Check my logic please (life insurance)

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BobStrauss
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Check my logic please (life insurance)

Post by BobStrauss » Wed Apr 18, 2018 12:07 pm

Wife (29) and I (34) are about to have our first kid. We only plan to have two, spaced pretty close together, so I'm now considering a 25 year term life insurance policy as opposed to the more common 30.

I'm a federal employee (salary ~$70k) and she is an RN (salary ~$80k). I have better benefits (childcare, retirement, etc) but she has a much higher ceiling with regard to income.

We have ~$150k in retirement funds and $70k in equity in our house, but a mortgage balance of ~$100k. I have federal student loan debt but that would be discharged should something happen to me. She doesn't have any debt.

Again, we hope to have two kids, but we don't plan to fund private or out-of-state college for them, just in-state tuition. We'll also probably take on a larger mortgage in 6-7 years, but will likely stay below $250k total when that time comes.


I already get a basic policy through my employer of $70k life insurance, and she has the same. I assume 25 year level term policies of $700k for each of us would likely suffice, given our situation?

fantasytensai
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Re: Check my logic please (life insurance)

Post by fantasytensai » Wed Apr 18, 2018 12:15 pm

BobStrauss wrote:
Wed Apr 18, 2018 12:07 pm
Wife (29) and I (34) are about to have our first kid. We only plan to have two, spaced pretty close together, so I'm now considering a 25 year term life insurance policy as opposed to the more common 30.

I'm a federal employee (salary ~$70k) and she is an RN (salary ~$80k). I have better benefits (childcare, retirement, etc) but she has a much higher ceiling with regard to income.

We have ~$150k in retirement funds and $70k in equity in our house, but a mortgage balance of ~$100k. I have federal student loan debt but that would be discharged should something happen to me. She doesn't have any debt.

Again, we hope to have two kids, but we don't plan to fund private or out-of-state college for them, just in-state tuition. We'll also probably take on a larger mortgage in 6-7 years, but will likely stay below $250k total when that time comes.


I already get a basic policy through my employer of $70k life insurance, and she has the same. I assume 25 year level term policies of $700k for each of us would likely suffice, given our situation?
Probably so. I just want to point out that, heavens forbid something happens to both of you, you also have a plan set in place for your young children to be taken care of with the proceeds from your policies by someone that you trust to handle that money.

Good for you to for doing this.

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dm200
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Re: Check my logic please (life insurance)

Post by dm200 » Wed Apr 18, 2018 12:16 pm

Go for 30 - to be safer. I doubt the premiums are much different.

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David Jay
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Re: Check my logic please (life insurance)

Post by David Jay » Wed Apr 18, 2018 12:19 pm

I think a 25 year level-term policy is fine.

I cancelled my last term policy (before term expiration) in my mid-50s because at that point our portfolio was adequate to support my wife in the event of my demise.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

BobStrauss
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Re: Check my logic please (life insurance)

Post by BobStrauss » Wed Apr 18, 2018 12:23 pm

dm200 wrote:
Wed Apr 18, 2018 12:16 pm
Go for 30 - to be safer. I doubt the premiums are much different.
I just don't understand the reasoning for 30. For me, the premiums are actually quite a bit more to make that 5 year jump. Also, by then both of my kids should be graduated from college. Even if they aren't, I'll have racked up so much in retirement savings that my family should be quite well off if something were to happen.

Is there something I'm overlooking?

GreenGrowTheDollars
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Re: Check my logic please (life insurance)

Post by GreenGrowTheDollars » Wed Apr 18, 2018 1:02 pm

It is not a bad plan...but you might be able to do better.

What are your specific goals?

Have you thought about the impact of inflation on a $700K payout?

For example, at 2.5% annual inflation rate, 20 years from now that $700K would have the purchasing power of $427K. I picked 20 years out because that would be about the pessimal time to die if you had a kid just starting college. In state public university in many states runs about $25K all-in for one student in one year today. (This varies, I'm giving you a WAG.) What else besides paying for college are you hoping to accomplish with this? Are you trying to include financial support & retirement support for the remaining spouse? If so, to what degree.

stuper1
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Re: Check my logic please (life insurance)

Post by stuper1 » Wed Apr 18, 2018 1:08 pm

I bought a 20-year policy, which will expire in 3 years. I now wish I had bought 30 years, because at this point it will be very expensive to get another 10 years. However, my wife makes a lot less than I do. With both of you making a good income, you might be okay with 25 years. But I'm curious, what are the premium amounts for 25-years and for 30-years?

ResearchMed
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Re: Check my logic please (life insurance)

Post by ResearchMed » Wed Apr 18, 2018 1:09 pm

BobStrauss wrote:
Wed Apr 18, 2018 12:23 pm
dm200 wrote:
Wed Apr 18, 2018 12:16 pm
Go for 30 - to be safer. I doubt the premiums are much different.
I just don't understand the reasoning for 30. For me, the premiums are actually quite a bit more to make that 5 year jump. Also, by then both of my kids should be graduated from college. Even if they aren't, I'll have racked up so much in retirement savings that my family should be quite well off if something were to happen.

Is there something I'm overlooking?
Your financial need for life insurance won't match a level term policy.
Ten years in, for example, there would be 10 fewer years to cover the family, etc.

Have you considered a life insurance ladder?
Perhaps a 10 or 15 year term policy, plus a 25 or 30 year policy?

And yes, make sure you have a plan about guardianship, "just in case"...

RM
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jminv
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Re: Check my logic please (life insurance)

Post by jminv » Wed Apr 18, 2018 1:16 pm

BobStrauss wrote:
Wed Apr 18, 2018 12:07 pm

I'm a federal employee (salary ~$70k) and she is an RN (salary ~$80k). I have better benefits (childcare, retirement, etc) but she has a much higher ceiling with regard to income.

I already get a basic policy through my employer of $70k life insurance, and she has the same. I assume 25 year level term policies of $700k for each of us would likely suffice, given our situation?
You can also add additional salary multiples up 5x (ie total of 6 times salary for total coverage of $420k) through your federal/metlife insurance. That would cost you $17.80 biweekly and you're already paying $10.80 so $7 more biweekly, $14 more a month, $168 per year. Inexpensive and easy (when it's open season) to add this. Price increases with age so not term but right now it's a very inexpensive add on for you.

https://www.opm.gov/retirement-services ... alculator/
Last edited by jminv on Wed Apr 18, 2018 1:21 pm, edited 1 time in total.

ResearchMed
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Re: Check my logic please (life insurance)

Post by ResearchMed » Wed Apr 18, 2018 1:20 pm

jminv wrote:
Wed Apr 18, 2018 1:16 pm
BobStrauss wrote:
Wed Apr 18, 2018 12:07 pm

I'm a federal employee (salary ~$70k) and she is an RN (salary ~$80k). I have better benefits (childcare, retirement, etc) but she has a much higher ceiling with regard to income.

I already get a basic policy through my employer of $70k life insurance, and she has the same. I assume 25 year level term policies of $700k for each of us would likely suffice, given our situation?
You can also add additional salary multiples up 5x (ie total of 6 times salary for total coverage of $420k) through your federal/metlife insurance. That would cost you $17.80 biweekly and you're already paying $10.80 so $7 more biweekly, $14 more a month, $168 per year. Inexpensive and easy (when it's open season) to add this.

https://www.opm.gov/retirement-services ... alculator/
Yes, BUT... if he changes jobs, there might not be a similar program (meaning, automatic acceptance for new employees).
And later, he may not be insurable, or might get a much higher rate.

RM
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jminv
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Re: Check my logic please (life insurance)

Post by jminv » Wed Apr 18, 2018 1:23 pm

ResearchMed wrote:
Wed Apr 18, 2018 1:20 pm


Yes, BUT... if he changes jobs, there might not be a similar program (meaning, automatic acceptance for new employees).
And later, he may not be insurable, or might get a much higher rate.

RM
Sure, so he can get both.

BobStrauss
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Re: Check my logic please (life insurance)

Post by BobStrauss » Wed Apr 18, 2018 1:24 pm

GreenGrowTheDollars wrote:
Wed Apr 18, 2018 1:02 pm
It is not a bad plan...but you might be able to do better.

What are your specific goals?

Have you thought about the impact of inflation on a $700K payout?

For example, at 2.5% annual inflation rate, 20 years from now that $700K would have the purchasing power of $427K. I picked 20 years out because that would be about the pessimal time to die if you had a kid just starting college. In state public university in many states runs about $25K all-in for one student in one year today. (This varies, I'm giving you a WAG.) What else besides paying for college are you hoping to accomplish with this? Are you trying to include financial support & retirement support for the remaining spouse? If so, to what degree.
I understand the inflation rate will impact the payout 20 years down the road, but the plan is that we'd have already saved the bulk portion of that in Roth IRAs towards college education.

As far as financial and retirement support for the remaining spouse - we're still hoping we'd be able to retire by 60-62. If we just followed our current savings rate (without any raises) for 20 years and then something happened, that would give her a retirement account of almost $1.2M adjusted for inflation (assuming 3% annual real returns). If I were to kick the bucket in July 2018, however, my wife would have $150,000 in retirement assets, could be free and clear on mortgage (making childcare payments more manageable), and still have $670k left to put towards college expenses and her own retirement.

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greg24
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Re: Check my logic please (life insurance)

Post by greg24 » Wed Apr 18, 2018 1:39 pm

My wife and I were roughly your age when we had our first child, and went into the same term life search that you are doing now.

We settled on the 20-year level term. 30-year was much more expensive, as morbidity goes up sharply in late 50s. 20 years covered our most financially perilous years to die (when the kids were young), yet kept the premiums low. It didn't make sense to me to pay large premiums to carry insurance when my children were in their 20s, aka theoretically out of the house and on their own.

We projected our nest egg would be strong enough that, if the worst case happened and we died right after the 20-year ran out, there would still be a fairly large amount of money to get them through college and launch into adulthood.

We are ~14 years in. Things are progressing as expected. Our nest egg is healthy, a small bit because we weren't spending a lot on term life insurance.

I'm happy we only got 20-year term. I guess if we had health issues that eliminated our insurability AND our next egg didn't grow, that we would be experiencing regret.

mmmodem
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Re: Check my logic please (life insurance)

Post by mmmodem » Wed Apr 18, 2018 1:52 pm

Ditto above. We went with the 20 year. I don't remember what the cost difference was for 30 years but it wasn't even considered as we simply did not need it. Our nest egg will and has already exceeded the payout of the insurance after only 7 years. My only this regret is not purchasing the 15 year term but that would've risky as stated above if we had health issues and weren't able to maintain our savings rate.

BobStrauss
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Re: Check my logic please (life insurance)

Post by BobStrauss » Wed Apr 18, 2018 2:04 pm

Just to toss out some numbers for a $700k policy for myself, from Term4Sale:

20 year term: $37 per month
25 year term: $50 per month
30 year term: $60 per month

stuper1
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Re: Check my logic please (life insurance)

Post by stuper1 » Wed Apr 18, 2018 2:08 pm

At those rates, knowing what I know now, being about 3 years from my 20-year expiring, I would get the 30-year. But, like I said before, your situation is different than mine. We were single income for a long time while my wife raised the kids, so our savings didn't grow super fast. Now that she is back at work, her salary is a lot less than mine. Those are the reasons I wish I had the 30-year at this point. You may be fine with 20 or 25 years, but I would look hard at it.

deltaneutral83
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Re: Check my logic please (life insurance)

Post by deltaneutral83 » Wed Apr 18, 2018 2:29 pm

The difference on the 25 and money saved isn't going to affect your financial situation, it just proves how cheap term insurance is. If you make it to the finish line in 30 years the money saved by doing the 25 instead of the 30 is probably going to get you in today's dollars $10k ($10 a month savings invested for 25 years at say 4% real added to $60 a month at 4% real for 5 years) . The question is, is that worth the extra five years of piece of mind from ages 59-64?

SimonJester
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Re: Check my logic please (life insurance)

Post by SimonJester » Wed Apr 18, 2018 3:52 pm

Whatever you do, get that term policy outside of your employer. I have had two relatives that only had life insurance through their employer, both got sick to the point where they had to quit their job and did not have an option to continue that insurance or obtain new insurance. Ie once you are diagnosed with a terminal illness you are mostly un-insurable.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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sergeant
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Re: Check my logic please (life insurance)

Post by sergeant » Wed Apr 18, 2018 4:00 pm

Your plan is logical. Good job!
Lincoln 3 EOW!

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corn18
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Re: Check my logic please (life insurance)

Post by corn18 » Wed Apr 18, 2018 5:08 pm

Build a ladder. I built one with 10,20 & 30 year policies. Ladder matches my projected need if I died. Much cheaper than a full 30 year term policy.

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