Help me fix my life insurance situation...

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pj1983
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Joined: Tue Jul 17, 2018 9:50 am

Help me fix my life insurance situation...

Post by pj1983 » Mon Oct 15, 2018 10:46 am

As mentioned in this post viewtopic.php?f=2&t=260057#p4157886, I am looking for help with assessing our family's life insurance situation. I've been working on this review for several months and need some solid advice and a "push" to get it to the finish line. This post is a bit long but I wanted to get the relevant details together in one place.

Family background: married, DW is 57 and I'll be 57 later this year. Two adult children, 35 and 31; the 35 year old is single (no dependents) and the 31 year old is married with a 4 year old child. All of live in different locations within the same H/VHCOL area.

Income: Me -- $84k/year military retirement and disability; DW: $116k/year.

Home: current market value $650k; 6 years into a 30 year mortgage with a $396k balance and $3k/month payment

Second home (co-owned with our oldest child): current market value $310k; 3 years into a 30 year mortgage with a $224k balance and $1.5k/month payment (split equally with oldest child)

Emergency funds: roughly 3 months of expenses saved in an account designated for this purpose, with another 2 months saved in other accounts earmarked for other purposes but which can be reallocated if absolutely needed

Retirement accounts (will be looking for AA advice in the near future; generally allocated along 70/30 equities/bonds):
Me: tIRA at $570k; Roth IRA at $86k
DW: TSP at $305k; tIRA at $35k; Roth IRA at $79k

Current life insurance coverage and policies -- all policies were purchased in 1990/1991 with the exception of the group term policies which we picked up through DW's employer last year:
Me -- Total coverage of $170k broken out as follows: $50k face value WL (current cash value $11k) policy, $37k (originally $150k) death benefit decreasing term, and $49k (originally $200k) death benefit decreasing term from broker A; $5k face value WL (current death benefit $10k; cash value $4k; premium payments no longer due) from broker B; $25k group term through DW's employer
DW -- Total coverage of $415k broken out as follows: $49k (originally $200k) death benefit decreasing term and $25k (originally $100k) death benefit decreasing term from broker A; $348k group term through employer
Oldest child -- $25k face value WL (current cash value $1.7k) from broker A
Youngest child -- $25k face value WL (current cash value $1.9k) from broker A

To be candid, the current policy structure is way too complicated, not cost-effective (especially as the DT policies zero out over the next 8 years), and, to make matters worse, likely doesn't meet our needs. I ran a needs calculation through USAA with the above figures (excluding the DT policies) and it advised that I need about $10k and that DW needs about $490k of additional life insurance. That seems exactly backwards to me, as DW is covered pretty well right now and I'm not. If I were to die tomorrow, DW would only get about 30% of my pension replaced which would leave a good-sized "hole" in her income until she could start drawing SS. If DW died tomorrow, I'd return to work at least on a part-time basis to cover some or all of the lost income at least until I hit SS FRA. I ran an assessment similar to the one included in this post viewtopic.php?f=2&t=260057#p4141789 to confirm my suspicions.

I'm omitting how we got into this situation and the monthly costs but would be happy to provide that information if needed, or as a lesson on what not to do when shopping for life insurance. "Broker A" has been the subject of a few negative threads here, while "Broker B" has been generally spoken of favorably but on a limited basis.

My initial plan of attack to fix this mess is as follows:
1. Apply for 10- or 15-year level term policies for both me and DW, face amounts TBD but probably in the 200k range. We may consider increasing the face amounts and cancelling DW's group life insurance if it makes sense economically.
2. Cancel all the decreasing term policies once step 1 is complete.
3. Cash out the WL policies on our children. They are expensive and at this point mostly unnecessary. If our older child dies, we'd sell the jointly-owned home and cover any final expenses ourselves. The younger child is covered through other policies under his control, and really it's up to him to figure out his coverage needs (with our help, of course).
4. Cash out the $50k WL policy on me and possibly exchange it for a single-premium WL policy on DW from broker B. I know that sounds like heresy here, but broker B's policies offer death benefit growth and a Long-Term Care settlement option which may be valuable in the future.
At the completion of these activities, we would be left with a single WL policy from broker B and two single 15 year term life policies on each of us (possibly from broker B, USAA, or some other firm depending on cost).

Questions:
1. Does anyone know of a life insurance needs calculator that takes into account projected growth in retirement accounts?
2. Does the above plan seem reasonable?
3. What argument am I missing in favor of keeping any of broker A's WL policies on me and the children?

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David Jay
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Location: Michigan

Re: Help me fix my life insurance situation...

Post by David Jay » Mon Oct 15, 2018 11:22 am

Simple question - Do you need any life insurance?

I dropped my last policy at age 58. At that point our portfolio would be able to sustain my spouse in the event of my passing. I have no need of any life insurance.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

mhalley
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Re: Help me fix my life insurance situation...

Post by mhalley » Mon Oct 15, 2018 11:27 am

I believe ESPlanner calculates life insurance needs. I also wonder if there is any need for life insurance in your situation, but don’t have the whole story to say for sure.

https://www.esplanner.com/
The company also has another planner called maxifi which I think is the replacement for esplanner.
https://maxifiplanner.com/

pj1983
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Joined: Tue Jul 17, 2018 9:50 am

Re: Help me fix my life insurance situation...

Post by pj1983 » Tue Oct 16, 2018 11:28 am

David Jay wrote:
Mon Oct 15, 2018 11:22 am
Simple question - Do you need any life insurance?

I dropped my last policy at age 58. At that point our portfolio would be able to sustain my spouse in the event of my passing. I have no need of any life insurance.
It's entirely possible neither of us really need any additional life insurance; I'd just like to have a bit more of a rigorous analysis pointing that direction before making that decision.
mhalley wrote:
Mon Oct 15, 2018 11:27 am
I believe ESPlanner calculates life insurance needs. I also wonder if there is any need for life insurance in your situation, but don’t have the whole story to say for sure.

https://www.esplanner.com/
The company also has another planner called maxifi which I think is the replacement for esplanner.
https://maxifiplanner.com/
Interesting. Going a bit OT, we've talked to a couple of different fee-only financial planners who will, for $2-3k, do the sort of top-to-bottom review that those packages appear to provide. I wonder if I'm not putting the cart before the horse by trying to make a life insurance decision before really understanding what the need might or might not be. I guess I'm letting the aggravation associated with knowing I made some poor decisions 25+ years ago (sunk costs, I know...) drive what might be equally poor decisions today.

kaudrey
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Re: Help me fix my life insurance situation...

Post by kaudrey » Tue Oct 16, 2018 3:16 pm

My first question would be: what are your annual expenses?

You bring in $200K combined. Are you saving any of that? If your DW can live on $116K plus 30% of your pension if you pass until she can collect SS, then you don't need any life insurance on you. If you can live on $84K if she passes, then you don't need any on her. Would you like to pay off the mortgages with life insurance money? If so, get a policy each of you for that amount.

Life insurance should help make sure the spouse left behind can afford to live; you haven't given us enough information to tell you if you need it or in what amount.

And, yes, get rid of all of those WL policies....

BruDude
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Location: Las Vegas

Re: Help me fix my life insurance situation...

Post by BruDude » Tue Oct 16, 2018 5:06 pm

Here’s an important question - what would make you feel comfortable if either of you died? Instead of over-analyzing it to the penny, just figure out the answer to that one.

Balefire
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Re: Help me fix my life insurance situation...

Post by Balefire » Tue Oct 16, 2018 5:38 pm

Also vote no life insurance.
Your kids are old enough to figure life out

GuyInFL
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Re: Help me fix my life insurance situation...

Post by GuyInFL » Tue Oct 16, 2018 5:59 pm

Post by kaudrey »
First question would be: what are your annual expenses?
+1

kelvan80
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Re: Help me fix my life insurance situation...

Post by kelvan80 » Tue Oct 16, 2018 6:09 pm

Did you select SBP for your spouse?

pj1983
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Re: Help me fix my life insurance situation...

Post by pj1983 » Thu Oct 18, 2018 2:11 pm

kaudrey wrote:
Tue Oct 16, 2018 3:16 pm
My first question would be: what are your annual expenses?

You bring in $200K combined. Are you saving any of that? If your DW can live on $116K plus 30% of your pension if you pass until she can collect SS, then you don't need any life insurance on you. If you can live on $84K if she passes, then you don't need any on her. Would you like to pay off the mortgages with life insurance money? If so, get a policy each of you for that amount.

Life insurance should help make sure the spouse left behind can afford to live; you haven't given us enough information to tell you if you need it or in what amount.

And, yes, get rid of all of those WL policies....
Our annual expenses are about $110k according to what I would call an engineering approximation-level spreadsheet I put together. There's room there for some fine-tuning and cutting back, I'm sure, especially if I did some additional refinements and historical analysis.

DW is contributing the full+catchup TSP contribution amount ($24k). I'm contributing $6500 to my IRA.
BruDude wrote:
Tue Oct 16, 2018 5:06 pm
Here’s an important question - what would make you feel comfortable if either of you died? Instead of over-analyzing it to the penny, just figure out the answer to that one.
My gut tells me there's a 10- to 15-year "valley" in our income that would be created if one or the other of us passed in the near future. The valley becomes shallower as we approach 65 thanks to growth in our retirement accounts. I suppose that's the idea behind the decreasing term policies but it grinds my gears seeing the death benefit drop to 0 by 2026 while paying the same premium all along. I'd rather either a) put the same (or a little more) money into a term policy with a level benefit, or b) cut the expense altogether.
kelvan80 wrote:
Tue Oct 16, 2018 6:09 pm
Did you select SBP for your spouse?
Yes. My disability goes away completely at my passing, and she gets 50% of the remainder -- that's where the "30% of my income" came from.

BruDude
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Re: Help me fix my life insurance situation...

Post by BruDude » Thu Oct 18, 2018 2:37 pm

pj1983 wrote:
Thu Oct 18, 2018 2:11 pm
My gut tells me there's a 10- to 15-year "valley" in our income that would be created if one or the other of us passed in the near future. The valley becomes shallower as we approach 65 thanks to growth in our retirement accounts. I suppose that's the idea behind the decreasing term policies but it grinds my gears seeing the death benefit drop to 0 by 2026 while paying the same premium all along. I'd rather either a) put the same (or a little more) money into a term policy with a level benefit, or b) cut the expense altogether.
This is exactly why decreasing term policies have mostly gone the way of the dodo, and why I caution people against buying the ones that do still exist. You pay the same premium every year while your death benefit keeps getting smile, and the difference in cost versus a regular level term policy is usually pretty minimal.

I'd say buy what makes you feel comfortable - you can always drop the policy later or reduce the benefit if needed.

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Stinky
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Re: Help me fix my life insurance situation...

Post by Stinky » Thu Oct 18, 2018 4:29 pm

kaudrey wrote:
Tue Oct 16, 2018 3:16 pm

My gut tells me there's a 10- to 15-year "valley" in our income that would be created if one or the other of us passed in the near future. The valley becomes shallower as we approach 65 thanks to growth in our retirement accounts. I suppose that's the idea behind the decreasing term policies but it grinds my gears seeing the death benefit drop to 0 by 2026 while paying the same premium all along. I'd rather either a) put the same (or a little more) money into a term policy with a level benefit, or b) cut the expense altogether.
I agree that you have a very complex insurance situation. And you may very well be beyond the need for life insurance.

I'd say to drop all of your existing policies, especially the whole life. Then either (a) buy 10-year term life policies on you and your wife, which should be pretty cheap, or (b) don't buy any more insurance.
It's a GREAT day to be alive - Travis Tritt

BruDude
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Location: Las Vegas

Re: Help me fix my life insurance situation...

Post by BruDude » Thu Oct 18, 2018 5:01 pm

Stinky wrote:
Thu Oct 18, 2018 4:29 pm
kaudrey wrote:
Tue Oct 16, 2018 3:16 pm

My gut tells me there's a 10- to 15-year "valley" in our income that would be created if one or the other of us passed in the near future. The valley becomes shallower as we approach 65 thanks to growth in our retirement accounts. I suppose that's the idea behind the decreasing term policies but it grinds my gears seeing the death benefit drop to 0 by 2026 while paying the same premium all along. I'd rather either a) put the same (or a little more) money into a term policy with a level benefit, or b) cut the expense altogether.
I agree that you have a very complex insurance situation. And you may very well be beyond the need for life insurance.

I'd say to drop all of your existing policies, especially the whole life. Then either (a) buy 10-year term life policies on you and your wife, which should be pretty cheap, or (b) don't buy any more insurance.
You should never drop existing policies before being approved for new ones when your plan is to replace them.

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