Life Insurance question - terms for 2 tranches

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wahoocoug
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Joined: Tue May 19, 2020 3:56 pm

Life Insurance question - terms for 2 tranches

Post by wahoocoug »

Hi there! 33M here with wife (35) and 2 kids (2 and 4). Hoping to get some thoughts before moving forward on some replacement/additional term life insurance. I've been approved with Banner Life for $4M of term life insurance. I can get it in two chunks of $2M each, and I have to decide among 15, 20, and 25 year terms for the two chunks. Part of this is replacing my current 20 yr, $2M policy that I'm ~4.5 years along on right now. I had cancer 5.5 years ago that was removed with surgery and I've had zero recurrence, so I am replacing the policy I got 1 year after that, and adding to it. The current policy premiums are $127/month. The rates for each $2M chunk of the new insurance would be:
  • 15 yr: $86/month
  • 20 yr: $114/month
  • 25 yr: $162/month
For reference, I have a decent salary with comfortable bonus potential (probably will average ~$200 to $300k total comp over the next few years, likely increasing gradually after that), live in a medium COL area, my wife doesn't work at the moment while she raises the kids but she is trained as a teacher and will probably want to go back once the kids are in school, we expect we may have one or two more kids over the next 4-5 years, we owe ~$315k on our house (4 years into a 30 yr mortgage at 2.75% - sort of locked into this house until rates come down or I have a big year and can make a bigger down payment), ~$80k in student debt (at ~2.2%, 17 yrs left), have ~$150k in retirement savings, and we put away 15 to 20% of gross salary toward retirement savings each year.

Any thoughts on which two of these options to choose for the two $2M chunks, and/or how you might approach the question? Also, I realize I'm probably agonizing over this question too much, and if that's the case, tell me so...and also still which options you would choose if you were in my position :)
Minty
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Re: Life Insurance question - terms for 2 tranches

Post by Minty »

Given the trivial difference in cost, the option value of the longer term seems well worth it. If you are self-insured after 15 or 20 years, cancel it. But people's health declines as they age, and insurance becomes more expensive or unobtainable. And while I was out of the house at 17 in the early 1980s, it turns out that kids these days are not necessarily off the payroll as early as they once were . . . .
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15 -> R4 1.875% 15
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Stinky
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Re: Life Insurance question - terms for 2 tranches

Post by Stinky »

wahoocoug wrote: Mon Feb 03, 2025 9:19 pm Hoping to get some thoughts before moving forward on some replacement/additional term life insurance......
Good move on your part in reassessing your life insurance coverage situation after your cancer "scare" is further in the rear view mirror. Not only can you replace your policy purchased shortly after your treatment with a lower cost policy, but you can lock in rates that will remain unchanged even if the cancer were to recur.

Given the family situation you describe (2 toddlers, maybe one or two more in the next 5 years, and a stay-at-home spouse), I'd probably split the coverage evenly between 20 and 25 years. That will give you maximum coverage carrying "unborn children" most, if not all, of the way through college. You can always cancel the policy(ies) in the later years if your family situation and/or financial situation indicates that you don't need the coverage any more.

Once again, you're doing a smart thing in replacing your current policy now that you've moved further beyond your cancer scare.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
IowaFarmBoy
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Re: Life Insurance question - terms for 2 tranches

Post by IowaFarmBoy »

You might ask if you would be able to take out one policy for the longest term and lower the face amount in the future if you no longer need as much coverage. I took out a 20 year $600k policy when I was 47. When I retired at 62, it was no longer needed so I planned to drop it but DW wanted some ongoing coverage on me- no good reason other than it made her feel more secure. We compromised on trying to leave $200k in force for the remainder of the 20 year term. Because of policy type/constraints, the insurance company said we couldn't go lower than 250k so we went with that. The premium was reduced generally proportionally but I think maybe not exactly as I think there may have been some kind of discount for the policy being larger.
BruDude
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Re: Life Insurance question - terms for 2 tranches

Post by BruDude »

IowaFarmBoy wrote: Tue Feb 04, 2025 4:41 am You might ask if you would be able to take out one policy for the longest term and lower the face amount in the future if you no longer need as much coverage. I took out a 20 year $600k policy when I was 47. When I retired at 62, it was no longer needed so I planned to drop it but DW wanted some ongoing coverage on me- no good reason other than it made her feel more secure. We compromised on trying to leave $200k in force for the remainder of the 20 year term. Because of policy type/constraints, the insurance company said we couldn't go lower than 250k so we went with that. The premium was reduced generally proportionally but I think maybe not exactly as I think there may have been some kind of discount for the policy being larger.
Banner doesn’t allow face amount reductions.

OP - I’d suggest buying two (or more) separate policies if you have any plans to possibly reduce coverage in the future because canceling one will be the only way to do it with Banner. You’d be paying an extra policy fee for each policy, which effectively becomes the cost of having more flexibility in the future.
Chardo
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Re: Life Insurance question - terms for 2 tranches

Post by Chardo »

Minty wrote: Mon Feb 03, 2025 9:31 pm Given the trivial difference in cost, the option value of the longer term seems well worth it. If you are self-insured after 15 or 20 years, cancel it. But people's health declines as they age, and insurance becomes more expensive or unobtainable. And while I was out of the house at 17 in the early 1980s, it turns out that kids these days are not necessarily off the payroll as early as they once were . . . .
Agree with not overthinking it and just buy one policy.

OP seems to have a good handle on his finances, but for others, the point about "you never know" is worth noting. Sometimes needs change. A cancer survivor may want to think differently than the typical boglehead, and buy more or longer than their anticipated need today. And also pay mind to insurability down the road. If that cancer should recur, you're stuck with that policy. Make sure it's one you are satisfied being stuck with. You will not want to convert to longer coverage with Banner, they only have a ripoff policy for that. They're great for term, but that's it. Other carriers give you a backup plan if there's a change in health and continued need or desire for coverage. Those with health histories might keep that in mind.
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