Having first child - Life Insurance question

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simplesauce
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Having first child - Life Insurance question

Post by simplesauce » Sat Jul 07, 2018 11:59 am

Hi all. I’m 31 years old. My wife is 29. We would like to set up life insurance as we have our first child.

My State Farm rep is trying to convince me to buy a WHOLE policy.

My Liberty Mutual friend is saying I should do a TERM policy. She offers an “increasing” policy that ends at 55 years old.

Any thoughts? We don’t want to spend a lot of money. This is just for a peace of mind. Thanks.

PhilosophyAndrew
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Re: Having first child - Life Insurance question

Post by PhilosophyAndrew » Sat Jul 07, 2018 12:04 pm

My wife and I each purchased 20-year $1M term policies when our daughter was born. This gave us peace of mind and was relatively inexpensive.

Don’t mix investing and insurance. If you want to invest, do so in something like a BH three-fund portfolio. If you want insurance, purchase inexpensive term insurance.

Andy.

Glockenspiel
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Re: Having first child - Life Insurance question

Post by Glockenspiel » Sat Jul 07, 2018 12:08 pm

Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.

Nate79
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Re: Having first child - Life Insurance question

Post by Nate79 » Sat Jul 07, 2018 12:18 pm

You want 20-30 year fixed payment term insurance thru an independant broker. If you have any interest in buying Whole life just search on here to educate yourself why this is a horrible idea.

thx1138
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Re: Having first child - Life Insurance question

Post by thx1138 » Sat Jul 07, 2018 12:25 pm

Fixed Term long enough to get through college. So 20 to 25 years.

Skip increasing term, it is the opposite of what you need. As you and your kid get older you need a smaller death benefit, not a larger one. If someone sold a decreasing term that would be the thing to actually buy but I’m not aware of those. Some people ladder instead with say both a 10 year and a 20 year policy as an approximation of a decreasing term policy.

Never is a strong word but in the interests of brevity never buy whole life.

If your State Farm person is pushing you towards whole life make a mental note that they clearly don’t have your financial interests in mind and remember that any time they try to sell you anything in the future. Remember sometimes they’ll use the word “advise” as a euphemism for “sell”.

Congrats on the wee one!

badProgrammer
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Re: Having first child - Life Insurance question

Post by badProgrammer » Sat Jul 07, 2018 1:17 pm

I agree with all previous commenters who "just say no" to whole life and suggest term life, instead.

Like others, I bought a couple of 20-year term policies when first kid was born.

Hoping to never use either policy. :)

If I had a do-over, I might have increased the benefit value of the two policies slightly for slightly more premium each year...I'm not sure I gave enough thought to how inflation would erode the relative value of the policies if they were needed (i.e., my/our deaths).

badProgrammer
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Re: Having first child - Life Insurance question

Post by badProgrammer » Sat Jul 07, 2018 1:21 pm

thx1138 wrote:
Sat Jul 07, 2018 12:25 pm

If your State Farm person is pushing you towards whole life make a mental note that they clearly don’t have your financial interests in mind and remember that any time they try to sell you anything in the future. Remember sometimes they’ll use the word “advise” as a euphemism for “sell”.
Oh, and I think this is also solid advice.

3funder
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Re: Having first child - Life Insurance question

Post by 3funder » Sat Jul 07, 2018 1:24 pm

thx1138 wrote:
Sat Jul 07, 2018 12:25 pm
Fixed Term long enough to get through college. So 20 to 25 years.

Skip increasing term, it is the opposite of what you need. As you and your kid get older you need a smaller death benefit, not a larger one. If someone sold a decreasing term that would be the thing to actually buy but I’m not aware of those. Some people ladder instead with say both a 10 year and a 20 year policy as an approximation of a decreasing term policy.

Never is a strong word but in the interests of brevity never buy whole life.

If your State Farm person is pushing you towards whole life make a mental note that they clearly don’t have your financial interests in mind and remember that any time they try to sell you anything in the future. Remember sometimes they’ll use the word “advise” as a euphemism for “sell”.

Congrats on the wee one!
+1.

Housedoc
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Re: Having first child - Life Insurance question

Post by Housedoc » Sat Jul 07, 2018 1:35 pm

+3, congrats. Whole term rep not your friend. Commission is his goal.

mouses
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Re: Having first child - Life Insurance question

Post by mouses » Sat Jul 07, 2018 1:41 pm

Glockenspiel wrote:
Sat Jul 07, 2018 12:08 pm
Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.
That's about the number I just got feeding in a healthy non-smoking 30 year old couple to Amica's online calculator.

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mickeyd
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Re: Having first child - Life Insurance question

Post by mickeyd » Sat Jul 07, 2018 1:43 pm

Forget about the WL option.

Search for 3-4 more term insurance options. Perhaps the Liberty Mutual option is the best option, but until you compare other term policies you will never know. BTW, stay away from insuring your new baby. Agents often like to add this to the package to boost their commission.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

ThrustVectoring
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Re: Having first child - Life Insurance question

Post by ThrustVectoring » Sat Jul 07, 2018 3:16 pm

You want term life insurance for both you and your wife, regardless of whether each parent is working. Definitely term life insurance - whole life is primarily for giving fat commissions to salespeople.

For term, twenty or thirty years both work well. Ideally, in twenty years you've saved enough money that you don't need much insurance and can use inheritance instead.

For sizing, you want roughly ten years of salary or child-care costs, depending on whether you're insuring a career or stay-at-home parent. More is certainly fine too if you can afford it, but roughly speaking ten extra years of household contribution will alleviate a lot of problems.

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rob
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Re: Having first child - Life Insurance question

Post by rob » Sat Jul 07, 2018 3:24 pm

Run from Whole life... Term for sure.

Have a think about how long and how much coverage you really need... I would suggest 2-3 policies covering different time periods... e.g. 25-30 year as a base and 10-15 year while the child is younger when it's more needed. Your employer plan might be useful to cover one of those but do not use it as the base since change in employment can drop you.
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il0kin
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Re: Having first child - Life Insurance question

Post by il0kin » Sat Jul 07, 2018 3:37 pm

My wife and I are similar ages with one child and another on the way. We each have a 400k private 20 year (meaning purchased from our broker who does our home, auto, etc) TERM policy which costs about $17 per month for her and $22 for me. We also have 1.5x salary free through our employer, and choose to buy up extra coverage because it is very cheap through our employers, which combined with the 400k private policy, totals to about 800k each.

My rationale is that the employer provided is very cheap to supplement and we are more likely to die from an accident than a random terminal health issue where we could eventually separate from our employer, so if one of us died the odds are good we would end up with the full 800k payout. That said, I have been meaning to get new private policies at a higher amount, probably 600k, with the second baby on the way.

Term life insurance will help you sleep better at night knowing if the worst happens, your family will at least be able to pay off the mortgage and secure a roof over their heads for good. My advice would be to buy more than you think you need, as you see from my above post I will be circling back and upping the amount of our private policies.

blueman457
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Re: Having first child - Life Insurance question

Post by blueman457 » Sat Jul 07, 2018 4:27 pm

I went through this exercise when my child was born (a couple of years ago). Used term4sale.com (old school looking site, but works well), found an independent broker, and after all my calculations of this and that, ended up with ~10x income for life insurance.

Congratulations!

Blue Man

Cop51
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Re: Having first child - Life Insurance question

Post by Cop51 » Sat Jul 07, 2018 7:31 pm

Use term4sale.com to compare term policy prices. I used Banner life last year from an independent broker. Your State Farm rep will only sell you a state farm policy. Just buy the best bond rated company with the lowest price.

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prudent
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Re: Having first child - Life Insurance question

Post by prudent » Sat Jul 07, 2018 7:50 pm

Topic moved to Personal Finance (Not Investing).

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yatesd
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Re: Having first child - Life Insurance question

Post by yatesd » Sat Jul 07, 2018 9:02 pm

I chose to purchase 15-year term through select quote for me only since we are a single income household. In my case, it was $500K for about $270 a year (13 years ago).

My plan is working almost perfectly...and should essentially be self insured by the time she is 15 with an increasing 401K balance and a smaller policy provided through work. 20 year would have been slightly safer.

gnujoe2001
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Re: Having first child - Life Insurance question

Post by gnujoe2001 » Sat Jul 07, 2018 9:53 pm

Congrats on the baby.

Baring any medical concerns for yourself or your wife, go with term. 30 years from now you won't have as much liabilities that have to be covered in an unlikely event.

We used to be with State Farm. A phone call with my agent on an unrelated topic turned into her asking and selling me life insurance, to which I had to immediately ask what my annual life insurance premium was paying for. We're no longer with State Farm.

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Stinky
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Re: Having first child - Life Insurance question

Post by Stinky » Sat Jul 07, 2018 10:06 pm

Glockenspiel wrote:
Sat Jul 07, 2018 12:08 pm
Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.
Lots of good comments in this thread. I agree with checking with the two agencies mentioned above or Zander Insurance. They’ll all sell basically the same companies, at the same price.

Never, ever buy whole life in this situation. You’ll end up with a premium way too high for a face amount that’s way too low. Buy term and invest the difference.
It's a GREAT day to be alive - Travis Tritt

madmartigan
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Re: Having first child - Life Insurance question

Post by madmartigan » Sat Jul 07, 2018 10:31 pm

My three pieces of info to contribute to this thread:

1) Don't Delay. You may find yourself on the cusp of having rates raised on you just for being another year older (ex: 29 vs 30 for your wife).

2) Consider buying more than you need. This is one of those decisions where buying more insurance, early, because it's so much cheaper may make a lot of sense. Consider a scenario where you're making 2x income in a few years; trying to get the same amount when you're 35 may cost 50% more.

2) My wife's term insurance was purchased when she was 7 months pregnant. I was surprised that there wasn't additional bloodwork / paperwork because she was pregnant. As long as she was at a health pregnancy weight the physical will be just fine. That said, if your wife isn't pregnant yet, or just a few months pregnant, see #1. If she's healthy now, get insurance before pregnancy complications make getting insurance... more complicated.

simplesauce
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Re: Having first child - Life Insurance question

Post by simplesauce » Sun Jul 08, 2018 7:25 am

Glockenspiel wrote:
Sat Jul 07, 2018 12:08 pm
Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.
Can you explain more about why to buy from a broker instead of a big company?

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Stinky
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Re: Having first child - Life Insurance question

Post by Stinky » Sun Jul 08, 2018 7:32 am

simplesauce wrote:
Sun Jul 08, 2018 7:25 am
Glockenspiel wrote:
Sat Jul 07, 2018 12:08 pm
Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.
Can you explain more about why to buy from a broker instead of a big company?
I agree with the recommendation. Companies like State Farm and Allstate are primarily property-casualty companies, and life insurance from those companies is often not as competitively priced as from other companies. Also, in general, State Farm and Allstate agents can only sell products of those companies.

A broker can prepare quotes and sell insurance from a variety of companies, many of which specialize in level-premium term life insurance.

So, in summary, go to a broker for both price and broad selection of companies.
It's a GREAT day to be alive - Travis Tritt

simplesauce
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Re: Having first child - Life Insurance question

Post by simplesauce » Sun Jul 08, 2018 7:43 am

Stinky wrote:
Sun Jul 08, 2018 7:32 am
simplesauce wrote:
Sun Jul 08, 2018 7:25 am
Glockenspiel wrote:
Sat Jul 07, 2018 12:08 pm
Don’t buy whole. It’s a ripoff. Buy term to get you through the mortgage and raising kids. Don’t buy through any of the big companies (State Farm, All State, etc). Buy using a broker from SelectQuote or Term4Sale. I was in your exact same situation at the same age and bought my wife and I each 20-year term $750k policies for about $630 each year, combined.
Can you explain more about why to buy from a broker instead of a big company?
I agree with the recommendation. Companies like State Farm and Allstate are primarily property-casualty companies, and life insurance from those companies is often not as competitively priced as from other companies. Also, in general, State Farm and Allstate agents can only sell products of those companies.

A broker can prepare quotes and sell insurance from a variety of companies, many of which specialize in level-premium term life insurance.

So, in summary, go to a broker for both price and broad selection of companies.
Thank you. Is there any concern about choosing a company who may not be around in 20-30 years?

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Stinky
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Re: Having first child - Life Insurance question

Post by Stinky » Sun Jul 08, 2018 7:57 am

simplesauce wrote:
Sun Jul 08, 2018 7:43 am

Thank you. Is there any concern about choosing a company who may not be around in 20-30 years?
I would have no concern about that, presuming that the company you purchase from has a rating of least A (preferably A+ or A++) from AM Best.

The chances of a company with a rating that high being able to perform on a level term policy over a 20-30 year period are very high. And if the company were to have problems, almost certainly another company would pick up your term policy at no change in rates or terms.
It's a GREAT day to be alive - Travis Tritt

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yatesd
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Re: Having first child - Life Insurance question

Post by yatesd » Sun Jul 08, 2018 8:04 pm

Yes, I used Select Quote and could sort by rates and financial ratings. Keep in mind a recognizable name may not be healthier than another company. In my case, I ended up with Prudential for my life insurance.

mxs
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Re: Having first child - Life Insurance question

Post by mxs » Sun Jul 08, 2018 8:47 pm

As others have said, term on you and your spouse for 20 - 25 years at about 10 to 12 times annual income. Check the quotes and go with an A rated company or better and be done with it. Don't get insurance on your child, insurance is to make up for lost income (or pay for the child care they are no longer able to provide). You will likely start getting Gerber Life and the like mailings, throw them away. There is good info on why to get term on this forum and on Dave Ramsey's website. Ramsey followers and Bogleheads agree on Term insurance, as does anyone that actually thought about it and has your interest in mind, aka they aren't selling it to you.

RickBoglehead
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Re: Having first child - Life Insurance question

Post by RickBoglehead » Mon Jul 09, 2018 6:28 am

Life insurance is, like any insurance, for losses you cannot afford. It isn't investment protection. So insure the larger income generator IF the surviving spouse cannot afford the loss of that income, not because you want the income but don't need it.

19 years ago I bought $1.3 million term on myself, zero on my wife, who was a stay at home Mom. It expires in a little over a year.

You're smart buying it now, I waited until I was 40 and paid more.

PJmillennial
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Re: Having first child - Life Insurance question

Post by PJmillennial » Mon Jul 09, 2018 11:56 am

Stay away from whole life. I haven't heard of a positive experience with it.


Just got coverage for myself for 30 years to the tune of 10x income. My wife ,a stay at home mom, is covered for $250K for 20 years. I figure that should subsidize childcare and the other things she does around the house until the kids are old enough to manage. It's a little light but we have an extensive network of family and friends who would step up.

We pay about $50 a month for both of us.

We will be self insured by the time the coverage runs out.

It is heartbreaking to hear stories of young families who lose a spouse and are unable to cope financially. It's easy to get the coverage and would certainly be inexpensive in hindsight. I sleep better knowing my family will be taken care of if something happens to me.

simplesauce
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Re: Having first child - Life Insurance question

Post by simplesauce » Mon Jul 09, 2018 1:33 pm

Wow $50 a month total for both? Where did you find that?
PJmillennial wrote:
Mon Jul 09, 2018 11:56 am
Stay away from whole life. I haven't heard of a positive experience with it.


Just got coverage for myself for 30 years to the tune of 10x income. My wife ,a stay at home mom, is covered for $250K for 20 years. I figure that should subsidize childcare and the other things she does around the house until the kids are old enough to manage. It's a little light but we have an extensive network of family and friends who would step up.

We pay about $50 a month for both of us.

We will be self insured by the time the coverage runs out.

It is heartbreaking to hear stories of young families who lose a spouse and are unable to cope financially. It's easy to get the coverage and would certainly be inexpensive in hindsight. I sleep better knowing my family will be taken care of if something happens to me.

PJmillennial
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Re: Having first child - Life Insurance question

Post by PJmillennial » Tue Jul 10, 2018 9:34 am

simplesauce wrote:
Mon Jul 09, 2018 1:33 pm
Wow $50 a month total for both? Where did you find that?
PJmillennial wrote:
Mon Jul 09, 2018 11:56 am
Stay away from whole life. I haven't heard of a positive experience with it.


Just got coverage for myself for 30 years to the tune of 10x income. My wife ,a stay at home mom, is covered for $250K for 20 years. I figure that should subsidize childcare and the other things she does around the house until the kids are old enough to manage. It's a little light but we have an extensive network of family and friends who would step up.

We pay about $50 a month for both of us.

We will be self insured by the time the coverage runs out.

It is heartbreaking to hear stories of young families who lose a spouse and are unable to cope financially. It's easy to get the coverage and would certainly be inexpensive in hindsight. I sleep better knowing my family will be taken care of if something happens to me.
I had my Insurance guy shop around for me. I just checked and it $55 total. $11 for my wife and $44 for me. My coverage is only 750K so not the 10-12x some BH would need. Got the coverage when I was 28 and my wife was 29. He made it sound like getting coverage before 30 saved us some. We had a pretty lengthy interview process but didn't need a physical.

NextMil
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Re: Having first child - Life Insurance question

Post by NextMil » Tue Jul 10, 2018 9:39 am

Depends on where you are in investment accumulation phase.

When we had our first I had 500k in 20 year term and wife had 250k. Now after the others arrived I have $1m and she still has 250k, but we want to bump hers up. I am on my second policy obviously, but I went with 15 year term as I am hopeful to self insure in the future or at least reduce the amount once we hit a few more financial milestones.

LiterallyIronic
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Re: Having first child - Life Insurance question

Post by LiterallyIronic » Tue Jul 10, 2018 9:59 am

Absolutely term over whole. Don't even entertain the idea of whole.

Though I'm not sure about the 30-year thing. My wife and I had our first last year (and have been dragging our feet, mostly because my wife is 50 pounds overweight and therefore would cost more than me despite being five years younger), but we've been looking at 15-year term. By the time kids are in their teens, they don't need an adult staying home with them and therefore the surviving parent could work.

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Re: Having first child - Life Insurance question

Post by MrsBDG » Tue Jul 10, 2018 8:05 pm

There are some people who do not plan well for retirement, do not save, do not invest, live for the moment and they might actually benefit from a universal life policy, which can be set up for level premiums to age 80-90-100-105, but most people who are disciplined enough to follow Bogleheads advice will not need that.

Go to Term4Sale.com, talk/email with the three agents recommended, they all know you are hearing from three people, ask each one about the other's recommendations if you hear different info, take in the knowledge and go with the person you prefer.

duuuuuude
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Re: Having first child - Life Insurance question

Post by duuuuuude » Wed Jul 11, 2018 12:45 am

Any opinions on Return of Premium term insurance policies? Higher premiums (4x from my quote) but you get the money back if you outlive the term.

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Stinky
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Re: Having first child - Life Insurance question

Post by Stinky » Wed Jul 11, 2018 3:37 am

duuuuuude wrote:
Wed Jul 11, 2018 12:45 am
Any opinions on Return of Premium term insurance policies? Higher premiums (4x from my quote) but you get the money back if you outlive the term.
Don't buy ROP term. This follows the general advice of "don't commingle insurance and investments". The excess premium for ROP term over regular term is a form of "investment" that you hope to get back with interest when the policy matures. But I'd rather investing in a good quality index mutual fund than in an expensive insurance policy.

Realize that many people lapse their policies before the level term period is over. If you're one of those folks, you'll take a big haircut on the ROP part.

Run the numbers between a term policy with ROP and one without, assuming that you'll invest the excess premium over ROP in a reasonable way. See what the numbers tell you.

Realize that the agent will get a bigger commission if you buy a more expensive policy. Your agent's natural inclination will be to shade in favor of the ROP.

Repeating initial advice - don't buy ROP term. It's not a Boglehead thing to do.
It's a GREAT day to be alive - Travis Tritt

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Tamarind
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Re: Having first child - Life Insurance question

Post by Tamarind » Wed Jul 11, 2018 6:08 am

Congratulations! Get something simple that meets your needs so you can spend your time on your child instead of insurance shopping. Fixed term life fits the bill.

For the amount, just ballpark how much money it would take to replace each person's earnings (and unpaid work!) until the child was grown.

Don't be tempted by more complex products. Term life insurance is a commodity with a very well defined market and a very straightforward product. You should want the smallest benefit that will prevent financial distress for your family, for the shortest period when your family is especially vulnerable, at the cheapest cost possible for that benefit. You are making a bet with an insurance company that you will probably never collect on, that you don't want to collect on, and that is cheap precisely in proportion to the likelihood that you'll never collect on it.

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TNL
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Re: Having first child - Life Insurance question

Post by TNL » Thu Jul 12, 2018 8:11 pm

In case you need to hear it again -- no whole life. Term only.

I am on my 3rd term policy at age 44.
First was a $250K policy when married, no kids in 20s. Through State Farm.
Second was a $500K policy when I turned 35 and child was born. Also through State Farm.

Third and current policy is a $1.5 million 20 year policy that I obtained at age 39 through USAA in anticipation of more children. If you qualify for USAA, definitely get a quote from them. At this point, due to a change in life circumstances and hitting certain milestones, I no longer need the $1.5 million and really could get by with about $500k-$750k, but will keep the full amount for now.

10x your income for you and then also for your wife as well. If your wife will stay at home, look at getting a $250K policy for her, maybe more like $500K if you are in a high COL area and the costs of child care are higher. 10x is a guideline. If you are in a high COL area or have very high expenses like expensive health insurance or large mortgage, may need 12-15x.

Good luck and congrats on the new baby.

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