Suggestions for life insurance amounts

[Bikes4life]

Background info with current finances here

viewtopic.php?p=7042847&hilit=newbie#p7042847

Priced out term life and DI insurance for myself (38, will be 39 in 3 mo) wife (32)
Kids
3 yo
1 yo
Possible 3rd and last in the works

Term:
I ran calcs and believe I should get $1.5-$1.7 for me and $750 for her although its real cheap for her, so could consider $1M

based on our current incomes that just increased this year 100/65k

I need to find the happy medium. Trying to make room in the budget for this and where I would like to be coverage wise in the mid $500 range which may be a stretch. I am going to find a way to make it work to add some coverage, always do, but because it is tight I need to be practical on what I choose so I can afford it.

From what I gather, DI is more important statistically, and more term insurance is important in the short term, 20 years vs long term. I have not yet considered laddering...

DI with Principal (was slightly better than Guardian

Prices are monthly with slight discounts for other payment options

Me:
To age 65
180 day elimination (cash reserves and state TDI will help initially)
62% of 100k = $5,200 monthly
Cola 3% adds $254 yearly
Residual DI and recovery adds $400 yearly
Included:
Benefit update, future benefit increase , capital sum of $62,400, presumptive DI benefif, Supplemental health benefit of $31,200
Total cost is $232 monthly

Her:

To age 65
180 day elimination (cash reserves and state TDI will help initially)
67% of 65k = $3,500 monthly
Cola 3% adds $200 yearly
Residual DI and recovery adds $262 yearly
Included:
Benefit update, future benefit increase , capital sum of $42,000, presumptive DI benefif, Supplemental health benefit of $21,000
Total cost is $145 monthly

Term

Me: (priced banner and protective)

20 years: $1m $45 / $1.5m $65 / $1.7m $72
25 years: $1m $70 / $1.5m $102 / $1.7m $114
30 years: $1m $85 / $1.5m $124 / $1.7m $140

Her:
20 years: $500k $16 / $750k $20 / $1m $25
25 years: $500k $22 / $750k $29 / $1m $36
30 years: $500k $26 / $750k $36 / $1m $46

My father is 62 and his 20 year policy is up and the new rates are high. He doesn't necessarily need it personally, but he and my uncles each have it through the different companies they own in the event one passes. I am in slightly different boat not yet being an owner, but it makes me think I should do at least 25 years. Almost makes me want to do 30. But 25 is enough so at least my youngest would be through college.
If I do 30 for myself, my wife would be comfortable till 62.
If I do 25 for her, ill be 64 before her policy is up. Hers is so cheap though !

What are your thoughts? I am just concerned adding $550 a month right now. Need to find a happy medium . Should I slightly drop the DI percentage?

I dont have life insurance through work.
Waiting to find out on my wife. Getting the run around from her work. She may have something like a $5k death benefit. The union, the district and the state. Nobody can give us the info. But i wouldn't bank on it in case she ever left.

Thanks in advance !

[ScubaHogg]

Life insurance:

Expected lifetime income - expenses that disappear if you pass + expenses that appear if you pass

For me I just use the NPV of my lifetime income. If you aren’t doing that, I have to ask why you plan on working as long as whatever your plan is

[Tom_T]

Consider what would happen if something happened to your wife next year. You are then looking at raising two kids for 20 years. Can you do that and still make the same income? Would you have to cut back? What other expenses might be involved?

I would think about $1.5m for each of you for 25-year term. That would cost around $150/month? Getting extra doesn't hurt.

[Kagord]

I look at it as to what wages are lost should one pass, and I just bought pay as you go. So, roughly, salary X ExpectedYearsToRetireOrFI. With pay as you go and this approach, the amount insured keeps dropping every year until retirement, but the rate per $1K goes up every 5 years, at least with my plan.

This approach just looks a what is lost in today's dollars. For me, this is simple, there's plenty of other variables such as raises and cost of living increases, and what a payout would make invested, expense changes, and hundreds of other unknowns, I figure it all balances out and this approach would be a reasonable estimate to provide for a similar comfort of living.

[SavinMaven]

My advice about this may be swayed by my life experience, which is hopefully rare: my father died at 45, and my spouse was diagnosed with a terminal condition at age 43.

So, I'm going to propose to you there is no 'happy medium'. Life insurance is blac or white, you either use it or you don't. So assume for a moment the worst happened, and one day either you or your spouse is gone. Make a concrete mental plan of exactly what the surviving spouse is supposed to do - what will the kids' lives look like now?

Buy the amount of insurance you would want to have if you knew for a fact you would die soon.

[Bikes4life]

Thanks for the responses.
I am convinced I should do at least $1.5M for each for 25 years. That is actually in line with NPV of our income and what I am leaning towards. Possibly 30 years and a little more on my policy, but I am trying to be reasonable with the expense. I will make it work budget wise, but I am looking at $550 range per month including both DI which is more than I anticipated, but I was warned it was pricey.

Any input on the DI quotes?
Does anything seem not necessary? I would rather be assured, but I am also just learning about all of this as well. Or is anything missing that I should look into?

I ran it at 100k income for me.
Last 2 years I have made $88k with less hours from having kids.
3 years ago 92k during covid and before that 95k range 4 and 5 years ago.
This year probably around $95k
Income has been dropping past few years from working less, but I wanted to give a little cushion .

[Taylor Larimore]

Bikes 4 life:

The Bogleheads Guide to Investing--Second Edition, page 247, has a Table to determine how much life insurance you need. I'll copy it for you:

1. $_____ Annual income (in dollars) that will be needed by the survivor(s)
2. $_____ Annual income available (pension, Social Security, annuities, etc.)
3. $_____ Annual income shortfall (#1 minus #2)
4. $_____ Annual income shortfall multiplied by number of years income is needed
5. $_____ Emergency funds (3 to 6 months of living expenses)
6. $_____ Estimated funeral expenses (U.S. average is $5,000 to $10,000)
7. $_____ Other cash needs (taxes, college, bequests, etc.)
8. $_____ Total Family needs (add lines 4 through 7)
9. $_____ Total assets available (savings, investments, existing life insurance)
10.$_____ Subtract line 9 from line 8. This is the amount of life insurance you need.

Note: Having spent five years selling life Insurance, in most cases I strongly recommend term insurance to other types of life insurance.

Best wishes
Taylor

Jack Bogle's Words of WIsdom: "Life insurance companies maintained their mutual structure for 100 years or more, but seem to have long since abandoned the principles of mutuality, and are now formally abandoning the structure itself.

[stan1]

So your annual income is $165K/year and you will budget $550*12=$6600 per year for life insurance?

[Bikes4life]

Our income will be $150k-165k going forward except next year less next year if we end up with another kid.

Last year was 133k last year, and 140-145k range the past few years prior.

Does that seem high or low relative to our income?

[Bikes4life]

Thanks Taylor! will do some figuring based on that

[Chardo]

Thanks for the responses.
I am convinced I should do at least $1.5M for each for 25 years. That is actually in line with NPV of our income and what I am leaning towards. Possibly 30 years and a little more on my policy, but I am trying to be reasonable with the expense. I will make it work budget wise, but I am looking at $550 range per month including both DI which is more than I anticipated, but I was warned it was pricey.

Any input on the DI quotes?
Does anything seem not necessary? I would rather be assured, but I am also just learning about all of this as well. Or is anything missing that I should look into?

I ran it at 100k income for me.
Last 2 years I have made $88k with less hours from having kids.
3 years ago 92k during covid and before that 95k range 4 and 5 years ago.
This year probably around $95k
Income has been dropping past few years from working less, but I wanted to give a little cushion .

You don't get to make that choice. There's no cushion allowed with DI. You will be limited to your documented current income. In cases of variable income, it might be an average of current and recent past. You would probably be limited to 88k, unless you can document a higher current income. Actual coverage would be a percentage of that 88k, somewhere around 55k (tax free).

You can always buy less than the max issue limit, but not more. If future income grows, you can buy more at that time. If you want, you can add a guaranteed insurability rider, so future eligible increases are regardless of health.

[Bikes4life]

I held off on doing anything because the union is supposed to be offering my wife some good disability options. They are in negotiations now so we have no info yet. Within another week hopefully

From what I am told, if we buy her DI through work and DI personally, combined there is a limit. I guess I cant buy the max personally and then add some from work

So 1 option is to just get her 100% of what we are able to personally and forget the work plan, the hedge against the future unknowns of if she leaves for whatever reason, we will be covered.

Or I can split it. Partially through work and partially through a personal purchase, likely saving a lot of $ through her work plan in the meantime.. If she left her job, I would need to increase her personal coverage assuming the personal plan she has allows for that increase regardless of health condition. I believe that is guaranteed insurability.
That also opens up unknowns, increased costs at the time, etc

What percentage of your budget are you guys spending on term and DI?

Term
Leaning towards $1.7/ 30 Years for both of us and DI at our maxes, which is $4750 for my income and $3225 for her at 180 day payout (we have state $ if needed and emergency so I think I could wait)

With all of that it is $535 range monthly. Dropping term to 1.5/25 saves marginally

I have chosen DI till 65. I am wondering if I should reconsider that? Is 65 the advised end date?
I think I would rather tweak the end to date vs the monthly benefit amt.

I am 100% sold on the need for this and have 535 plugged into my excel budget ready to pull the trigger, but it seems like a good chunk of the budget. I am not sure if there really is a budget guideline for this as the calculations for what you need are pretty clear.

Last year 133k income with newborn, will be 155-165 going forward

[Golf maniac]

Life insurance:

Expected lifetime income - expenses that disappear if you pass + expenses that appear if you pass

For me I just use the NPV of my lifetime income. If you aren’t doing that, I have to ask why you plan on working as long as whatever your plan is

This is the way to think about how much you need. Focus on expenses lost and expenses gained if one of you dies. That will tell you how much you need. I would strongly recommend a ladder approach to reduce the costs. You are not going to need the amount in 15 or 20 years that you need today.

[dcabler]

Life insurance:

Expected lifetime income - expenses that disappear if you pass + expenses that appear if you pass

For me I just use the NPV of my lifetime income. If you aren’t doing that, I have to ask why you plan on working as long as whatever your plan is

That's what I did for my income and reduced coverage over time accordingly. My wife wasn't working anymore so I wanted coverage for her while our daughter was young in case I had to pay for child care if she was gone. That had a reasonably hard cliff and once that passed, we dropped her coverage.

Cheers.

[Bikes4life]

Thanks
I have done NPV Calculations at 2% earnings growth rate, 4% return

My wife NPV is:
$1.4 to age 57 in 25 years
$1.5 to age 62 in 30 years
$1.67 to age 67 in 35 years

For her, Rate increase from $1.5M to $1.7 for her only adds $6 mo


NPV For me:
$1.45 to age 57 in 18 years
$1.7 to 62 in 23 years
$1.9 to 64 in 25 years
$2.2 to 69 in 30 years

For me:
Rate from $1.7 to $1.85 adds $10 month so would be $545 all in range with wife at1,7 for 30 and DI as mentioned
Rate from $1.7 to $2.0M adds $22 month so around $557 all in.

I had picked $1.7 for both of us, 30 years as a happy medium, as I don't anticipate working full time more longer than around age 62, or a few years past. I will likely reduce to part time.
I work in family business and will have flexibility later in life.
I could consider $1.85 or 2M for myself and like others have said, reduce coverage as I get older.

Mortgage will be paid off in 13 years, which will be a huge burden off

[spammagnet]

Maxifiplanner.com includes a recommended level of life insurance for the survivor(s) to maintain the same level of discretionary spending after death of the decedent. That accounts for a decrease in the cost of living by the decedent and the impact of the cost of insurance on discretionary expenses. You have to add new expenses, such as the potential increase in child care expenses borne by a single parent.

[Bikes4life]

Thanks, I have started to look into that and research it. Have never heard about it.
Curious if their software also factors in Disability Insurance

[cchrissyy]

Laddering the term life is smart.

Don't forget to check your social security survivor benefits for what they'll pay if the kids are still home

Sorry I don't know anything about disability insurance. I know it's statistically much more likely, and often the same thing that prevents work comes with troubling new expenses. So it's important. But me and everyone I've heard of - who isn't a doctor - handles this by saving not insurance.

[HappyPappy]

I just recently looked into this myself (married with two kids).

I created about 20 excel tables, each representing a scenario for a specific year that I might die. The first scenarios start with next year, and then each successive year until 2043.

Each table shows all the income streams my spouse would have after I’m dead. Those include her income, social security, life insurance, and my pension in certain scenarios. I assumed she’d want to have the same amount of net income after I’m gone as we currently do now. That let me see the scenarios in which my death, with our current life insurance, would leave her short money or else place too large a burden on her to earn the money herself. This is all very hypothetical, but it was a helpful exercise. We sort of have a bit of a gap in coverage between my dying early and her being covered by life insurance and my dying late and her being covered by social security and my pension. But if die in between, there’s not as much money available. In the end, we decided she could use some money we have earmarked for retirement that’s held in taxable brokerage accounts and use that to bridge the gap.

One thing that bugs me still, is that the real value of the life insurance payout just shrinks every year due to inflation. That big million dollar policy won’t be worth as much in 25 years.

[spammagnet]

Thanks, I have started to look into that and research it. Have never heard about it.
Curious if their software also factors in Disability Insurance

It does not. Unlike life insurance, I think there's usually a limit on how much you can buy, anyway. DI underwriters don't want to create an incentive to not work. Personally, I think buying it privately is good because you can keep it as you change employers. You might not pass a medical exam if you need to buy it in the future.

Maxifiplanner require an adjustment in how you think about long-term financial planning. I get it and like it, but I'm retired. It's also very useful to those approaching retirement.

I might be less comfortable as a much younger person basing my spending decisions today on what I might make far in the future if everything goes exactly according to plan.

That said, I do think it's useful at an earlier age than my own to guide decisions such as the one you're contemplating. It's also very useful for decisions like forecasting the long-term result of moving to a different state to take a new job, vs. staying where you are.

[Chardo]

Thanks, I have started to look into that and research it. Have never heard about it.
Curious if their software also factors in Disability Insurance

It does not. Unlike life insurance, I think there's usually a limit on how much you can buy, anyway. DI underwriters don't want to create an incentive to not work. Personally, I think buying it privately is good because you can keep it as you change employers. You might not pass a medical exam if you need to buy it in the future.

Maxifiplanner require an adjustment in how you think about long-term financial planning. I get it and like it, but I'm retired. It's also very useful to those approaching retirement.

I might be less comfortable as a much younger person basing my spending decisions today on what I might make far in the future if everything goes exactly according to plan.

That said, I do think it's useful at an earlier age than my own to guide decisions such as the one you're contemplating. It's also very useful for decisions like forecasting the long-term result of moving to a different state to take a new job, vs. staying where you are.

Life insurance is also limited. You cannot buy more than financially justified.

[runner540]

Thanks
I have done NPV Calculations at 2% earnings growth rate, 4% return

My wife NPV is:
$1.4 to age 57 in 25 years
$1.5 to age 62 in 30 years
$1.67 to age 67 in 35 years

For her, Rate increase from $1.5M to $1.7 for her only adds $6 mo


NPV For me:
$1.45 to age 57 in 18 years
$1.7 to 62 in 23 years
$1.9 to 64 in 25 years
$2.2 to 69 in 30 years

For me:
Rate from $1.7 to $1.85 adds $10 month so would be $545 all in range with wife at1,7 for 30 and DI as mentioned
Rate from $1.7 to $2.0M adds $22 month so around $557 all in.

I had picked $1.7 for both of us, 30 years as a happy medium, as I don't anticipate working full time more longer than around age 62, or a few years past. I will likely reduce to part time.
I work in family business and will have flexibility later in life.
I could consider $1.85 or 2M for myself and like others have said, reduce coverage as I get older.

Mortgage will be paid off in 13 years, which will be a huge burden off

Remember the term insurance amount is nominal. Doesn’t increase with inflation. So its real value drops each year.
I’m ok with this as each year we are building up net worth otherwise.

[runner540]

I just recently looked into this myself (married with two kids).

I created about 20 excel tables, each representing a scenario for a specific year that I might die. The first scenarios start with next year, and then each successive year until 2043.

Each table shows all the income streams my spouse would have after I’m dead. Those include her income, social security, life insurance, and my pension in certain scenarios. I assumed she’d want to have the same amount of net income after I’m gone as we currently do now. That let me see the scenarios in which my death, with our current life insurance, would leave her short money or else place too large a burden on her to earn the money herself. This is all very hypothetical, but it was a helpful exercise. We sort of have a bit of a gap in coverage between my dying early and her being covered by life insurance and my dying late and her being covered by social security and my pension. But if die in between, there’s not as much money available. In the end, we decided she could use some money we have earmarked for retirement that’s held in taxable brokerage accounts and use that to bridge the gap.

One thing that bugs me still, is that the real value of the life insurance payout just shrinks every year due to inflation. That big million dollar policy won’t be worth as much in 25 years.

Your premiums also will go down in real terms, and hopefully your networks is increasing each year as you save, paydown mortgage, etc to offset the reduced real value of life ins.

[HappyPappy]

Your premiums also will go down in real terms, and hopefully your networks is increasing each year as you save, paydown mortgage, etc to offset the reduced real value of life ins.

Very true. I think it all balances out in the end.

[spammagnet]

... Unlike life insurance, I think there's usually a limit on how much you can buy, anyway. DI underwriters don't want to create an incentive to not work. ...

Life insurance is also limited. You cannot buy more than financially justified.

Yeah, I guess that could incentivize something more nefarious than not working.