Term Life Review

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Topic Author
ExuberantlyRational
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Joined: Fri Jul 12, 2013 9:23 am

Term Life Review

Post by ExuberantlyRational »

I'm in my early 30s with a baby on the way, and want to purchase term life insurance to provide for my spouse/child if I pass away. This is my first time purchasing life insurance, so I greatly appreciate any feedback on the amount of coverage, how to structure the policies, and any other advice on how to purchase coverage.

High level financial picture: ~$600k his/~$300K her income, which will likely double in next 5 years. ~$1.2m invested. Annual living expenses of ~$300k including housing and ~$200K excluding housing.

I'm considering ~$10m of coverage which would allow for a $3m home purchase in HCOL area and $250k/yr of income at a 3.5% withdrawal rate. Employer provides $2m of coverage, so I'm looking to buy an incremental $8m. I'm considering the following policy ladder to have flexibility to drop policies as savings increase (rough prices based on term4sale.com).
10-year $2m ~$400/yr
15-year $2m ~$500/yr
20-year $4m ~$1,300/yr

Would be great to get your advice on:
  • How much coverage I should purchase?
  • How to structure the policy ladder?
  • How to find a good insurance agent? I plan on comparing term4sale against a local agent.
  • Does it matter which insurance company I purchase from? My understanding is that there haven't been any major term life bankruptcies?
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cchrissyy
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Re: Term Life Review

Post by cchrissyy »

i think that's dramatically over-insured.

it's as if you wouldn't be leaving behind any other assets, when really every year that goes by your savings and investments will grow substantially.

I would cut each of those figures in half. and probably skip the 15.

i don't think it matters what company you go with. i have amica because i have liked them in the past for auto and renters service.
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Topic Author
ExuberantlyRational
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Re: Term Life Review

Post by ExuberantlyRational »

cchrissyy wrote: Sun Jun 09, 2024 3:17 pm i think that's dramatically over-insured.

it's as if you wouldn't be leaving behind any other assets, when really every year that goes by your savings and investments will grow substantially.

I would cut each of those figures in half. and probably skip the 15.

i don't think it matters what company you go with. i have amica because i have liked them in the past for auto and renters service.
What do you think is appropriate amount of insurance? $5m as you suggest would leave behind let's say $2m for a smaller home and $100K in annual income if I passed tomorrow, which would require substantial change in lifestyle. The move would save ~$1.3K/year in annual insurance cost.

My thought is I can drop the policies as assets grow, but that having higher coverage in the next 5-10 years is really valuable, particularly given the dirt cheap cost of the coverage.
Olemiss540
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Re: Term Life Review

Post by Olemiss540 »

ExuberantlyRational wrote: Sun Jun 09, 2024 3:28 pm
cchrissyy wrote: Sun Jun 09, 2024 3:17 pm i think that's dramatically over-insured.

it's as if you wouldn't be leaving behind any other assets, when really every year that goes by your savings and investments will grow substantially.

I would cut each of those figures in half. and probably skip the 15.

i don't think it matters what company you go with. i have amica because i have liked them in the past for auto and renters service.
What do you think is appropriate amount of insurance? $5m as you suggest would leave behind let's say $2m for a smaller home and $100K in annual income if I passed tomorrow, which would require substantial change in lifestyle. The move would save ~$1.3K/year in annual insurance cost.

My thought is I can drop the policies as assets grow, but that having higher coverage in the next 5-10 years is really valuable, particularly given the dirt cheap cost of the coverage.
Why would your spouse suddenly never have any income ever again? I would aim for 4M in insurance and buy the 10 and 15 year policy. If you die in year 16, most likely will have 4M in assets by then.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Stinky
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Re: Term Life Review

Post by Stinky »

On the one hand, $10 million of life insurance is a pretty steep number.

On the other hand, you logic for providing future income for your spouse if you were to die makes some sense. And if you do double your salary next year, the insurance will be just over 8x your gross income.

I’d probably scale back a little on the insurance amounts, given your awesome saving rate. But if you do go with the full amount, you can definitely afford it. And I do like your laddering idea.

Personally, I’d feel comfortable buying term life insurance from any of the companies on the term4sale.com website.

What about life insurance on your wife?
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Rex66
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Re: Term Life Review

Post by Rex66 »

That money would generate income

I agree don’t need more insurance

You can always do what you want though
Pretsler
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Joined: Sat Jun 28, 2014 10:58 am

Re: Term Life Review

Post by Pretsler »

ExuberantlyRational wrote: Sun Jun 09, 2024 3:02 pm
High level financial picture: ~$600k his/~$300K her income, which will likely double in next 5 years. ~$1.2m invested. Annual living expenses of ~$300k including housing and ~$200K excluding housing.

I'm considering ~$10m of coverage which would allow for a $3m home purchase in HCOL area and $250k/yr of income at a 3.5% withdrawal rate. Employer provides $2m of coverage, so I'm looking to buy an incremental $8m. I'm considering the following policy ladder to have flexibility to drop policies as savings increase (rough prices based on term4sale.com).
10-year $2m ~$400/yr
15-year $2m ~$500/yr
20-year $4m ~$1,300/yr
Term insurance policies are more or less “form” policies, so the terms tend to be very similar across insurers in a given state. That said, I think there’s some value in going with some of the larger firms if pricing is very similar (at the extreme, you see more complaints among marginal firms relative to their size). We used policy genius for two policies and had a great experience. Haven via Mass Mutual might also be worth pricing.

As some other posters have suggested, I’d consider ramping your coverage down more significantly over time (flip your ladder). If you believe you can sustain this high income, you’ll add substantially to your net worth over the next 5-10 years. The key risk you face is mortality ahead of 5-10 exceptional earning years. $10MM of coverage is not unreasonable so long as your career progresses to plan.
Topic Author
ExuberantlyRational
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Joined: Fri Jul 12, 2013 9:23 am

Re: Term Life Review

Post by ExuberantlyRational »

Stinky wrote: Sun Jun 09, 2024 6:00 pm On the one hand, $10 million of life insurance is a pretty steep number.

On the other hand, you logic for providing future income for your spouse if you were to die makes some sense. And if you do double your salary next year, the insurance will be just over 8x your gross income.

I’d probably scale back a little on the insurance amounts, given your awesome saving rate. But if you do go with the full amount, you can definitely afford it. And I do like your laddering idea.

Personally, I’d feel comfortable buying term life insurance from any of the companies on the term4sale.com website.

What about life insurance on your wife?
Wasn't planning on insuring my wife, given I expect finances to be manageable in that scenario, but worth considering taking out $1-2m.
Topic Author
ExuberantlyRational
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Re: Term Life Review

Post by ExuberantlyRational »

Pretsler wrote: Sun Jun 09, 2024 9:45 pm
ExuberantlyRational wrote: Sun Jun 09, 2024 3:02 pm
High level financial picture: ~$600k his/~$300K her income, which will likely double in next 5 years. ~$1.2m invested. Annual living expenses of ~$300k including housing and ~$200K excluding housing.

I'm considering ~$10m of coverage which would allow for a $3m home purchase in HCOL area and $250k/yr of income at a 3.5% withdrawal rate. Employer provides $2m of coverage, so I'm looking to buy an incremental $8m. I'm considering the following policy ladder to have flexibility to drop policies as savings increase (rough prices based on term4sale.com).
10-year $2m ~$400/yr
15-year $2m ~$500/yr
20-year $4m ~$1,300/yr
Term insurance policies are more or less “form” policies, so the terms tend to be very similar across insurers in a given state. That said, I think there’s some value in going with some of the larger firms if pricing is very similar (at the extreme, you see more complaints among marginal firms relative to their size). We used policy genius for two policies and had a great experience. Haven via Mass Mutual might also be worth pricing.

As some other posters have suggested, I’d consider ramping your coverage down more significantly over time (flip your ladder). If you believe you can sustain this high income, you’ll add substantially to your net worth over the next 5-10 years. The key risk you face is mortality ahead of 5-10 exceptional earning years. $10MM of coverage is not unreasonable so long as your career progresses to plan.
Fair point on increasing weighting for years 1-10 as that is the risk I'm focused on mitigating here.
Chardo
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Re: Term Life Review

Post by Chardo »

OP earns 600k and rising. He is early 30s. He has tens of millions of career earnings ahead of him. That is, by far, his most valuable asset. When one can insure their most valuable asset for pennies, why insure for less than its full replacement cost?
Topic Author
ExuberantlyRational
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Joined: Fri Jul 12, 2013 9:23 am

Re: Term Life Review

Post by ExuberantlyRational »

Rex66 wrote: Sun Jun 09, 2024 6:28 pm That money would generate income

I agree don’t need more insurance

You can always do what you want though
In the likely scenario I don't need the policy, the cost ends up being fairly de minimis. In the unlikely scenario my family needs the policy, $4m vs. $8m would materially impact their standard of living.

Scenario 1: For $2.5K/yr or $25K cumulative I can get $8m of coverage over 10 years. That should be enough to put my family on a good financial trajectory.
Scenario 2: For $1.25K/yr or $12.5K cumulative I can get $4m of coverage over 10 years. It helps, but probably requires lifestyle change for my family. The $12.5K in policy premiums I saved are worth $18K assuming 8% return, generating $630/year in income at a 3.5% withdrawal rate.
Chardo
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Re: Term Life Review

Post by Chardo »

The best company to purchase is the one that offers the lowest premium for you. The best for me is not necessarily the best for you. Every competitive term carrier is financially strong. Don't worry about that. Talk to an independent agent about which one will be best for your situation. Rates are identical from every source, by law. A good agent costs you nothing extra.
ajg189
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Re: Term Life Review

Post by ajg189 »

I started out reading this post thinking it was too much insurance. Then I thought to myself, it’s a couple hundred bucks per month on an almost (and soon to be over) $1mm in annual income.

It’s all so marginal relative to your income/expense level that you should do what feels comfortable.that said, I would consider adding some insurance for your wife. In the event something happens to her, you may choose to scale back, need to hire additional help, etc. it’s worth that peace of mind.
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Stinky
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Re: Term Life Review

Post by Stinky »

ExuberantlyRational wrote: Sun Jun 09, 2024 10:36 pm In the likely scenario I don't need the policy, the cost ends up being fairly de minimis. In the unlikely scenario my family needs the policy, $4m vs. $8m would materially impact their standard of living.

Scenario 1: For $2.5K/yr or $25K cumulative I can get $8m of coverage over 10 years. That should be enough to put my family on a good financial trajectory.
Scenario 2: For $1.25K/yr or $12.5K cumulative I can get $4m of coverage over 10 years. It helps, but probably requires lifestyle change for my family. The $12.5K in policy premiums I saved are worth $18K assuming 8% return, generating $630/year in income at a 3.5% withdrawal rate.
I believe that your thinking is very sound.

When it comes right down to it, term life insurance for a person like you is dirt cheap in insuring your largest asset, which is your future ability to earn income.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Valuethinker
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Re: Term Life Review

Post by Valuethinker »

ExuberantlyRational wrote: Sun Jun 09, 2024 3:02 pm I'm in my early 30s with a baby on the way, and want to purchase term life insurance to provide for my spouse/child if I pass away. This is my first time purchasing life insurance, so I greatly appreciate any feedback on the amount of coverage, how to structure the policies, and any other advice on how to purchase coverage.

High level financial picture: ~$600k his/~$300K her income, which will likely double in next 5 years. ~$1.2m invested. Annual living expenses of ~$300k including housing and ~$200K excluding housing.

I'm considering ~$10m of coverage which would allow for a $3m home purchase in HCOL area and $250k/yr of income at a 3.5% withdrawal rate. Employer provides $2m of coverage, so I'm looking to buy an incremental $8m. I'm considering the following policy ladder to have flexibility to drop policies as savings increase (rough prices based on term4sale.com).
10-year $2m ~$400/yr
15-year $2m ~$500/yr
20-year $4m ~$1,300/yr

Would be great to get your advice on:
  • How much coverage I should purchase?
  • How to structure the policy ladder?
  • How to find a good insurance agent? I plan on comparing term4sale against a local agent.
  • Does it matter which insurance company I purchase from? My understanding is that there haven't been any major term life bankruptcies?
It's generally not good practice to count on your employment-related insurance. Because there are so many situations where you that might not apply.

$10m is not a bad amount. Note that you would need separate policy to cover spouse, given your need for childcare expenses (until at least age 12) if you she (he) passed away (and you might have more than 1 child by then).

I would be tempted to get 2 policies. $4m each. 20 year. Thus you can always lapse one policy in the future if your requirement for life insurance
diminishes.

Someone else may have pointed out how imperative it is to have good Long Term Disability cover -- a personal contract, again not an employment-related benefit - given your earning potential. You are more likely to encounter long term disability than to die, in the next 20 years.
BruDude
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Re: Term Life Review

Post by BruDude »

Seems well thought out, the coverage amount will seem high to some but given your income and future increases to that, relatively large annual expenses, and wanting to provide continuous income, it does not seem unreasonable. I would say $5M minimum and at your age it isn't that expensive either way. If starting with $10M gives you peace of mind, go for it and you can always reduce the coverage amount in the future.

A straight 20-year term may not be much more expensive than laddering 10/15/20 years. Price out both. Otherwise I think your structure seems fine.

I wouldn't be overly concerned with which insurance company you buy from as long as they have a solid financial rating. Most of the major competitive term life companies have an A+ financial rating.

All of that said, if you don't have a very good individually owned disability insurance policy already, that should definitely be a priority too.
mcraepat9
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Re: Term Life Review

Post by mcraepat9 »

ExuberantlyRational wrote: Sun Jun 09, 2024 3:02 pm I'm in my early 30s with a baby on the way, and want to purchase term life insurance to provide for my spouse/child if I pass away. This is my first time purchasing life insurance, so I greatly appreciate any feedback on the amount of coverage, how to structure the policies, and any other advice on how to purchase coverage.

High level financial picture: ~$600k his/~$300K her income, which will likely double in next 5 years. ~$1.2m invested. Annual living expenses of ~$300k including housing and ~$200K excluding housing.

I'm considering ~$10m of coverage which would allow for a $3m home purchase in HCOL area and $250k/yr of income at a 3.5% withdrawal rate. Employer provides $2m of coverage, so I'm looking to buy an incremental $8m. I'm considering the following policy ladder to have flexibility to drop policies as savings increase (rough prices based on term4sale.com).
10-year $2m ~$400/yr
15-year $2m ~$500/yr
20-year $4m ~$1,300/yr

Would be great to get your advice on:
  • How much coverage I should purchase?
  • How to structure the policy ladder?
  • How to find a good insurance agent? I plan on comparing term4sale against a local agent.
  • Does it matter which insurance company I purchase from? My understanding is that there haven't been any major term life bankruptcies?
This logic seems sound to me and actually has made me want to increase my own life insurance coverage.
Amateur investors are not cool-headed logicians.
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BL
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Re: Term Life Review

Post by BL »

BruDude wrote: Mon Jun 10, 2024 12:48 pm Seems well thought out, the coverage amount will seem high to some but given your income and future increases to that, relatively large annual expenses, and wanting to provide continuous income, it does not seem unreasonable. I would say $5M minimum and at your age it isn't that expensive either way. If starting with $10M gives you peace of mind, go for it and you can always reduce the coverage amount in the future.

A straight 20-year term may not be much more expensive than laddering 10/15/20 years. Price out both. Otherwise I think your structure seems fine.

I wouldn't be overly concerned with which insurance company you buy from as long as they have a solid financial rating. Most of the major competitive term life companies have an A+ financial rating.

All of that said, if you don't have a very good individually owned disability insurance policy already, that should definitely be a priority too.
+1
I agree that a personal disability insurance covering your own occupation is very important.
Rex66
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Re: Term Life Review

Post by Rex66 »

ExuberantlyRational wrote: Sun Jun 09, 2024 10:36 pm
Rex66 wrote: Sun Jun 09, 2024 6:28 pm That money would generate income

I agree don’t need more insurance

You can always do what you want though
In the likely scenario I don't need the policy, the cost ends up being fairly de minimis. In the unlikely scenario my family needs the policy, $4m vs. $8m would materially impact their standard of living.

Scenario 1: For $2.5K/yr or $25K cumulative I can get $8m of coverage over 10 years. That should be enough to put my family on a good financial trajectory.
Scenario 2: For $1.25K/yr or $12.5K cumulative I can get $4m of coverage over 10 years. It helps, but probably requires lifestyle change for my family. The $12.5K in policy premiums I saved are worth $18K assuming 8% return, generating $630/year in income at a 3.5% withdrawal rate.
While obviously you can always do what you want, Thats not what i am saying. Im saying the current windfall would generate income. You wouldnt just go out and spend that X million dollar immediately upon your death and have nothing left besides the intentions of this money. You have enough to cover a very decent standard of living. We arent talking about them begging for money. Of course more would always be better but that money can do something now like take your wife out to dinner once every month instead of the low (but not zero risk) of dying in the next 10 years. Its not a big deal what you chose as long as you dont keep going down this road every 10 years and assuming you dont get suckered into permanent insurance which is going to get pushed on you for sure. i do agree best not to use employer based and to get own occ disability although be prepared for sticker shock.
FENDERSTRYKER75
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Re: Term Life Review

Post by FENDERSTRYKER75 »

While your thinking seem very logic, I would like to add a few other things to consider:

If you're taking out life insurance on yourself, consider taking out a policy on your spouse as well.
Once the child is born, take out a life insurance policy on them as well.
Be sure to have your other affairs in order-will, trust, beneficiaries named, etc.
Have the conversation with your spouse about if and/or when they would remarry if you've passed; and your wishes of how the financial picture would be handled--prenup or dissolving prenup (if there is such a thing). Along with vice versa, what if your spouse dies?
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Stinky
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Re: Term Life Review

Post by Stinky »

FENDERSTRYKER75 wrote: Mon Jun 10, 2024 5:44 pm Once the child is born, take out a life insurance policy on them as well.
No, no, no. 1000 times no.

Life insurance on children is an extremely poor consumer value. Besides, a child has no income to “insure”.

Don’t buy life insurance on children. Ever. Especially with parents making the kind of money that OP reports.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Rex66
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Joined: Tue Aug 04, 2020 5:13 pm

Re: Term Life Review

Post by Rex66 »

Yep never buy a kiddie policy

Those have near the worst returns and they limit coverage so insurability is not that valuable.
TravelforFun
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Re: Term Life Review

Post by TravelforFun »

OP,

$1,300 a year is a drop in your expense bucket. I'd go for the 20 years, $4M.

TravelforFun
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