Life Insurance: single or multiple policies

[Lusitan]

I have some life insurance, but after taking stock of changed circumstances (marriage, kid, increased income, etc.) I've decided to increase the amount of life insurance I carry.

I'm only looking at term life insurance, probably something between 20 and 30 years. I'm probably somewhere between 10 and 20 years away from FIRE, depending on some lifestyle choices we make and of course, how the economy turns out in the mid-term future.

I know the old rule of thumb about carrying a life insurance between 10x - 15x gross annual income. (I'm carrying less than that now, which is why I'm looking to increase it.)

My situation is that we live off of roughly half of my income, with the rest going toward paying down debt and building up our FIRE stash. Were I to die in the near future (e.g. within the next 5 years) I think the full 10x - 15x annual income would be necessary, which is why I want to increase it (we're a single-income household, so my income is our entire household income).

But as we continue to save and pay down debt, getting closer to FIRE, I would think our life insurance needs would decrease. If I'm somewhere between 10 and 20 years away from FIRE right now, then I can imagine that in 10 years, if I'm not FIREd already, I'll be much closer to it, and so whatever life insurance assets my wife would need would only be to carry her forward to the FIRE threshold.

So I've been thinking of perhaps taking out 2 (or 3) additional life insurance policies, e.g. each covering maybe 3x annual gross income, rather than one additional policy for another 9x annual income. I figure that if, at some point in the future, we decide we can dial down our life insurance needs, I can simply cancel one of the policies. It would also be a way to diversify my life insurance "investment", of course I'd stick with solid companies that I expect to be around come hell or high water, but still, these days, spreading my life insurance eggs around several baskets seems on the surface to be a good idea.

Has anyone ever done something like this, implementing an overall life insurance coverage plan using multiple life insurance policies? Any reasons why it would be a bad idea, e.g. higher costs overall due to fewer discounts maybe?

Just kicking around the idea and thought I'd see what you guys have done. How'd you determine your coverage amount, and did you consolidate into a single policy or spread it over a few of them?

 

[ziggy29]

Well, I would think three policies for $X would cost quite a bit more than one for $3X, but if that's not the case and the insurers are all solid, this might be a good way to go.

Alternatively, some policies may allow you to reduce the insured amount without additional underwriting, and will calculate a new premium for you for the remaining duration of the term. (Increasing the policy amount usually requires some health and medical underwriting.)

So I guess my first choice would be one policy for $3X provided that the insurer will allow you to decrease the insured amount in the future without more medical underwriting. That would probably give you the flexibility you want at a cost that's likely considerably less than three contracts at 1/3 the insured amount.

 

[sailor]

I was contemplating a similar move and decided against it.
I've got a single 15 years term.
My rationale was that hopefully I will need less insurance money as the time progress, but at the same time inflation is eating the value of $X, for example with 4% annual inflation after 15 years you only get $55k real out of every $100k.
Also multiple policies were more expensive than a single one.

 

[ratface]

You don't say wheather you are paying on a mortgage or not. One way to supplement insurance is to see if your lender offers mortgage insurance in case of death. I found this to be an easy way to easily increase insurance at relatively low cost.

 

[ziggy29]

One way to supplement insurance is to see if your lender offers mortgage insurance in case of death. I found this to be an easy way to easily increase insurance at relatively low cost.

IMO, the only people "mortgage life insurance" makes sense for are people who are so unhealthy and uninsurable that they can't obtain traditional life insurance at anything resembling a reasonable rate.

 

[FinanceDude]

Term insurance rates have dropped a lot in the past 10 years, as the actuarial tables have been revised to show folks living longer. You may be able to increase your LI by a huge amount, and pay LESS than the policy you got at a younger age.

Being the sole breadwinner means you need enough to carry on the family if you are not there. I often think the 4% rule could work here. If you have $1.5 million of LI, your spouse could draw $60,000 a year without having to go out and find a job.

The two things you DON'T want to happen are:

1)Require your wife to got to work to make the bills. The kids lose their dad to death and then lose their mom to a job, that's tough.

2)Force your wife to go out and find another spouse for financial reasons.

Best of luck,post if you need any help deciding on companies or whatnot.......

 

[Lusitan]

Thanks guys.

Ziggy -- good suggestion about looking into the possibility of reducing the coverage without re-issue. On the face of it, it would seem that something like that should be possible, but I'll have to look into it.

Sailor - I was also thinking about the effects of inflation and whether I'm overestimating my ability to dial back the insurance as we get closer to FIRE. Still not sure what the answer is, but the reason I was kicking around this idea was to give myself some flexibility down the road even if I never decide to reduce the coverage. But it sounds like you also found it was more expensive to carry multiple policies (I guess a certain cost goes to overhead and administration costs, and having multiple policies will increase those costs ...)

ratface - I do have a mortgage, but I'm planning to include that in my calculated amount needed, but thanks for the tip. It may be something to consider down the road.

FinanceDuce - yeah I'm thinking pretty much exactly along the lines you are. I don't want there to be any worries about $ if I kick the bucket before FIRE. The companies I am considering right now are: USAA, TIAA-CREF, and Ameritas. Any thoughts on those, or other suggestions to consider?

I'm also looking into setting up a trust through Vanguard, but I haven't done enough research yet to know whether that's the way to go or not. My wife is pretty hands-off when it comes to investing, so I want to set something up that will take care of her and the kid(s) and not cause any stress.

 

[WanderALot]

Thanks guys.
FinanceDuce - yeah I'm thinking pretty much exactly along the lines you are. I don't want there to be any worries about $ if I kick the bucket before FIRE. The companies I am considering right now are: USAA, TIAA-CREF, and Ameritas. Any thoughts on those, or other suggestions to consider?

I've also been looking at getting a term life policy and have become paralyzed over which company to select. TIAA-CREF seems to be the cream of the crop, but they cost twice as much as some of the other companies (like AAA / ING / NY Life).

 

[donheff]

DW and I carried sufficient term life that the other could FIRE if one of us died. We did cut it back a bit as our portfolio increased but, if I remember correctly, our policies allowed us to dial back without penalty. We were not scientific about it - the policies got us well above minimum FIRE at some points and DW kept a cheap policy her work provided after I retired (which was at a point that were were both FI).

 

[brewer12345]

The companies I am considering right now are: USAA, TIAA-CREF, and Ameritas.

Those are good choices, especially the first two. I think NY Life, MassMutual, Northwestern Life, Penn Mutual and Guardian are decent companies.

 

[73ss454]

Last year I received a 31K settlement from Mass Mutual after proving their wonderful saleperson lied to me. Luckily I kept the proof and was able to prove my case.

It's a whole life policy, I guess I'm not too bright.

 

[brewer12345]

Last year I received a 31K settlement from Mass Mutual after proving their wonderful saleperson lied to me. Luckily I kept the proof and was able to prove my case.

The good thing is that with term the product isn't complicated enough to foll pretty much anyone.

 

[LOL!]

Are you aware of the free government life insurance that you already carry? If I died, my spouse and children could live off the significant social security survivor's benefits they would receive which would be around $4200 a month.

 

[Lusitan]

Are you aware of the free government life insurance that you already carry? If I died, my spouse and children could live off the significant social security survivor's benefits they would receive which would be around $4200 a month.

Good point to mention, LOL. It's true -- that's the biggest benefit of Social Security for most of us Gen Xers (we may not get much out of it when it comes to retirement, but it does provide some "life insurance" benefit to surviving spouses and children).

I haven't discounted that completely, but as with my retirement planning, I'm trying to implement a strategy that will cover everything with my own assets and insurance. That way, if Uncle Sam changes the rules my family will still be taken care of (right now, frankly, I'm underinsured, and so I have been counting on the SS death benefit, but I'd prefer not to rely on it).

Thanks Brewer - I'll check out those other companies as well.

 

[FinanceDude]

Those are good choices, especially the first two. I think NY Life, MassMutual, Northwestern Life, Penn Mutual and Guardian are decent companies.

I agree. Brewer is the one who poured over these companies books at one time so he should know.......

 

[FinanceDude]

I'm also looking into setting up a trust through Vanguard, but I haven't done enough research yet to know whether that's the way to go or not. My wife is pretty hands-off when it comes to investing, so I want to set something up that will take care of her and the kid(s) and not cause any stress.

Find a good estate planning attorney and do it right. I have seen some ugly trusts in my career, mostly due to lack of planning or correct documentation of wishes........

 

[Frugality_of_Apathy]

I take the frugal option of no life insurance.

The only reason I could see to get life insurance s to fake your death by a train to collect double indemnity and then skip off to mexico with the cash under the pseudonym of your name spelled backwards and wearing a fake beard and nose.

 

[brewer12345]

I take the frugal option of no life insurance.

The only reason I could see to get life insurance s to fake your death by a train to collect double indemnity and then skip off to mexico with the cash under the pseudonym of your name spelled backwards and wearing a fake beard and nose.

Uh, so you have no dependents, then? If I snuff it ahead of the mortality table predictions, my survivirs will collect better than $3k a month from SS and will get a quarter of my salary for life. However, I carry $1MM ofterm life on top of these income streams. Why? Among other things, I want my kids to be able to go to college and my wife not to have to worry about money. Plus my lifetime earnings stream is well in excess of $1MM.

 

[Lusitan]

I take the frugal option of no life insurance.

The only reason I could see to get life insurance s to fake your death by a train to collect double indemnity and then skip off to mexico with the cash under the pseudonym of your name spelled backwards and wearing a fake beard and nose.

Yeah man, if I had nobody that I love depending on me, I wouldn't worry about life insurance either. But I'm not doing it for me.

 

[summer2007]

Lusitan

I like your thread.

I too want to get life insurance.

I got to see some people younger than me die unexpectedly over the years and I realize it can just as easily be me. Some of these guys were really robust and healthy looking too.

Jim

 

[Bimmerbill]

When I bought, I asked the salesman where the "best" deals were ($250 and $500K I think, at the time) and asked if I bougth two $250K policies, will it be cheaper than 1 $500K policy?

He ran the numbers and it turned out slightly cheaper for the big policy.

 

[JohnDoe]

I am 10 years into a 20 year term. I plan on buying another 20yr, for a lessor amount, to over lap them.

 

[Lusitan]

FYI - what I've decided to do is to stick with a single term life insurance policy for my own private policy, but participate at work via the plan offered through my employer.

I figure if I stick to that plan, I'll always have "more" life insurance while I'm working, and if/when I FIRE and leave employment I'll naturally dial back on the life insurance.

What really made me go with this approach was when I confirmed that I could indeed reduce the amount of life insurance on my policy down the road if I wanted to, without any problems (it's if you want to increase your coverage amount that it would be difficult/expensive!). So that's flexible enough for me.

 

[FinanceDude]

FYI - what I've decided to do is to stick with a single term life insurance policy for my own private policy, but participate at work via the plan offered through my employer.

I figure if I stick to that plan, I'll always have "more" life insurance while I'm working, and if/when I FIRE and leave employment I'll naturally dial back on the life insurance.

What really made me go with this approach was when I confirmed that I could indeed reduce the amount of life insurance on my policy down the road if I wanted to, without any problems (it's if you want to increase your coverage amount that it would be difficult/expensive!). So that's flexible enough for me.

Sounds good. See how much total LI you can buy through your employer. Typically thet help subsidize this benefit, and you can buy the coverage cheaply.....