Updating insurance coverage: life, auto, home, umbrella (help!)

[jblack]

A few weeks ago DW and I received some happy news that our first addition to the family is on the way!

So of course one of the many things we are now looking at is revising all our insurance needs. We’re both in our early 30s, great health/genes, and probably ~10 years away from FI. Here is what we currently have for coverage:

Health: full coverage for family thru one of our employers
Life: ~$500k for both of us thru my employer, can increase to $900k
Auto: $50/100/50k liability, $50/100/25k uninsured motorist
Home: $425k dwelling, $250k contents, $300k liability

No change needed for health insurance except for the additional dependent. As for the rest here are some open questions I’ve got:



1. How much term life insurance? Probably will get a 10-20 year duration and would like enough so the surviving parent will have flexibilty of working only if they want to while raising our child. Am I missing anything BIG from the below list to do my calculations?

• Assets: current savings in retirement & taxable accounts
• Liabilities: mortgage, school loans
• One time expense: college fund ($100k today’s dollars)
• Recurring expenses & income
  • Child-related & spouse living expenses: ~$3k/month for clothes, food, entertainment, car, vacations, piano lessons & little league, occasional baby sitter, public schools, etc
  • Property taxes, utilities, all insurance
  • Income taxes
  • Social Security survivor’s benefit of $x / month (need to look up)
  • Average SWR of 3.5% on the recurring amount needed

2. Which company to purchase from? We have Auto & Home thru Farmer’s and so far have had good experiences with them (just recently had a hail storm and they covered the entire thing no question). Work life insurance is thru MetLife. If we need more than what work allows ($750-900k) is there any downside with going with Farmer’s as well for a supplemental policy (or should we combine all to Farmers)? Their rates seem competitive and we have a good working relationship with our agent.

3. Adding an umbrella policy. We currently don’t have one but as our savings continue to grow towards FIRE we’d like to add some additional protection, probably $1M for now. Related to #2, is there any reason why we should consider moving away from Farmers to purchase? They're not on the highly recommended USAA, TIAFF-CREF, NY Life, MassMutual, etc list I’ve read on other threads but they seem to be quite solvent. Am I missing something else in evaluating?

Welcome any & all thoughts. Thanks!
jblack

 

[Lusitan]

Congrats on the soon-to-be new member of the family!

Good idea to take care of this now, before you're busy with other stuff. I just went through the process of upping the life insurance because of a new child; here are some thoughts that came to mind when reading your post.

#1 - sounds like you are mostly on top of everything when it comes to calculating your life insurance needs. The old rule of thumb of 10x your annual income is a good starting point, but using a SWR and factoring in your actual monthly expenses, college savings stockpile needs, etc. is a better way to go. In my case, I found that roughly 10X my annual income ended up being fairly close to what I otherwise calculated, but I'm glad I went through the calculations anyway and didn't just use the rule of thumb.

#2 - as for the SS survivor's benefits, just a tip: you can request a SS statement anytime from the govt website, so you can see it in print and not have to rely on any online calculators. Just FYI.

#3 - I also have some life insurance through work, however, I completely factored that OUT of my calculations and made sure I had my own policy with the company of my choice. I didn't want my life insurance to be tied to a job, and although I know there are some employer plans out there that are portable, I just wanted to have more flexibility in choosing my provider and managing specifics of my plan. So I would suggest you consider whether you should dial back your employer plan coverage (or simply maintain it at th current level) and add your own portable coverage in a separate policy. It's also a good option you will have down the road if you FIRE from your job but want to maintain your own private insurance policy as a way of dialing down your coverage but keeping something.

#4 - as for companies, at the suggestion of some board members here, I looked at TIAA-CREF and USAA, and ended up going with USAA. Have no complaints about the process and they are very stable per the financial ratings at AM Best etc.

#5 - this was relevant for us, so I'm just mentioning it -- make sure you understand any tax implications of U.S. citizenship (or lack thereof) for your and your spouse, when it comes to estate taxes. "Membership has its privileges" is the motto here.

#6 - really a separate question you can address later, but you'll want to make sure you have a will that appoints a guardian for your child if you and your wife both die unexpectedly; you may also want to consider how your insurance proceeds will be distributed in that case (e.g. a trust)

#7 - if you're early 30s, even if you think you're going to FIRE in 10 years, I would suggest getting a 20 year policy. It gives you more flexibility with your planning, and also will prevent you from needing to re-insure down the road when you may discovery some health issues etc. One way to plan for FIRE in 10 years may be to supplement with your private coverage outside of work, in a way so that the combined policies give you full coverage for the next 10 years. Then in 10 years after you FIRE, you can eliminate your work coverage and keep your private coverage which may be 65% of your total ... maybe you scale back your work instead of reaching full-time FIRE in 10 years, and if so you are still covered at a reduced amount through your private plan. I think here it's better to err on the side of caution and go with the 20 year plan. FYI I'm roughly the same age and went with a 25 year plan, even though I do not plan on working for another 25 years and therefore shouldn't NEED 25 years of coverage, I can always dial down the coverage in the future if I want to, without any problems, or stop it altogether.

#8 - Umbrella policy ... good idea, it's on my to-do list

 

[jblack]

Thanks Lusitan...good stuff.

Nice point on #3. I had considered that as well and probably will affect our decision to do a policy away from our employers, or at least use what we have as another component that can be dialed back in the future easily.

As for companies, we're not eligible for USAA and current home/auto policies are currently with Farmers as mentioned. They also have Life Insurance thru one their group companies and it's rated "A" (Excellent) by AM Best. Not that big of a hassle to go get a separate policy from a "A++" (Superior) company like TIAA-CREF but the simplicity and consolidation of policies is convenient. Does anyone think the rating difference of "A" vs "A++" is worth the additional complexity of having life insurance thru TIAFF-CREF or elsewhere?

Good point on the will and guardianship. That's on our to do list as well.

Lastly, the umbrella policy will have to come from the same company as home/auto. So it sounds like we either stick with Farmers for that as well or go get our home/auto somewhere else.....right? (essentially comes back to the credit rating question. Stick with Farmers or go elsewhere)

 

[Lusitan]

There are no special requirements to be eligible for USAA life insurance products -- it's not one of the things limited to military families. Anyone is eligible. Just FYI if you want to consider them.

A year ago I probably would have yawned at the difference between "A" and "A++". My confidence in the entire system of ratings and insurance companies in general has been shaken, so I decided I wanted a top-rated company. Still no guarantee, but I'll take as much reassurance as I can get.

The umbrella/home/auto insurance seems to me much easier to change at any time (i.e. not dependent on your health which can suddenly take a turn for the worse) and so I would see no reason not to go with Farmers for that, especially if you've been happy with them for the home/auto insurance so far.

 

[brewer12345]

IMO, Farmer's is fine for home, auto and umbrella. For life insurance, I would insist on the very highest rating, preferably from a mutual life insurer. Homeowners, auto, etc., you can switch anytime you like and the policy runs 6 months to a year; life insurance lasts 20 years or more. A lot can happen in 20 yeas, so pick the very strongest company you can find.

A few points:

- Go get that umbrella post haste. Farmers is fine for that policy.

- When estimating life insurance needs, round up for safety. Term is cheap and you will get a break on a larger policy.

- I would suggest you insure both spouses. Even if one person could still pa the bills, extra money would no doubt ease the transition and term is cheap.

- Pick a policy longer than you expect to need it (fudge factor) and make sure it has a "conversion" option. That means that you have the option to swap the term policy for a permanent policy without going through underwriting again.

- TIAA and USAA are fine choices, as are the other op shelf companies you mention. All are mutuals with the exception of the USAA life companies, which the mutual parent runs like a mutual. Our policies are with TIAA, but I would find all the companies you named acceptable.

- Do you have long term disability policies? This is a critical piece of insurace.

 

[WhoDaresWins]

A previous thread here got me thinking about an umbrella policy which I recently added to my homeowners policy with USAA. I had to up my homeowners and auto policies by a little before they would add it but the cost was negligible. I also converted my term life at USAA to a whole life policy with just a phone call. Very easy. I have one level term life insurance policy with another company(to cover my estate taxes) and also a policy through work which will only be in effect while I am employed. I am in a different situation from the OP, of course, as I have no dependents and am a 55 year old winding down to retirement. Congrats on the happy news of the impending addition to the family.

 

[Lusitan]

- Do you have long term disability policies? This is a critical piece of insurace.

Great advice -- I forgot about that one!

You may have some default coverage through work, but you may want to increase that.

 

[jblack]

Thanks everyone for the feedback....exactly what I was looking for.

DW and I are going to look into USAA and TIAA for 20 year term policies for both of us. We have long term disability thru work but will also inquire about that at the same time.

Umbrella will be easy to setup and we'll stick with our current provider (Farmers) for that.