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401K Beneficiaries vs. Term Life Insurance
Old 09-26-2016, 08:01 AM   #1
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EvrClrx311's Avatar
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401K Beneficiaries vs. Term Life Insurance

I may be getting ahead of myself here, but I like to plan and am trying to make sure my thought process here is on track (appreciate any feedback on what I may be missing)

I've maintained a term life insurance policy since having children that would cover all their expenses and education through college, and I have also diligently set aside 25% of my pay towards my 401K since I started working in my early 20's... my life insurance policy is over in about 5 years, which will be about the point my children enter teenage years. So I'm considering extending it another 5-10 years, except I noticed that my 401K is now approaching half the value of the payout... and I expect in about 5-10 years for it to be comparable to the size of the life insurance policy.

Is it appropriate to consider the beneficiary designation (to a trust my family maintains with the understanding it's to provide for my children - which is the same designation of the life insurance as well) to be sufficient. Another variable worth mentioning here is that I'm divorced which is why the money isn't going directly to kids while they are still minors.

Basically, is it overkill to have both life insurance and a 401k going to my kids... when one or the other would be sufficient? Where I'm going with this is that it seems smart to reduce the amount of life insurance based on the current size of the 401k replacing some of it's value.

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Old 09-26-2016, 08:08 AM   #2
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Definitely pay the life insurance and 401k to your trust. Once the kids are mature adults (not just 18) then change the 401k to direct beneficiary to them. The problem is paying a retirement account to a trust can eliminate the option of a stretch. So once the kids are old enough to make the stretch election, should you die, then you would name the kids as the direct bene. For life insurance no reason to name the kids directly ever as there are no income tax consequences either way so just pay it to your trust.

As for maintaining the life insurance I'd probably get a 10 year term now or when that policy runs out. In case you die prematurely you want your kids to have more than enough money to get through college and get a head start on life I assume. Consider changing policies now rather than waiting for the term to end. You'd be amazed that prices sometimes go down as you get older depending on how the insurance company prices mortality, your health, etc.... It's free to check into it!

To clarify the trust should be YOUR trust. The way you phrased it wasn't clear if it is your own trust or not.

Hoping to get out around September 1, 2022... I hope, I hope, I hope. Until then off to work I go....
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Old 09-26-2016, 08:08 AM   #3
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Yes, it is overkill, assuming your goal is just to provide expenses until they are through college. If you want to leave them additional $$, then having both is fine.
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