurely, they would be exposed.

Honestly, $200 per annum? I would not even think about it, I would go for the 25 years. $200 is not a cup of coffee on the way to work every day for a year.
One unknown is my health 20 years from now and whether I can get a good price.

Recommendations? Other factors?
You can see the split in the crowd in the rest of the thread. You are to some extent on your own on this one.
BV3273
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by BV3273 »

Sorry to deviate off the OPs topic, but what is the best way to find a company and a policy. I am looking for 20 year term at $1mm as well. Thanks BV
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by beyou »

I don't agree with the assertion that your need declines, there is inflation.
Kids in college now, and my house is worth twice what it cost when my kids were born,
a car cost at least twice what I paid back then. Just getting a large policy with a fixed
amount is already allowing your coverage to decline over time, so having a ladder is just
accelerating this further, I would not do that.

IMO good to have coverage through the college years, at least until they turn 21
and are able to be on their own. So if you are having another kid soon, you would want the 25 year policy.
That or take the 20 year with enough to cover your 2 year old. Then take another policy for another 20 years
when you have the 2nd kid, to cover their expected dependency period. The risk you take is that your health may
not be as good in the future which could cause you to pay higher rates later when you buy the 2nd policy.
But if your health is good you would save money.
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BL
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by BL »

BV3273 wrote: Sun Sep 10, 2017 8:35 am Sorry to deviate off the OPs topic, but what is the best way to find a company and a policy. I am looking for 20 year term at $1mm as well. Thanks BV
Have a local INDEPENDENT insurance agent shop several companies for the best policy.
Check term4sale.com to get an idea of costs. I believe you can go through them as well.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by BV3273 »

Thanks BL
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by lthenderson »

Valuethinker wrote: Sat Sep 09, 2017 9:57 am I have next to no chance of being in a serious car accident in my lifetime (actually that's not true, but let's say it is for this purpose) but I always do up my seatbelt. When I go on holiday I have next to zero chance of needing emergency medical treatment. But I always buy travel insurance because being flown home privately etc. could get really expensive.
Do you purchase warranty protection on new electronics? The world is full of examples that the average person doesn't do because the chances of collecting are slim to none yet it seems taboo to suggest that life insurance can be one of those things. I'm not trying to convince anyone that it is the best route to go. I'm only saying that it is an alternative route depending on each person's circumstances. In my circumstance, it didn't and still doesn't make sense.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am
lthenderson wrote: Fri Sep 08, 2017 4:16 pm Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
You might be surprised to know that many are not in that happy situation. They are the sole or primary breadwinner, and parents and siblings have their own challenges.
Studies I have read say that only 44% of the population here in the U.S. have insurance so those who feel the need to purchase term life insurance are in the minority. I'm guessing that from the news silence on this subject that many more children survive the death of a parent just fine.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am Your advice in this situation is irrelevant, because you are not someone who needed to buy life insurance. Your family provided that insurance, instead-- although did you actually ask your siblings if they were happy to look after your family in the case of early demise?
Yes my parents and brothers both were asked and are in my will should the unfortunate happen. In fact, my sister-in-law has asked when I might die so they can keep the kids. Like I previously said, I'm not trying to argue that my way is the only way. It is an alternative way and one that the MAJORITY of Americans take.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by JSDNJ »

Wife and I each have $1MM 30 year term we got at 32 years old.

Cost is $1400/yr combined. Felt more comfortable with the 30 as you never know what the future holds.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by wfrobinette »

lthenderson wrote: Mon Sep 11, 2017 8:10 am
Valuethinker wrote: Sat Sep 09, 2017 9:57 am I have next to no chance of being in a serious car accident in my lifetime (actually that's not true, but let's say it is for this purpose) but I always do up my seatbelt. When I go on holiday I have next to zero chance of needing emergency medical treatment. But I always buy travel insurance because being flown home privately etc. could get really expensive.
Do you purchase warranty protection on new electronics? The world is full of examples that the average person doesn't do because the chances of collecting are slim to none yet it seems taboo to suggest that life insurance can be one of those things. I'm not trying to convince anyone that it is the best route to go. I'm only saying that it is an alternative route depending on each person's circumstances. In my circumstance, it didn't and still doesn't make sense.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am
lthenderson wrote: Fri Sep 08, 2017 4:16 pm Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
You might be surprised to know that many are not in that happy situation. They are the sole or primary breadwinner, and parents and siblings have their own challenges.
Studies I have read say that only 44% of the population here in the U.S. have insurance so those who feel the need to purchase term life insurance are in the minority. I'm guessing that from the news silence on this subject that many more children survive the death of a parent just fine.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am Your advice in this situation is irrelevant, because you are not someone who needed to buy life insurance. Your family provided that insurance, instead-- although did you actually ask your siblings if they were happy to look after your family in the case of early demise?
Yes my parents and brothers both were asked and are in my will should the unfortunate happen. In fact, my sister-in-law has asked when I might die so they can keep the kids. Like I previously said, I'm not trying to argue that my way is the only way. It is an alternative way and one that the MAJORITY of Americans take.
. I'd guess that many don't know it's an option, many can't afford it and the vast majority of those feel their 1x benefit through work is sufficient.

Yours is an option but many prefer to protect their families well being through Life and Disability insurance. Disability is more likely than Death and yet fewer people even have that insurance.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by wilked »

Hyperborea wrote: Fri Sep 08, 2017 5:18 pm
lthenderson wrote: Fri Sep 08, 2017 4:16 pm
FrugalConservative wrote: Fri Sep 08, 2017 1:37 pm
lthenderson wrote: Fri Sep 08, 2017 9:06 am I went an alternative route. I put the money I would have spent on term life policies in 529 plans and stock market index funds. Much cheaper, no "term" limits and bigger benefits should my family ever need it which the odds say they won't.
This is silly and makes little to no sense. What happens if you die at year 3; your kids have a few thousand in the bank vs a million dollar lump sum, thanks DAD! Doesn't seem too prudent to me and is poor advice at best.
At the time, there was less than a 1% chance of that happening, i.e. that is how life insurance companies make money. Many industry experts say less than 2% of insured actually collect on their term life insurance. The odds of me investing any insurance premiums and ending up with a significant amount of money 20/25 years later is 100%.

Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
Did you have insurance on your house at the time? If you did then why? The odds of making a claim are pretty low and the amount claimed on average is also pretty low. You would, on average, end up wealthier without buying home insurance.
Exactly this

Simply because odds of an event happening are low is not a good reason to decline insurance on that event.

If you want to gamble with your family's finances that is fine, but it doesn't follow logically.

Similar to you, we have a 'continuity' plan in case my wife and I were to perish on a vacation while the kids are being watched by the grandparents. And I know they would be find without any insurance, but there is no question it would be a hardship on my brother and sister in law. To alleviate that hardship we chose to have life insurance. Similar to if I were to perish unexpectedly, I want to minimize whatever hardship that would add to my wife following the event (and vice versa).

Also, citing what the general population does is not a good argument. The median bank account balance is < $3000, but that does not make it a good idea to ignore savings within your family.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by hand »

lthenderson wrote: Fri Sep 08, 2017 4:16 pm
At the time, there was less than a 1% chance of that happening, i.e. that is how life insurance companies make money. Many industry experts say less than 2% of insured actually collect on their term life insurance. The odds of me investing any insurance premiums and ending up with a significant amount of money 20/25 years later is 100%.

Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
Apologies for the snark, but I'd venture to guess that virtually NO insured collect on their term life insurance (exception being those with a Terminal Illness rider allowing for early payout prior to expected death). I would believe that 2% of beneficiaries collect on life insurance.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Minty »

One anecdote: In an office of 50 professionals, with some coming and going every year, there were two premature deaths of parents of young children in the last 7 years. Their survivors were glad to have the insurance.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by wfrobinette »

Minty wrote: Mon Sep 11, 2017 11:06 am One anecdote: In an office of 50 professionals, with some coming and going every year, there were two premature deaths of parents of young children in the last 7 years. Their survivors were glad to have the insurance.
Exactly. If I met my demise my wife wouldn't have the skills or abilities to replace my income. Let alone she may not even be able to return to the job market as she has been a SAHM since late 2005. Her and my daughters standard of living would drop substantially in 6 months unless she found a new husband or moved in with her sister. Sure I could have an extra 80k or < than 1 years expenses in 20 years. The $2200 per year 2.25 MM 20 year term life is piece of mind for me. Now my personal LTD at $3800/year is another story. Will I need it? I hope not.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by SmileyFace »

TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Hyperborea »

DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
It depends on how one planned to pay for the kid's college education. If one was saving for it and had the funds built up before the expiration of the life insurance then whether one died while they were in college or not is moot. If you plan to pay for the kid's college out of current income then yes, you would need to insure against that loss.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by SmileyFace »

Hyperborea wrote: Mon Sep 11, 2017 11:55 am
DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
It depends on how one planned to pay for the kid's college education. If one was saving for it and had the funds built up before the expiration of the life insurance then whether one died while they were in college or not is moot. If you plan to pay for the kid's college out of current income then yes, you would need to insure against that loss.
The point I was trying to make is that a lot of us continue to fund adult children through college - whether this money is saved ahead of time or not does come into play with how much insurance you need - but you certainly need to account for it (If you plan to fund your children's education).
Note that you can basically extend your "funds built up" statement to all your expenses if you'd like to - if you save enough in 10 years to pay all expenses until your kids are out of college then you only need a 10-year term plan (after which you are self-insured).
Also note - even though I fully saved for my kid's education - I am still funding some basic living expenses (e.g. I shelter, feed, and clothe them over the summers - that money doesn't come out of the 529).
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

lthenderson wrote: Mon Sep 11, 2017 8:10 am
Valuethinker wrote: Sat Sep 09, 2017 9:57 am I have next to no chance of being in a serious car accident in my lifetime (actually that's not true, but let's say it is for this purpose) but I always do up my seatbelt. When I go on holiday I have next to zero chance of needing emergency medical treatment. But I always buy travel insurance because being flown home privately etc. could get really expensive.
Do you purchase warranty protection on new electronics? The world is full of examples that the average person doesn't do because the chances of collecting are slim to none yet it seems taboo to suggest that life insurance can be one of those things. I'm not trying to convince anyone that it is the best route to go. I'm only saying that it is an alternative route depending on each person's circumstances. In my circumstance, it didn't and still doesn't make sense.
Fair enough re your position. At issue though is self insurance.

Most of us can't swing a million, say, for our spouse and kids. We don't have those kind of savings. And if we do then we are probably on a salary that still puts our family significantly worse off, in financial terms, in case of our early demise. Of course at some point we will have enough savings (hopes) and then we don't need the insurance-- I suspect for most that crossover comes late 40s- mid 50s -- when the kids are moving into/ through college years, and savings are enough that even a non working spouse could cope.

The key issue is always that one should self insure the risks one can -- that will always be cheaper. Thus I have a c. $2k US excess on household insurance. Because of the loss of no claims bonus (can't remember the North American term -- loss experience?) it's not worth it to me to claim less than that. I don't know what it would do to my premiums if I made a claim, but it would hurt.

Conversely, I am insured for the wipeout of my house-- complete cost of rebuilding (a policy that has no limit on that -- I am part of an historic terrace and so rebuilding costs would just multiply) + complete contents. THAT is a loss I would find difficult or impossible to bear.

Travel insurance? A medical evacuation from the USA could cost $500k (say following a severe accident). Now in fact I need a *separate* travel rider for USA travel because of the medical expense issue against any other country (there's also a winter sports exclusion, diving etc). But set that aside, a bad accident plus months of hospitalization in an Emerging Market (where they want cash before treatment) could be serious 6 figures. So indeed we carry travel insurance.

We have something like £1m on our household liability. The UK's courts are not quite as egregious as the American cases we read about (which are often knocked down on appeal-- the Pinto guy got $450m but that was knocked down to $6m on appeal) but if some child were crippled in an accident on my property, the court will go looking for someone to bear the cost *for life* of looking after that child. That's aside from pain & suffering type settlements (which are sharply restricted here). You can see just how much money that could wind up being.

BTW with electronics warranties the "Bathtub Curve" of reliability applies. Electronic devices tend to go wrong in the first 3 months (when the manufacturer warranty applies) or not for many years (end of designed life). So an extra warranty is not a good idea.

Whereas with life insurance, the older you get the higher your risk.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am
lthenderson wrote: Fri Sep 08, 2017 4:16 pm Had I died at year 3, my kids would have been well taken care of by my wife, sibling or their grandparents.
You might be surprised to know that many are not in that happy situation. They are the sole or primary breadwinner, and parents and siblings have their own challenges.
Studies I have read say that only 44% of the population here in the U.S. have insurance so those who feel the need to purchase term life insurance are in the minority. I'm guessing that from the news silence on this subject that many more children survive the death of a parent just fine.
Some would have union or other employer-based life insurance. But the average American household does not have a lot of income. People with big insurable need tend to have higher incomes.
Valuethinker wrote: Sat Sep 09, 2017 9:57 am Your advice in this situation is irrelevant, because you are not someone who needed to buy life insurance. Your family provided that insurance, instead-- although did you actually ask your siblings if they were happy to look after your family in the case of early demise?
Yes my parents and brothers both were asked and are in my will should the unfortunate happen. In fact, my sister-in-law has asked when I might die so they can keep the kids. Like I previously said, I'm not trying to argue that my way is the only way. It is an alternative way and one that the MAJORITY of Americans take.
[/quote]

I doubt the majority of higher income Americans do that. I don't know the actual numbers, but I bet my friends who are doctors or lawyers carry several times annual compensation (so say $1m + at the beginning of careers). I once worked in in the insurance industry (as a computer person) and those were the sorts of policy sizes (over 25 years ago) being sold to professionals, then.

Actually, I do know one person. In the finance field albeit not Wall Street. Was 5 figure income (then). Covered c. 10x salary (young child at the time). Joint cover both for him and working spouse.
Last edited by Valuethinker on Mon Sep 11, 2017 12:23 pm, edited 3 times in total.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Valuethinker »

wfrobinette wrote: Mon Sep 11, 2017 10:30 am
Yours is an option but many prefer to protect their families well being through Life and Disability insurance. Disability is more likely than Death and yet fewer people even have that insurance.
And we get posters here all the time warning us about what unplanned disability does to well laid financial plans ....

The anti-selection problem is particularly bad for Disability insurance. High end professional groups like doctors do insure, and the cost of a disability is absolutely enormous to the insurer.

Otherwise it tends to be people at higher risk, and thus rates are higher. The mirror of the pre-existing condition problem in health insurance. Only those with a higher than average risk of claim will insure. Medical underwriting may or may not catch all of the higher risks.

Also it's complex, and hard to understand. But I look at one colleague with a severe back problem and I think "there, but for the Grace of God, go I".

The way that is solved for blue collar occupations, which are uninsurable otherwise, is Worker's Comp. And US Social Security has disability provisions, which catches the lower end of the income spectrum.

Life Insurance is easier. Term life is simple, the pricing is pretty transparent, the market is competitive, the risk pool is large**.So the anti selection problem is less of an issue.*

* at its heart, anti-selection is an Asymmetric Information problem. The insuree knows more about their risk than the insurer, the insurer has to price for that. Add to that the fundamental uncertainty problem (about what will cause disability in the future) and you get the recipe for market failure.

** don't know the USA but it's often a precondition of a mortgage here that the principle breadwinner have life insurance to cover the mortgage. So that's often quite young healthy people added to the risk pool.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by Hyperborea »

DaftInvestor wrote: Mon Sep 11, 2017 11:59 am
Hyperborea wrote: Mon Sep 11, 2017 11:55 am
DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
It depends on how one planned to pay for the kid's college education. If one was saving for it and had the funds built up before the expiration of the life insurance then whether one died while they were in college or not is moot. If you plan to pay for the kid's college out of current income then yes, you would need to insure against that loss.
The point I was trying to make is that a lot of us continue to fund adult children through college - whether this money is saved ahead of time or not does come into play with how much insurance you need - but you certainly need to account for it (If you plan to fund your children's education).
Note that you can basically extend your "funds built up" statement to all your expenses if you'd like to - if you save enough in 10 years to pay all expenses until your kids are out of college then you only need a 10-year term plan (after which you are self-insured).
Also note - even though I fully saved for my kid's education - I am still funding some basic living expenses (e.g. I shelter, feed, and clothe them over the summers - that money doesn't come out of the 529).
Of course you can extend the "built up funds" concept. When we had reached enough investments that if I was to die my wife could retire solo at the same level as we planned to do together then we dropped the life insurance on me. It was an un-needed expense and an un-needed incentive for foul play. :D

------------------
On the other argument of not carrying life insurance and essentially making your siblings, parents, etc. become the insurance for your kids that seems to put a heavy burden on them for potentially life changing expenses they may not be able to be bear. Would you be ok if your kids couldn't get into college because while your brother/sister loves them he/she just doesn't have the money to pay for it. Or if grandma has to make a choice between her heart meds and putting food on the table for the kids? Not everybody has that amount of extra free play in the budget.

If that really is somebody's plan then I hope they've sat down with the planned caregivers and said, "Look we'd like you to take care of the kids if we both die but we have decided to speed our plans to early retirement and haven't bought any life insurance. If we die early then we really won't be leaving much for you to look after the kids. Are you ok with losing your ability to retire early, maybe to retire at all, to allow us the opportunity to save a few dollars and retire a smidgen earlier?"
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by OnTrack2020 »

We bought insurance around your age---our son was under 1-year old at the time. We bought a 15-year level term policy. We didn't insure for remotely close to what you are, but rather around $100k-$200k. We figured that our child/children would be working part-time in their teens or otherwise be close enough to graduating high school and have the ability to work if need be. We now are in our 50s with 4 children. Two in college. If I had to do it again, I do believe we would have gone with the same type of policy, but for 20 years--enough to get them through college. However, as it stands now, our 15-year term policy premiums have/are drastically going up and, therefore, we are not renewing. They have served their purpose, and our assets have grown.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by greg24 »

DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
In this theoretical scenario, the OP is dying at 54, right after their 20 year term policy expires.

The OP would likely have a good amount of retirement funds at that point, which can now be used for college.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by SmileyFace »

greg24 wrote: Mon Sep 11, 2017 2:13 pm
DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
In this theoretical scenario, the OP is dying at 54, right after their 20 year term policy expires.

The OP would likely have a good amount of retirement funds at that point, which can now be used for college.
Not necessarily - what if the OPs spouse doesn't work and needs the income? The retirement funds may be needed to pay for early-retirement living expense of the spouse.
Now you can say "The spouse can go back to work" - but if the spouse is a SOHM for 20 years raising kids - his/her income may not be enough to cover - or perhaps the spouse can't work for some reason (and the OP doesn't want the spouse to have to degrade their standard of living).
Personally I don't think the OP really gave enough information for us anonymous folks to make the decision. I do know that you can't simply assume just because your child turns 18 they aren't dependent upon you financially.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by miles monroe »

if you were to ask clark howard he'd say 25 years -- to get the kids thru college.

and i agree with clark.
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Re: Should I do 20 or 25 Year Term Life Insurance?

Post by sergeant »

Hyperborea wrote: Mon Sep 11, 2017 12:44 pm
DaftInvestor wrote: Mon Sep 11, 2017 11:59 am
Hyperborea wrote: Mon Sep 11, 2017 11:55 am
DaftInvestor wrote: Mon Sep 11, 2017 11:34 am
TheHouse7 wrote: Sat Sep 09, 2017 10:55 pm 20 for sure, adults don't need parents income replacement in the event of death. You will have plenty to pass on at 54.
Unless you want to put your kids through college....
It depends on how one planned to pay for the kid's college education. If one was saving for it and had the funds built up before the expiration of the life insurance then whether one died while they were in college or not is moot. If you plan to pay for the kid's college out of current income then yes, you would need to insure against that loss.
The point I was trying to make is that a lot of us continue to fund adult children through college - whether this money is saved ahead of time or not does come into play with how much insurance you need - but you certainly need to account for it (If you plan to fund your children's education).
Note that you can basically extend your "funds built up" statement to all your expenses if you'd like to - if you save enough in 10 years to pay all expenses until your kids are out of college then you only need a 10-year term plan (after which you are self-insured).
Also note - even though I fully saved for my kid's education - I am still funding some basic living expenses (e.g. I shelter, feed, and clothe them over the summers - that money doesn't come out of the 529).
Of course you can extend the "built up funds" concept. When we had reached enough investments that if I was to die my wife could retire solo at the same level as we planned to do together then we dropped the life insurance on me. It was an un-needed expense and an un-needed incentive for foul play. :D

------------------
On the other argument of not carrying life insurance and essentially making your siblings, parents, etc. become the insurance for your kids that seems to put a heavy burden on them for potentially life changing expenses they may not be able to be bear. Would you be ok if your kids couldn't get into college because while your brother/sister loves them he/she just doesn't have the money to pay for it. Or if grandma has to make a choice between her heart meds and putting food on the table for the kids? Not everybody has that amount of extra free play in the budget.

If that really is somebody's plan then I hope they've sat down with the planned caregivers and said, "Look we'd like you to take care of the kids if we both die but we have decided to speed our plans to early retirement and haven't bought any life insurance. If we die early then we really won't be leaving much for you to look after the kids. Are you ok with losing your ability to retire early, maybe to retire at all, to allow us the opportunity to save a few dollars and retire a smidgen earlier?"
Good points! My sister in law and her husband made a big deal meeting with me and DW. They asked if we would agree to be guardians for their three children should anything happen to them. They expected us to be honored to be asked. I told them sure, as long as they had 3 million in life insurance and legal documents listing us as executors for the kids. They had surprised looks on their faces and mumbled they would ask someone else.
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