Life insurance strategy for single parent

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Calico
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Life insurance strategy for single parent

Post by Calico » Mon Apr 15, 2019 9:42 am

This June my term life insurance policy expires (the locked in rate from 10 years ago is gone). I have $600k in life insurance but that's based on the idea that 10 years ago when I got it, my income was $60k and I was married and my then husband would need the money if anything happened to me to life the same lifestyle with our daughter in the same house, etc, etc.

Fast forward to now. We are divorced, but I still have a daughter of course. She is almost 15 and according to our divorce decree, I would need to cover her expenses for three more years should anything happen to me. But I want to cover her though college (so 7 more years). And I want to base that on the idea that her dad won't be able to help/won't contribute to college. Most likely he will, but I like to plan for worst case.

I have no idea how much life insurance to get with a new policy or how long I should really lock in that rate. All the common guidelines and tools out there seem to be geared towards married people and the idea that a mortgage would still need to be paid. With those, I am told I need a minimum of $700k in insurance. I found a nice tool for single parents, but it says I don't need any life insurance (all of these tools are taking into consideration I have no debt and I have $350k in assets not including equity in the house). I find that a bit hard to believe. One says $700k (give or take) and the other says nothing, I am set.

I think I may get $300k for 10 years but really, I am just pulling that number based on my gut feeling/figuring college could cost about $40k a year and that would cover her though grad school if she liked (without her having to tap into my retirement and other investments/leaving her a nice nest egg). Does anyone have any advice or can point me to a reliable online tool to calculate how much I would need? I have some time to figure it all out, but not a lot. my term insurance expires June 15.

Grt2bOutdoors
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Re: Life insurace strategy for single parent

Post by Grt2bOutdoors » Mon Apr 15, 2019 9:46 am

Just add up known and expected expenses. You say you don't want to account for existing assets, you want to leave that as a legacy.
College
Grad school
Health insurance
Room and board
Maybe some reliable transportation (not a BMW) and associated insurance costs for it.

Do you think $300K would cover it? Maybe $500K is the right number (accounting for inflationary increases) for another 10 year policy.
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RickBoglehead
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Re: Life insurace strategy for single parent

Post by RickBoglehead » Mon Apr 15, 2019 9:52 am

For 4 years of college and 2 years of grad school, fully paid for, you should plan on more like $60,000 x 4 and $75,000 x 2. Call it $400,000.

Add in cost of living for 3 more years and figure another $150,000. $550,000 total.

When you price term insurance, you will find that adding an extra $100,000 is nothing.

You have $350,000 in assets, so you need another $200 - $300k, call it $250,000 and be done with it.
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Grt2bOutdoors
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Re: Life insurace strategy for single parent

Post by Grt2bOutdoors » Mon Apr 15, 2019 9:56 am

RickBoglehead wrote:
Mon Apr 15, 2019 9:52 am
For 4 years of college and 2 years of grad school, fully paid for, you should plan on more like $60,000 x 4 and $75,000 x 2. Call it $400,000.

Add in cost of living for 3 more years and figure another $150,000. $550,000 total.

When you price term insurance, you will find that adding an extra $100,000 is nothing.

You have $350,000 in assets, so you need another $200 - $300k, call it $250,000 and be done with it.
The OP does not want to include the $350K in assets, she want's to exclude it. So, your $250K + another $250K gets us right back to $500K.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Stinky
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Re: Life insurace strategy for single parent

Post by Stinky » Mon Apr 15, 2019 10:11 am

Grt2bOutdoors wrote:
Mon Apr 15, 2019 9:46 am
Just add up known and expected expenses. You say you don't want to account for existing assets, you want to leave that as a legacy.
College
Grad school
Health insurance
Room and board
Maybe some reliable transportation (not a BMW) and associated insurance costs for it.

Do you think $300K would cover it? Maybe $500K is the right number (accounting for inflationary increases) for another 10 year policy.
This is a good answer. Go up to $500k - cost difference from $300k should be minimal. 10 year level term policy.

You’re a good mother to be thinking about providing for your daughter in this way.
It's a GREAT day to be alive - Travis Tritt

BruDude
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Re: Life insurace strategy for single parent

Post by BruDude » Mon Apr 15, 2019 10:35 am

$500k-700k sounds about right, but what number makes you feel most comfortable? Only you can answer that question. We don't know how old you are or what your health is like or what budget you are comfortable with on a new policy.

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unclescrooge
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Re: Life insurace strategy for single parent

Post by unclescrooge » Mon Apr 15, 2019 11:07 am

RickBoglehead wrote:
Mon Apr 15, 2019 9:52 am
For 4 years of college and 2 years of grad school, fully paid for, you should plan on more like $60,000 x 4 and $75,000 x 2. Call it $400,000.

Add in cost of living for 3 more years and figure another $150,000. $550,000 total.

When you price term insurance, you will find that adding an extra $100,000 is nothing.

You have $350,000 in assets, so you need another $200 - $300k, call it $250,000 and be done with it.
Math sounds right.

On a related note, should the the minor daughter be the beneficiary? Or should it go through a trust?

bsteiner
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Re: Life insurace strategy for single parent

Post by bsteiner » Mon Apr 15, 2019 12:12 pm

unclescrooge wrote:
Mon Apr 15, 2019 11:07 am
... should the the minor daughter be the beneficiary? Or should it go through a trust?
She should provide for her daughter in trust rather than outright. She should consider at what age (if at all) her daughter should be able to control her trust, and who should control it until that point.

pintail07
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Re: Life insurace strategy for single parent

Post by pintail07 » Mon Apr 15, 2019 1:23 pm

Make sure to evaluate any disability coverage as well.

Topic Author
Calico
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Re: Life insurace strategy for single parent

Post by Calico » Mon Apr 15, 2019 3:37 pm

Thanks. I have a trust, so that's taken care of. The trust is the beneficiary of any insurance policy, not my daughter directly.

The question was amount. I was surprised that the cost difference for $250k vs $500k policy wasn't that much more. It wasn't that much more switching from 10 to 15 years either. I got a quote for $500k for 15 years that's going to be less than what it costs me now (for $600k of insurance). The company I have now (the policy that's going to expire) has an A++ rating and the one I am switching to is A+ and the difference in price is huge. A+ is still pretty good and reliable/financially sound.

To answer someone else's suggestion: I can't get disability insurance. Or at least, what they will give me is a joke (I was offered two years of $20k annual coverage for a $500 a month payment). I decided to just save the $500 per month and add it to my emergency fund.

I have something called Raynaud's. Basically, my hands and feet get cold easily and get numb and turn pale (just like yours would if you stuck them in ice for a long time). It's not disabling in any fashion and won't lead to a disability later. I basically just get cold hands easier than other people. Now, it can be a sign of Lupus, but I was tested and don't have Lupus. But insurance companies won't touch me for disability because it's still a symptom of Lupus (even if I tested negative). It's crazy. It's like saying headaches can be a sign of a brain tumor, but you get a CAT scan and don't have a tumor, but they still won't insure you anyway because you get headaches and you never know, you could have a brain tumor.

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Stinky
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Re: Life insurace strategy for single parent

Post by Stinky » Mon Apr 15, 2019 4:23 pm

Calico wrote:
Mon Apr 15, 2019 3:37 pm
The company I have now (the policy that's going to expire) has an A++ rating and the one I am switching to is A+ and the difference in price is huge. A+ is still pretty good and reliable/financially sound.
I agree with your decisions.

In particular, a life insurer with an A+ rating is just fine for providing term insurance.
It's a GREAT day to be alive - Travis Tritt

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