Should we buy term life insurance?

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Tammy88
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Should we buy term life insurance?

Post by Tammy88 »

Been lurking around for a while, boggleheads.org has become my favorite investing forum.

Her age: 42
His age: 43
Total net asset: 3.2 M, including 450k from primary house. Spread out to 2 rental properties, cash, domestic/international stock index and bond in 401k, Roth, brokerage and 529 accounts.
Debt: < 300k

Have 2 kids who depend on us, they are 9 and 12. We have been buying life insurance offered from our employers, but realized they come with employment and won't be valid if we lose the employment. With our asset, I'm leaning towards either not buy term life insurance or buy it just for 10 years. The rational is that if one of us or both die, the kids will have enough assets to get them through college.

Thoughts? I appreciate the valuable input from the forum.
123
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Re: Should we buy term life insurance?

Post by 123 »

What are the annual household expenses that the portfolio would need to provide in case of the death of one spouse to enable the survivor to maintain the same standard of living?
The closest helping hand is at the end of your own arm.
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Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

Good point! Annual expense is around 100k or less right now. Both of us work with similar pay, so I don't consider spouse as a dependent.
Leemiller
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Re: Should we buy term life insurance?

Post by Leemiller »

You are spending so little vs your portfolio size that if anything happened, you’d be fine, the kids would be fine. I don’t see the need for it in your case.
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Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

Thank you! That is what I think too, it is good to validate that is not too crazy of an idea 😜
123
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Re: Should we buy term life insurance?

Post by 123 »

If the net invested assets are $2 million (after reduction for home equity and kids college expenses) at a 4% withdrawal rate they should be able to provide income of $80,000 a year. Assuming one parent continues to work it would seem that $100,000 in annual expenses could be covered without life insurance. The life insurance provided by employers, typically twice the annual earnings, would seem to provide somewhat of a buffer. A particularly cautious family might cover each parent with $500K level term coverage (10 years) each if there are no health issues that would dramatically raise premiums.
The closest helping hand is at the end of your own arm.
Dottie57
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Re: Should we buy term life insurance?

Post by Dottie57 »

I guess with 2kids. I would get term insurance. Isn't it quite cheap? Cover income to support kids. Better safe than sorry.
carolinaman
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Re: Should we buy term life insurance?

Post by carolinaman »

Your estate should provide ample income and resources for your family. However, I think a 10 or 15 year term life policy would still be a good idea because it is cheap at your age and will provide additional income for your family. Depending upon the income proportion from each of you, you could either do term for major income provider or if near equal, both spouses.
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SmileyFace
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Re: Should we buy term life insurance?

Post by SmileyFace »

Given your assets versus expenses you don't need it - don't waste your money - especially since you have some insurance through work - you would need to lose your job and then die and even them - you would be fine.
Topic Author
Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

Thank you so much for the valuable input here, I truly appreciate them. You reminded me to double check the life insurance offered by my employer and I was surprised to learn that I'm covered at 2x my salary already. It seems to me I don't need life insurance at this point, they are cheap but it is after tax dollar and I'd rather spend on something else or invest it. :)
soccerrules
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Re: Should we buy term life insurance?

Post by soccerrules »

I would consider having life insurance as long as you are working. Consider a $1M level premium term policy. Keep it for 1-2 years and the see where you are financially. You can drop the benefit to $500K for about 55% of the cost and keep it for a few more years. Or cancel it at anytime.

if you can/do FIRE , then there is no need to have LI.

It seems a little close right now if one of your were to die, I think you would struggle a little to maintain $100K for 40+ years. For the low cost of $1M LI, it is worth it for a few years.
Don't let your outflow exceed your income or your upkeep will be your downfall.
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Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

I agree with you that $100k for 40+ years would be a little hard, which is why both of us are still working. However, that is not my goal for LI. My goal for LI is for the kids. We can live off one income today so I don't see why we need LI for the other spouse. I also expect expense to be reduced if only one adult as one less person to feed or need a car.
chevca
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Re: Should we buy term life insurance?

Post by chevca »

If something happened and the remaining spouse could live off their salary and support the kids as it is now, I see no need for additional term life. It sounds like you don't even need what you get through work. But, that's probably pretty cheap, so might as well keep it.
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Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

Thank you for your valuable input! Yes the 2x salary from employers are completely free and can provide a really nice buffer for my family.
Lonestarz
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Re: Should we buy term life insurance?

Post by Lonestarz »

DaftInvestor wrote: Tue Nov 21, 2017 6:05 am you would need to lose your job and then die and even them - you would be fine.
Lol. I would price out a policy between $500k-1,000k and for a couple hundred a year I would probably carry something. Young kids aren’t easy to raise as a single parent and to be honest, if I died I would want my SO to have enough to quit or go part time if they wanted to (spend time/be there for the kids).

You said you have 3.2mil with maybe 1.2mil in real estate? Sounds like a lot of that money is tied up (retirement/real estate) and a 750k policy for each of you would really help with liquidity should something happen. You could squeeze by without it but is the cost really that much? Like the price of a couple nice meals out.
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Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

I know it is not a lot of money, I just don't feel we need it... though I could be convinced the other way easily.... I thought about this more, I think I have life insurance from work which will pay all of our debt completely. With that, our expense will be reduced from $8k a month to $6k. I don't think anyone needs to work at all when that happens. We do have 2 rental property that we mostly paid off and are worth $700k. Though they are not easily liquid-able, they provide nice income and tremendous tax benefit if we decide to retire in a few years.
OnTrack2020
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Re: Should we buy term life insurance?

Post by OnTrack2020 »

We bought 15-year level term policy/ies when our children were babies. You have "older" children. We purchased our policies to get our children to their teen/late teen years where they would be working at least part-time by then and fairly self-sufficient, but not to get them through college as we figured they would be able to work their way through if something happened to one of us.

If anything happened, the single parent would be able to apply for SS survivor benefits. Also, if someone is laid off, do you not have the option of keeping the group life insurance policy/converting it and paying the premium, if needed?

How much is already in the 529s? If there is a substantial amount, then there may be no need to buy additional.

If you absolutely must get insurance, with your assets, I would opt for a 10-year level term, no more. This would allow your oldest child to get through college.
letsgobobby
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Re: Should we buy term life insurance?

Post by letsgobobby »

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Topic Author
Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

> If anything happened, the single parent would be able to apply for SS survivor benefits. Also, if someone is laid off, do you not have the option of keeping the group life insurance policy/converting it and paying the premium, if needed?

Sorry I forgot to reply in time as I don't get a notification when someone replies...
That is an interesting thought. I didn't think it is possible but I will ask.

> How much is already in the 529s? If there is a substantial amount, then there may be no need to buy additional.

We have about $200K now. We are trying to add $56k each year for the next few years.

>If you absolutely must get insurance, with your assets, I would opt for a 10-year level term, no more. This would allow your oldest child to get through college.

Yep, I'd think for 10 year term as the maximum.
Topic Author
Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

I agree, I would not want to work in that case, at least not for a while. Managing rental is actually not too bad, certainly more work than index but it is a nice income on the side from after tax perspective.

Thank you everyone for all the thoughts and discussions, I really appreciate them, gave us so much to think about!
letsgobobby wrote: Thu Nov 23, 2017 8:01 am do not underestimate the impact of the death of a spouse on the surviving spouse’s ability to work or parent. managing two rental properties could be daunting for some time.

i agree you can probably get by without any, but i’d be inclined to buy one million dollars of level term life on each parent.

i have never met someone who felt they were left with too much life insurance.
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goodenyou
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Re: Should we buy term life insurance?

Post by goodenyou »

I would. Don't underestimate cash burn during teenage/college years. It is tremendous. The cost for a $2 million policy for 20 years is about $140/month. It is proportional for a fraction of that. Well worth it. May consider a split of policies between parents if both are income earning.
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Topic Author
Tammy88
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Re: Should we buy term life insurance?

Post by Tammy88 »

Sorry for not replying sooner, I haven't checked the forum for a while. Thank you and everyone for the valuable input! This gives us so much to think about. :)
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ps56k
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Re: Should we buy term life insurance?

Post by ps56k »

Insurance is for when bad things happen - flat tire -
SO... when our son was born, I took out term LI to cover things while he was growing up -
And, again, for bad things, what happens in a care crash and the parents are killed - but the kids survive -
it is great to have a large portfoiio - but what about 1987 or 2008 - lived thru both - closed on our house in Oct 1987 - yup - THAT day -
I would want the term LI to care for..
- pay off the house
- hire help around the house or kid care
- fund college, if that is the direction
- stop at some point when the liabilities are no longer there
Benton Bair
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Re: Should we buy term life insurance?

Post by Benton Bair »

May I suggest do not do this alone. Seek the help of a fee only financial advisor who can appraise the risk. The FA should bring in a trusted experienced life insurance agent for contract and features recommendation. All, FA, insurance agent and your attorney can advise insurance agent how best to arrange ownership and beneficiaries for different contingencies.

Do not shop on the basis of cost alone. Which is what people do when looking for life insurance on the internet. Life insurance policies are contracts not a commodity. Unlike property and casualty insurance written for one year at a time, life insurance policies can have consequences and guarantees extending well into old, old age. There is no way any of us can foresee 5 years ahead much less until and post retirement. Cash provided at death serves different purposes at different stages of life.

A policy with a long time horizon is like a bond purchased in installments that matures at death. Guaranteed to pay.
JBTX
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Re: Should we buy term life insurance?

Post by JBTX »

While you may not need it, seems to me the peace of mind such a policy would bring would be worthwhile. If one of you dies do you really want to have the added stress of worrying if you have enough money while at the same time working your full time job and raising your children? There is also the question if one of you passes can you logistically continue to work your existing job with the demands of 2 kids? Perhaps you will need to hire somebody to sit off and on and/or commute them to their ongoing activities?

I am sure you could make it work but do you really want the financial strain in addition to all the other stresses of becoming a single parent?
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