who needs stinking insurance?

[athena53]

Last year when I was still employed and doing my taxes, I found that I had $2,400 of "imputed income" from employer-provided life insurance with face value over $59K. I realized I'd save a few hundred bucks. I asked if I could drop it and they told me I had to wait till the next open enrollment period, which would have been this January. Happily, I was going in May so it was no longer a problem.


Something to watch out for if you're still employed and don't need the extra coverage.

[bingybear]

Quote:

Originally Posted by athena53 Last year when I was still employed and doing my taxes, I found that I had $2,400 of "imputed income" from employer-provided life insurance with face value over $59K. Something to watch out for if you're still employed and don't need the extra coverage.

Mine was only $226 for a face value double yours. But RE is 2/27/15... so not much I can do with that now.

[walkinwood]

ESPlanner has a feature that allows you to understand what your "living standard" will be if one of you bites the dust early. While I've never found the exact numbers particularly compelling, the relative amounts are sometimes eye opening. ie. how much lower would your income be if one of you dies in a certain year. Most obvious impacts are pensions, SS & tax rates.

[Cobra9777]

During our working years with kids, we carried term life insurance roughly equal to the mortgage balance. Theory was the survivor could easily get by without a mortgage payment. We both worked and also had coverage through our employers (typically one year's salary). When I retired, we paid off the mortgage and canceled the term policy. Last of the offspring had just graduated college as well.

[bingybear]

Quote:

Originally Posted by walkinwood ESPlanner has a feature that allows you to understand what your "living standard" will be if one of you bites the dust early. While I've never found the exact numbers particularly compelling, the relative amounts are sometimes eye opening. ie. how much lower would your income be if one of you dies in a certain year. Most obvious impacts are pensions, SS & tax rates.

I saw ESPlanner mentioned in a another thread. I looked at it and ran a few cases. When we got our whole life policy (before kids), it was in case one of died... this would let the other cover immediate expenses and move on. The term was started with our first child. It was quite a bit at that time as we were in grad school. The idea was to help raise the kids if one of us passed. I'm just a little tardy on the cancelling of it.

Quote:

Originally Posted by Cobra9777 During our working years with kids, we carried term life insurance roughly equal to the mortgage balance. Theory was the survivor could easily get by without a mortgage payment. We both worked and also had coverage through our employers (typically one year's salary). When I retired, we paid off the mortgage and canceled the term policy. Last of the offspring had just graduated college as well.

Mortgage was paid off in '93... so no need to cover that.

[rodi]

Our thinking had basically been that either of us could handle it financially if the mortgage was paid off - so we each had term of $300k, dropped it to 200k as we paid down the mortgage, then dropped it altogether when we paid off the mortgage.

We have separate funds for the kids college funds... and being FI means there's enough to cover a comfortable (but not extravagant) lifestyle for the survivor with our investments. The kids might inherit less - but that's their problem. LOL.

[athena53]

Quote:

Originally Posted by bingybear Mine was only $226 for a face value double yours. But RE is 2/27/15... so not much I can do with that now.

The imputed amount was on the face value OVER $50K, the imputed income was the premium for (twice my annual income minus $50K). I'm also 62 and this was last year, so my imputed premium might have been higher due to my age. Worse, imputed premium is not what the company paid for that coverage, but taken from a standard IRS table that's higher than actual market rates.

[pb4uski]

Quote:

Originally Posted by bingybear cash value is about 10k. From your explanation, the insurance would still be costing 50% of the premiums. Not sure if 4% interest is worth that. For tax and subsidy reasons, it may pay to push it into next year

No! The 50% is not to reflect the cost of insurance.

The equation I described is a bit of a shortcut and I actually had it wrong. Forget the 50%, use 100%.

For example, let's say the beginning of year cash value is $10,000 and premiums are $8/month and the ending cash value is $10,516. Then with the shortcut approach the return is 4.16% [10,516/(10,000+96)]. The IRR is 4.10% so the shortcut is a reasonable approximation.

[bingybear]

Quote:

Originally Posted by pb4uski No! The 50% is not to reflect the cost of insurance. The equation I described is a bit of a shortcut and I actually had it wrong. Forget the 50%, use 100%. For example, let's say the beginning of year cash value is $10,000 and premiums are $8/month and the ending cash value is $10,516. Then with the shortcut approach the return is 4.16% [10,516/(10,000+96)]. The IRR is 4.10% so the shortcut is a reasonable approximation.

thanks.. I was wondering what the 50% was.. that explains it

[lorikmt]

Interesting discussion. My husband and I have each had term life insurance policies over the years, and I'm glad we didn't drop them a couple years ago when the kids graduated from college and moved out. Shortly after the kids left the nest, my husband was diagnosed at 59 with Alzheimer's. His term policy is good for 6 more years, so I'm hedging my bets by keeping the life insurance in force. I decided to keep mine as well, since if something happened to me, the kids would be faced with figuring out how to care for him. I changed the beneficiary on my policy from him to my two daughters, so that they would have options for his care if I were out of the picture. It definitely gives me a little more peace of mind to have us both insured, although I guess we're both worth more now dead than alive!

[growing_older]

I insure to make sure that dependents will be okay if I die. When kids were little, we carried enough life insurance on each of us that if one spouse died, the other would be FI and able to care for the kids, mortgage paid off, through launching the kids including college expenses. Never made sense to use whole life for that so no question of whether to keep a whole life policy or not.

As the mortgage got paid off and the college fund grew, we reduced the life insurance amount. Now that FI is in sight, the token life insurance at work would put us over and the portfolio alone is enough to set up all dependents. Kids have enough to be safely launched, including schooling and probably a nice inheritance (not required, just works out that way). So, all the other term insurance is dropped. I'd rather include those premium dollars in the portfolio instead of betting at unfavorable odds that I will expire and leave the kids an extra large payout that they won't really need.

[Aiming_4_55]

I'm in the minority here as I'm keeping my term life policy for awhile. I think we are FI, still working, but giving it a few years to level out our spending since we moved to CA in 2013 from the Midwest. I might semi-ER in a few years, by age 50.

I bought a 30 year term life policy in my early 40s. The cost is minimal in my mind and offers my family protection until my early 70s.

My personal factors that I've considered:
- 2 young kids with college funds in good shape
- I was doing a split of contract and W2 work, so I wanted to lock in coverage
- DW is SAHM, so extra $$ is always nice in the event of an emergency
- Sandwich generation, so Mom and FIL may need assistance
- I'm ok if we leave $$ for the kids and/or grandkids

YMMV based on your situation or obligation (perceived or not) ;-)

[OrcasIslandBound]

I bought a level term life ins plan worth 500k at age 49 for $50/month. We'll RE at age 59 for me and 60 for her. We plan to keep it until it expires when we RE.

Sent from my Nexus 4 using Early Retirement Forum mobile app

[Theseus]

Quote:

Originally Posted by walkinwood ... ie. how much lower would your income be if one of you dies in a certain year. Most obvious impacts are pensions, SS & tax rates.

This. While not being satisfied that we could ER until the number crunching based on us both living well past actuarial average returned a satisfactory FIRECalc success rate, I did note there was also the risk of one of us passing much earlier negatively impacting the survivor due to loss of (full) pension or SS. After running spreadsheet calculations with those scenarios I found that keeping our existing insurance policies intact for at least a few more years appears to be better than opting for 100% survivorship on pensions. And it keeps the door open a bit longer for options should unexpected changes occur.

These are not big policies by any means, but enough to offer some financial cushion to an unexpected early demise so we're still worth a tad bit more alive than dead