How much life insurance do we NEED

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carorun
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How much life insurance do we NEED

Post by carorun » Mon Jun 03, 2019 7:56 am

Getting married later this year so fiancé and I are shopping for life insurance quotes. We’re 32/38 with no kids, but plan to start trying within a year or so and want to get insurance in place prior to pregnancy.

We got initial quotes through SelectQuote and i was taken aback at the prices, so it’s making me rethink how much insurance we truly need. We each got quotes for $1.75M 30 year term. HHI is about $370k with total comp roughly equal between the two of us, so $1.75M represents a little less the standard recommendation of 10x your income.

Current quotes are around $1,800 a year for me and $3,300 for him. Going to see what I could get through work as I’m at a Big 4 and insurance is pretty cheap overall. I am about 20 lbs overweight which I’m working on, but I have a history of depression which affected my premium more than I thought. Not sure what I can do about that other than lie about my medications and health history which I’m not going to do. He has a chronic medical condition that has a minor impact on life expectancy and is maybe 40 lbs overweight.

No debt besides mortgage and combined NW would be in low seven figures. If one of us passes, I would expect the life insurance to cover college for the kids, perhaps paying off the mortgage, and living expenses. It’s hard to predict what living expenses would look like after kids since we save so much now and our incomes have increased a lot in recent years.

I would imagine the other parent would keep working if one of us passes and make ends meet on one salary, though potentially take some time off to deal with things. There’s a possibility of him becoming a stay at home dad in a few years, but my compensation would be well over $300k before we decide on that. If that happens, we would of course need to take out more on me.

So bogleheads help me think about what I need the insurance to pay for rather than looking at it from an income perspective. I’d like to look at all the potential costs then come up with a framework of what each of us may need.

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Svensk Anga
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Re: How much life insurance do we NEED

Post by Svensk Anga » Mon Jun 03, 2019 8:23 am

I don’t know about $ amounts, but suggest you think about whether you need 30 year term. You’ll be in your 60’s then, hopefully financially independent, maybe retired. Between the expiration of a 20year term and 30, you should be gradually losing the need for life insurance. Those last ten years are costly to insure.

If you are uncomfortable going all in on 20 years, you could do part 20 and part 30.

Oh, and don’t forget that in there will be a Social Security survivors benefit for the spouse raising minor children, likely substantial with your incomes.

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Stinky
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Re: How much life insurance do we NEED

Post by Stinky » Mon Jun 03, 2019 8:42 am

I agree that 30 year term is longer than you need. 20 year will likely cover you at a much lower cost.

You got good quotes through Select Quote. They represent all of the same term life companies that other agents do.

If you’re a CPA, you might look at life insurance through AICPA. My son is a CPA, and has found that AICPA insurance is very attractively priced relative to individual term policies.

Glad that you’re looking at term insurance. Don’t even think of whole life or universal life.
It's a GREAT day to be alive - Travis Tritt

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greg24
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Re: How much life insurance do we NEED

Post by greg24 » Mon Jun 03, 2019 8:44 am

Another vote to consider 20-year term or a 20/30-year combo.

alfaspider
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Re: How much life insurance do we NEED

Post by alfaspider » Mon Jun 03, 2019 8:51 am

I'm not sure you really need to follow a certain multiple of your income rule. I've not heard that rule of thumb, but I suspect it's targeted towards folks with kids and not much in the way of assets. Think about what you are really buying life insurance for: You don't have kids yet, but your assets are already sufficient to raise a kid to adulthood with college if you were to pass. Since you and your future spouse both make healthy incomes, you could continue to support yourselves individually without the other.

I'd also echo posters suggesting shorter than 30 year terms. Heck, even a 10 year might make sense given your financial trajectory.

Pioneer
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Re: How much life insurance do we NEED

Post by Pioneer » Mon Jun 03, 2019 9:05 am

I'd urge you to consider insuring now before pregnancy. If your health improves, you can always start a brand new policy and cancel the old one. But if you're concerned for weight or mental health, those are two areas that pregnancy can impact significantly.

What my partner and I did when getting our policies was to imagine the number of kids we wanted and the amount of coverage we needed. So for example, we made up that we'd have baby Jane in 2021, baby Florence in 2023 and baby Lester in 2026. Then we said, well, what happens if one of us passes in 2030? What would the other person need to have? For my partner, the answer was something like $750,000 because my partner is comfortable having enough to pay off the house, have a small cushion, and continue working at their employer in their high-paid field (that also offers education and childcare subsidies). For me, I wanted $1.25 million because I wanted to have the house paid off, living expenses for 2-3 years, and I wanted fully paid-for college funds for the 3 kids. Having the hypothetical ages of the kids helped us pick the terms as well, because we wanted coverage until the "kids" were in high school.

suemarkp
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Re: How much life insurance do we NEED

Post by suemarkp » Mon Jun 03, 2019 5:36 pm

+1 I think that's the approach to take, and not some arbitrary 10X your income rule. I've lived through this situation. I think it is important to keep working unless the single spouse can FIRE and not have to work again. So that means covering child care, education, retirement savings, and all the living expenses. Social Security provides a decent amount of support income until each kid is 18. So that can be subtracted out of what you need (and the amount they will pay will will keep increasing as you work if both are paying into SS making things better).

Make sure the surviving spouse has some clue about rolling the dead spouses 401K (or similar) into their own IRA or into their work 401K if possible. I cashed out my deceased wife's 401K mostly because i needed the money and knew I could make it up in the long run if I needed to. I needed to, and did pay a chunk of change in taxes the year she died. Would have been better to roll it into an IRA (strangely, we both worked for the same megacorp and they would not let me roll a portion of her 401K into mine - had to be all or nothing).
Mark | Kent, WA

mchampse
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Re: How much life insurance do we NEED

Post by mchampse » Tue Jun 04, 2019 1:04 am

Pioneer wrote:
Mon Jun 03, 2019 9:05 am
I'd urge you to consider insuring now before pregnancy. If your health improves, you can always start a brand new policy and cancel the old one. But if you're concerned for weight or mental health, those are two areas that pregnancy can impact significantly.

What my partner and I did when getting our policies was to imagine the number of kids we wanted and the amount of coverage we needed. So for example, we made up that we'd have baby Jane in 2021, baby Florence in 2023 and baby Lester in 2026. Then we said, well, what happens if one of us passes in 2030? What would the other person need to have? For my partner, the answer was something like $750,000 because my partner is comfortable having enough to pay off the house, have a small cushion, and continue working at their employer in their high-paid field (that also offers education and childcare subsidies). For me, I wanted $1.25 million because I wanted to have the house paid off, living expenses for 2-3 years, and I wanted fully paid-for college funds for the 3 kids. Having the hypothetical ages of the kids helped us pick the terms as well, because we wanted coverage until the "kids" were in high school.
I like that approach.

I’m not sure who came up with the 10x rule, but I don’t think it’s necessary for most people. With a dual income family where both partners make about the same, I would look to buy enough insurance to:
1)Payoff the mortgage
2)Pay for college for your children
Obviously if we’re talking a single income family, they would need much more.

I would say don’t be afraid to consider buying a 10 year renewable term. Yes, the premium jumps after 10 years, but you will be earning a lot more. Theoretically, if you were to invest the cost difference between a 20 year and 10 year term and got the exact same returns as the insurance company projected, you would end up effectively paying what a 20 year term would have cost. Though this way you could see if you could buy a new 10 year term policy on the open market which may be cheaper than the renewal premium. You could also decide that you don’t need the insurance at all or you need it at a lower face value.

ModifiedDuration
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Re: How much life insurance do we NEED

Post by ModifiedDuration » Tue Jun 04, 2019 6:21 am

I am a CPA and would second the previous suggestion to look into the AICPA life insurance program, if you are also a CPA.

I had the annual, renewable term life insurance for decades (before I retired) and it is very attractively priced, especially when you consider the annual premium refunds.

The AICPA also offers up to 20 year level premium term life insurance.
Last edited by ModifiedDuration on Tue Jun 04, 2019 7:13 am, edited 1 time in total.

MTF
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Re: How much life insurance do we NEED

Post by MTF » Tue Jun 04, 2019 7:08 am

My partner and are in a similar age bracket and on similar household income to you (which is also roughly evenly split between us). No kids yet and no significant debt other than the mortgage. Much smaller net worth. We each almost took out life insurance at half the amount of the mortgage, the rationale being that the surviving spouse could refinance using the proceeds and, with the mortgage cut in half, the repayments for that spouse would stay the same. But the difference in the premium between cover for half and the full amount of the mortgage was not significant, so we took out cover for the full amount each. It’s an entirely personal decision, but even with kids on the horizon, we don’t see any need for more cover than that.

mbasherp
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Re: How much life insurance do we NEED

Post by mbasherp » Tue Jun 04, 2019 8:03 am

Your first step should be to go online to the Social Security website, create your profile (if you haven't already) and see exactly what your survivors benefit would be today. It it usually more significant than expected and it changed my calculations when I was deciding on term life insurance.

I agree that 30 year term is increasing the premium a lot and is probably not necessary. With your current net worth and income, do you expect to need this insurance in your 60s? If I were you (I'm not), I would probably lean toward a 20 year $1 million policy. I don't see benefit in over-insuring.

DW and I opted for 20 year, $500k policies in our early 30s. This amount + SS benefits means that if something happened to one of us with a young child, the mortgage would be paid off, surviving spouse could take a few years off if needed and college would be paid, BUT it would be a good idea to go back to work eventually unless lean-FIRE was attractive. Continuing to work is likely good for the surviving spouse's well being anyway. This coverage amount also means that by our late 40's/early 50's, we will likely be over-insured and either reduce/drop the coverage or know that it would instantly make the surviving spouse 100% financially independent.

Conceptually, we bought term life to avoid leaving the surviving spouse financially screwed. We did not buy it to instantly make a surviving spouse rich.

Edit to add: We shopped through term4sale and ended up with our policies from Protective Life, $240/year for him and $210 for her.

anon_investor
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Re: How much life insurance do we NEED

Post by anon_investor » Tue Jun 04, 2019 8:51 am

Not sure this is an option for OP, but check if your employer has any life insurance discounts. At least for my current and prior recent employers, the company paid for life insurance of 1x my base pay, but during on-boarding and annual enrollment I always had the option to choose to pay out-of-pocket to increase it (e.g. to 2x, 3x, 4x, 5x, etc.) and it was always much much cheaper than if I went out and bought my own insurance (e.g only a few dollars a month per $100,000 of coverage). Granted the company subsidy goes away once I leave, but I figure I take advantage of it while I can, and I can always buy my own term life insurance if a new employer does not have this. At least for my plans, there have always been an option to continue the policy after leaving the employer (I have never done so because I have always just obtained life insurance coverage through my new employer).

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