20 year Term Life insurance—keep or renew?

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DVA79
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20 year Term Life insurance—keep or renew?

Post by DVA79 » Tue May 19, 2020 4:02 pm

Hey all, looking for some advice on term life insurance.

Age: 40
Retirement age: 55 with pension of 75% of salary.
Dependents: wife (39), 3 kids- 6,4,1
Savings/retirement: about 450k
Current Income: 140k with 3-3.5% annual increase.
Mortgage: 24 years left on $260k.
No other debts.

Current life insurance: 750k, 20 year term policy. Expires in 16 years. Premium: $371/year.

I am looking to renew to either a new 20 year, 25 year, or maybe 30 year.

Option 1: 20 year, 750k for $495 a year (+ $124 a year from current plan plus 4 extra years of coverage)

Option 2: 25 year, 750k for $735/year. (+ $364 a year from current plan plus 9 extra years of coverage)

Option 3: 25 year, 500k for $500/year. (+ $129 a year from current plan plus 9 extra years of coverage)

Option 4: 30 year, 500k for $595/year. (+ $224 a year from current plan plus 9 extra years of coverage)

I plan retiring at 55 from a very stable job with a pension. Currently no health issues and receive select preferred under current health insurance provider.

All companies are A rated.

Thanks in advance for your thoughts.

LuckyGuy
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Re: 20 year Term Life insurance—keep or renew?

Post by LuckyGuy » Tue May 19, 2020 4:43 pm

If you died tomorrow, your wife would be able to pay off the house and house and have just under 1M to raise 3 kids. I would consider keeping what you have and getting another 15 year term for 750K. In 15 years, I think you’ll be self insured with your pension and big nest egg.

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ICMoney
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Re: 20 year Term Life insurance—keep or renew?

Post by ICMoney » Tue May 19, 2020 5:20 pm

Do you really need coverage to age 65 or 70, with your kids long moved out of the house (hopefully)? I would suggest looking at 10 or 15 year term policies. You can get much higher coverage for the same premium. You could even keep the policy you have now and get a 10 year $500K or 750K policy to supplement the next several years where you still have young kids at home.

Best, ICM

gr7070
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Re: 20 year Term Life insurance—keep or renew?

Post by gr7070 » Tue May 19, 2020 5:45 pm

You expect to be FI in 15 years. Right around the time your insurance runs out. Sounds like perfect planning to me.

Option 0: do nothing
Last edited by gr7070 on Wed May 20, 2020 12:30 am, edited 1 time in total.

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sergeant
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Re: 20 year Term Life insurance—keep or renew?

Post by sergeant » Tue May 19, 2020 5:58 pm

I would keep current policy AND pick option 1. I think that you need additional insurance and doubling it to 1.5 million would be perfect.
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4nickt
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Re: 20 year Term Life insurance—keep or renew?

Post by 4nickt » Tue May 19, 2020 9:13 pm

I have no b/g in life insurance sales. that said I would stick with option 1. it gives you best coverage for years you need it most. you may want to consider adding 100-250K term for 10-20 years. this will help with kids god forbid the worst happens during those early years before retirement. either way you are doing some sound planning and taking care of your family. well done.

terran
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Re: 20 year Term Life insurance—keep or renew?

Post by terran » Tue May 19, 2020 10:51 pm

What happens to the pension if you die after you start taking it? Assuming the survivor benefit will be enough for your wife to live on then I don't think you need to extend your term insurance since it will be unneeded by the time the current term expires. If your wife doesn't currently work outside the home I do wonder if perhaps you don't have enough coverage until then though? You might also want to look in to some coverage for your wife -- how much would you need to either be able to stay home with the kids or hire enough help that you could keep working?

To help figure out both scenario's you should each sign up for accounts at https://ssa.gov to find out what your Social Security survivor benefits would be if you die while your kids are still young.

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Stinky
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Re: 20 year Term Life insurance—keep or renew?

Post by Stinky » Tue May 19, 2020 10:58 pm

sergeant wrote:
Tue May 19, 2020 5:58 pm
I would keep current policy AND pick option 1. I think that you need additional insurance and doubling it to 1.5 million would be perfect.
I like this answer. It pushes your insurance out to when the youngest is 21, and provides for your future increase in salary.
It's a GREAT day to be alive - Travis Tritt

BruDude
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Re: 20 year Term Life insurance—keep or renew?

Post by BruDude » Tue May 19, 2020 11:38 pm

A few questions/observations from an insurance agent as I see these type of questions all the time:

1. Does your wife have any life insurance? If not, what's the plan if she dies while the children are young?
2. $750k seems like a pretty low amount given your income and having three young children. If your wife doesn't work, I would suggest looking at $1.5M-2M total coverage. It's still dirt cheap at your age and good health.
3. What happens to your pension if you die before age 55? What about after age 55? If the entire pension would terminate, that is a potentially large problem. Can your wife survive on ~$1M for the rest of her life with no other income?
4. $1M in liquid assets can generate a safe return of ~$30k per year, which is significantly less than your current income. If you died tomorrow, your family could blow through that in less than 15 years.
5. You mentioned $450k savings/retirement, but if the bulk of that is retirement, the taxes/penalties could eat up a big portion of the total
6. College is going to be extremely expensive by the time your kids are 18. You'd be lucky if $750k covered three college educations at that point.
7. Life has a funny way of throwing you a few major curveballs along the way. Death of a family member, another child (twins?), divorce, unexpected major health issues, disability, etc. Hope for the best, plan for the worst.

lstone19
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Re: 20 year Term Life insurance—keep or renew?

Post by lstone19 » Tue May 19, 2020 11:40 pm

What is the logic of cancelling a current level term policy to buy a new one? A level term policy should be averaging each year's insurance cost (which goes up each year) to get the annual premium. So you overpay in the early years and make up for it in the later years. Cancelling a 20 year level term policy after four years is throwing some money away as the annual premium on a 20 year level term policy is more than what it would be if you could have bought a 4 year policy.

We see that with the OP's option 1 where the annual premium for a 20 year level term policy has gone up over 33% now that he's four years older (unless there's some other reason driving up the premium but then giving up the existing policy is an even worse decision). Compared to the current policy, the four extra years cost $991/year ($495 premium plus the $124 extra for the first 16 years ($1,984) spread across four years - $495 + $1,984/4 = $991).

BruDude
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Re: 20 year Term Life insurance—keep or renew?

Post by BruDude » Tue May 19, 2020 11:51 pm

lstone19 wrote:
Tue May 19, 2020 11:40 pm
What is the logic of cancelling a current level term policy to buy a new one? A level term policy should be averaging each year's insurance cost (which goes up each year) to get the annual premium. So you overpay in the early years and make up for it in the later years. Cancelling a 20 year level term policy after four years is throwing some money away as the annual premium on a 20 year level term policy is more than what it would be if you could have bought a 4 year policy.

We see that with the OP's option 1 where the annual premium for a 20 year level term policy has gone up over 33% now that he's four years older (unless there's some other reason driving up the premium but then giving up the existing policy is an even worse decision). Compared to the current policy, the four extra years cost $991/year ($495 premium plus the $124 extra for the first 16 years ($1,984) spread across four years - $495 + $1,984/4 = $991).
The mortality risk from age 57-60 is much higher than prior to age 56. The current policy is a sunk cost if his needs have changed. A 15-year $750k policy for a 40-year old would be as low as $322/year, so a comparable policy really hasn't changed cost much as the current one only has 16 years left. If he had bought a 25-year policy at the time of the original purchase, it would have cost around $500/year too.

Wannaretireearly
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Re: 20 year Term Life insurance—keep or renew?

Post by Wannaretireearly » Wed May 20, 2020 12:15 am

BruDude wrote:
Tue May 19, 2020 11:38 pm
A few questions/observations from an insurance agent as I see these type of questions all the time:

1. Does your wife have any life insurance? If not, what's the plan if she dies while the children are young?
2. $750k seems like a pretty low amount given your income and having three young children. If your wife doesn't work, I would suggest looking at $1.5M-2M total coverage. It's still dirt cheap at your age and good health.
3. What happens to your pension if you die before age 55? What about after age 55? If the entire pension would terminate, that is a potentially large problem. Can your wife survive on ~$1M for the rest of her life with no other income?
4. $1M in liquid assets can generate a safe return of ~$30k per year, which is significantly less than your current income. If you died tomorrow, your family could blow through that in less than 15 years.
5. You mentioned $450k savings/retirement, but if the bulk of that is retirement, the taxes/penalties could eat up a big portion of the total
6. College is going to be extremely expensive by the time your kids are 18. You'd be lucky if $750k covered three college educations at that point.
7. Life has a funny way of throwing you a few major curveballs along the way. Death of a family member, another child (twins?), divorce, unexpected major health issues, disability, etc. Hope for the best, plan for the worst.
Along these lines. This is truly an area of insurance to overinsure IMO. Ironically, its the insurance you really hope never to use. Probably the best example of why insurance is needed.

Wife & I started a 20 year policy at 10 times salary, 10 years ago.
Revisited, last year given income has risen and was nervous about not having a term policy when youngest is still in college. Ended up with a new 20 year policy (laddered up) for wife and I. This means we'll each be covered well ($2M) for the next 10 years, and still have some coverage ($1M) for the 10 years after. That takes us til youngest is 26/27.

Yep, I am overinsured by most measures. But it helps me to SWAN, and I'll never have to think about life insurance again!
Buy Low, Sell High

ScubaHogg
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Re: 20 year Term Life insurance—keep or renew?

Post by ScubaHogg » Wed May 20, 2020 1:21 am

LuckyGuy wrote:
Tue May 19, 2020 4:43 pm
If you died tomorrow, your wife would be able to pay off the house and house and have just under 1M to raise 3 kids. I would consider keeping what you have and getting another 15 year term for 750K. In 15 years, I think you’ll be self insured with your pension and big nest egg.
Also, are you counting on that pension for retirement? Will she get it if you die this Friday? This seems on the low end to raise three kids and possibly retire on. What would be her work situation if you are no longer around?
“There is no problem so bad you can’t make it worse.” - Chris Hatfield, Astronaut mantra

Bfwolf
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Re: 20 year Term Life insurance—keep or renew?

Post by Bfwolf » Wed May 20, 2020 2:10 am

Dropping the current policy sounds questionable since you've paid for the risk-adjusted "worst" years already. I would definitely not drop it for a new 20 year policy of the same amount. $750K also sounds like you are under-insured in the early years. If you died tomorrow, would your wife and kids be ok?

I like the idea of just adding a new $750K 20 year policy on to what you have already. You can price that vs a $1.5M 20 year policy as insurance does get cheaper the more you buy. If $1.5M is close to equal in price to the a new $750K policy + the $750 policy you already have, then dropping the policy you have for a $1.5M policy would make sense.

Valuethinker
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Re: 20 year Term Life insurance—keep or renew?

Post by Valuethinker » Wed May 20, 2020 3:51 am

Bfwolf wrote:
Wed May 20, 2020 2:10 am
Dropping the current policy sounds questionable since you've paid for the risk-adjusted "worst" years already. I would definitely not drop it for a new 20 year policy of the same amount. $750K also sounds like you are under-insured in the early years. If you died tomorrow, would your wife and kids be ok?

I like the idea of just adding a new $750K 20 year policy on to what you have already. You can price that vs a $1.5M 20 year policy as insurance does get cheaper the more you buy. If $1.5M is close to equal in price to the a new $750K policy + the $750 policy you already have, then dropping the policy you have for a $1.5M policy would make sense.
I agree not to cancel current policy.

Even if one takes a new policy, one should run the existing policy until all exclusionary periods have expired (I believe those dates are usually a matter of state law).

The risk is the OP develops some terminal disease and the insurer argues they must have known when they took out insurance. Go see Bridge of Spies, with Tom Hanks, to see how insurance lawyers can twist things (in the movie, in a good cause). You don't want some smart insurance company lawyer arguing that there were reasonable grounds to not pay.

(I am expecting there will be Covid-19 type exclusions on policies, going forward. Most of the CV-19 deaths will not be of highly insured individuals. However those types of individuals, in their 40s and 50s, are at risk).

I agree that OP looks underinsured right now. Until the youngest child is 18 I would way $1.5m of total cover is not unreasonable - but certainly on the order of $1m + 260k to repay mortgage.

The suggested strategy is a good one, although intuitively I prefer 2 x 750k policies, because one can always lapse one if one's financial position improves to the point it is not necessary.

The additional insurance only needs to have a term of 20 years.

BruDude
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Re: 20 year Term Life insurance—keep or renew?

Post by BruDude » Wed May 20, 2020 9:33 am

Valuethinker wrote:
Wed May 20, 2020 3:51 am
Bfwolf wrote:
Wed May 20, 2020 2:10 am
Dropping the current policy sounds questionable since you've paid for the risk-adjusted "worst" years already. I would definitely not drop it for a new 20 year policy of the same amount. $750K also sounds like you are under-insured in the early years. If you died tomorrow, would your wife and kids be ok?

I like the idea of just adding a new $750K 20 year policy on to what you have already. You can price that vs a $1.5M 20 year policy as insurance does get cheaper the more you buy. If $1.5M is close to equal in price to the a new $750K policy + the $750 policy you already have, then dropping the policy you have for a $1.5M policy would make sense.
I agree not to cancel current policy.

Even if one takes a new policy, one should run the existing policy until all exclusionary periods have expired (I believe those dates are usually a matter of state law).

The risk is the OP develops some terminal disease and the insurer argues they must have known when they took out insurance. Go see Bridge of Spies, with Tom Hanks, to see how insurance lawyers can twist things (in the movie, in a good cause). You don't want some smart insurance company lawyer arguing that there were reasonable grounds to not pay.

(I am expecting there will be Covid-19 type exclusions on policies, going forward. Most of the CV-19 deaths will not be of highly insured individuals. However those types of individuals, in their 40s and 50s, are at risk).

I agree that OP looks underinsured right now. Until the youngest child is 18 I would way $1.5m of total cover is not unreasonable - but certainly on the order of $1m + 260k to repay mortgage.

The suggested strategy is a good one, although intuitively I prefer 2 x 750k policies, because one can always lapse one if one's financial position improves to the point it is not necessary.

The additional insurance only needs to have a term of 20 years.
There are no COVID-19 exclusions and there is only a 2-year contestability period. Policies can only be rescinded if the applicant committed blatant fraud (ex: diagnosed with cancer but didn't tell the insurance company and somehow slipped it by them) and would have otherwise been declined at the time of underwriting. For someone that's in a Preferred Plus health category, that's not even a consideration.

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DVA79
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Re: 20 year Term Life insurance—keep or renew?

Post by DVA79 » Wed May 20, 2020 10:08 am

Thanks everyone....I really appreciate your feedback.

To answer some questions:

Wife Insurance: My wife has a 350K policy for another good for another 16 years. It may be a bit low but it would give me a cushion to either pay off the house or just get by and I feel it is enought to get through our child rearing years.

Pension: If I die, my wife will get 50% of my pension for the rest of her life plus her own social security and a small pension of her own that she is vested in.

Decision:I think I will keep my current 750K policy and purchase either another 500K or another 750k. Your replies reminded me that the primary purpose of life insurance is to replace lost income and so a laddered approach seems reasonable. My 750k policy will be good for 16 years and a new policy (500k or 750K) will be good for 20 years. This will get me through my highest income earning years and insurance my family against losing my income.

Last question--some of the lowest quotes are from Sagicor Life Insurance. It is an A- rated company and it looks like its parent company is based in the Caribbean rather than the U.S. It is a legit company from what I can see and is licenced to to sell insurance, but is there anything I should be concerned about if I get a new policy through them versus a company like TransAmerica? A 500k policy through Sagicor is $308/year and one though TransAmerica is $340/year.

Thanks.

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Stinky
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Re: 20 year Term Life insurance—keep or renew?

Post by Stinky » Wed May 20, 2020 10:21 am

DVA79 wrote:
Wed May 20, 2020 10:08 am
Last question--some of the lowest quotes are from Sagicor Life Insurance. It is an A- rated company and it looks like its parent company is based in the Caribbean rather than the U.S. It is a legit company from what I can see and is licenced to to sell insurance, but is there anything I should be concerned about if I get a new policy through them versus a company like TransAmerica? A 500k policy through Sagicor is $308/year and one though TransAmerica is $340/year.
On the one hand, I don’t know of a single situation, ever, where a term life insurance policyholder didn’t get his full death benefit payout. Even in the unlikely event that Saigitor goes insolvent before the 20 year period is up, some other insurance company will step in to take over your policy, through a process engineered by the state guaranty fund.

On the other hand, A- from AM Best is a rating well lower than the vast majority of the companies that are active in the competitive term life market.

I’d probably pay up a little for the higher rated company. But it wouldn’t be a bad choice to buy from Sagicor.
It's a GREAT day to be alive - Travis Tritt

BruDude
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Re: 20 year Term Life insurance—keep or renew?

Post by BruDude » Wed May 20, 2020 10:36 am

DVA79 wrote:
Wed May 20, 2020 10:08 am
Thanks everyone....I really appreciate your feedback.

To answer some questions:

Wife Insurance: My wife has a 350K policy for another good for another 16 years. It may be a bit low but it would give me a cushion to either pay off the house or just get by and I feel it is enought to get through our child rearing years.

Pension: If I die, my wife will get 50% of my pension for the rest of her life plus her own social security and a small pension of her own that she is vested in.

Decision:I think I will keep my current 750K policy and purchase either another 500K or another 750k. Your replies reminded me that the primary purpose of life insurance is to replace lost income and so a laddered approach seems reasonable. My 750k policy will be good for 16 years and a new policy (500k or 750K) will be good for 20 years. This will get me through my highest income earning years and insurance my family against losing my income.

Last question--some of the lowest quotes are from Sagicor Life Insurance. It is an A- rated company and it looks like its parent company is based in the Caribbean rather than the U.S. It is a legit company from what I can see and is licenced to to sell insurance, but is there anything I should be concerned about if I get a new policy through them versus a company like TransAmerica? A 500k policy through Sagicor is $308/year and one though TransAmerica is $340/year.

Thanks.
Sagicor is a good company, nothing wrong with using them. They have an A- financial rating from AM Best so they're not the strongest company out there, but they do have the lowest rates at your age bracket. You may want to consider replacing with just one larger 20-year policy. For a 40-year old male at P+ rates, $1.25M for 20 years is $660.24/year. Buying a new policy at $308 plus paying your current premium of $371 = $679/year. You'd get a full 20 years for the full benefit for less than it would cost to just add $500k 20-year to your current policy. $1.5M for 20 years is $778/year.

Bfwolf
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Re: 20 year Term Life insurance—keep or renew?

Post by Bfwolf » Fri May 22, 2020 6:06 pm

I would have no issue using Sagicor. I tend to agree that you're better off just buying a new $1.25MM policy at a cheaper rate than holding the 2 separate policies, but Valuethinker's point about the advantage of being able to drop 1 of the policies if you hold 2 is true. Honestly, either way you go here will be fine.

BruDude
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Re: 20 year Term Life insurance—keep or renew?

Post by BruDude » Fri May 22, 2020 7:07 pm

Bfwolf wrote:
Fri May 22, 2020 6:06 pm
I would have no issue using Sagicor. I tend to agree that you're better off just buying a new $1.25MM policy at a cheaper rate than holding the 2 separate policies, but Valuethinker's point about the advantage of being able to drop 1 of the policies if you hold 2 is true. Honestly, either way you go here will be fine.
You could just reduce the benefit on the larger policy instead of keeping two different ones and then terminating one.

aristotelian
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Re: 20 year Term Life insurance—keep or renew?

Post by aristotelian » Fri May 22, 2020 7:20 pm

Bfwolf wrote:
Wed May 20, 2020 2:10 am
Dropping the current policy sounds questionable since you've paid for the risk-adjusted "worst" years already. I would definitely not drop it for a new 20 year policy of the same amount. $750K also sounds like you are under-insured in the early years. If you died tomorrow, would your wife and kids be ok?

I like the idea of just adding a new $750K 20 year policy on to what you have already. You can price that vs a $1.5M 20 year policy as insurance does get cheaper the more you buy. If $1.5M is close to equal in price to the a new $750K policy + the $750 policy you already have, then dropping the policy you have for a $1.5M policy would make sense.
I like that plan as well. When current plan expires, you will have increased your retirement savings substantially enough that you won't need to replace it and the second policy will be sufficient.

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