WWYD re: life insurance

[iam21177]

If you were in this situation, would you get life insurance on the higher wage earner? I know that I would not be able to afford to stay in our current house long term on just my salary. If he were widowed, he would not need any insurance on me. He lived in the house just fine financially when he was single. However, the mortgage would be 50% of my gross income.

I make $47k. That is a decent salary in my area. Families of 6 live off of that here. I lived off less for a long time with a small home, but I was not saving as much for retirement either (opposed to all my salary now). I would certainly downsize homes.

Our employer would pay $100k for one year (H's salary) should I find myself widowed. One year salary to any beneficiary is part of our benefits package (we have the same employer).

We have about $600k in retirement now at ages 35 and 37 and the plan was to ER in 15 years or less.

We have no plans for children.

My cousin who is my age (37) just lost her husband suddenly to an aneurism and she found herself having to move right away. She was jobless at the time as well. My mom was widowed last year and she's trying to figure out what to do with the house. So it kind of hits home. Makes you think what if...

We've had talks about this but so far no plan yet. We don't know anything about this, so advice/ideas/thoughts are welcomed.

 

[Meadbh]

Yes.

 

[MichaelB]

Yup. Term.

 

[BobMax]

Yes. Exactly the reason for term life insurance.

 

[Midpack]

Maybe I missed something but I'd say probably yes - since you (understandably) didn't mention whether there was "an estate," can't say for sure. Life insurance is buying an estate when you don't have one adequate to protect your dependents. So young folks need life insurance, but once a (typically much older) couple/family has a nest egg and/or other income they can count on for their realistic needs, theoretically they don't need life insurance any more.

 

[iam21177]

What are the deciding factors in my scenario here? Not enough in savings? Not enough income for me to live alone?

I don't know what "an estate" includes actually. We just have a house and retirement accounts right now.

Thank you Midpack for those explanations. I still need more explanations though!

There are no dependents.

 

[iam21177]

10 or 20 year term? Are we looking to replace all of his income, or just part of it?

 

[meekie]

DH and I do not have additional life insurance. I think both of our employers supply 2x annual salary in life insurance, which we think is enough for us. My plan if something happens to DH is to rent out at least one or two rooms in our current house to help with the mortgage. We have just over 1 million, at ages 38 and 42, and I could also tap into some of that and delay ER if needed.

My final backup plan would be to move in with my mom, and rent out my house.

If the 100k from your work would be enough to get by until you sold the house, and downsizing would reduce the mortgage load, you might be ok without insurance. But you've also obviously seen what can happen otherwise, and a term policy for a few years until you get closer to your ER goal might be worth the cost.

 

[iam21177]

If the 100k from your work would be enough to get by until you sold the house, and downsizing would reduce the mortgage load, you might be ok without insurance..

That was actually my husband's initial suggested plan and go without life insurance. We currently live off half our combined income, so $100k would last more than a year.

 

[Midpack]

What are the deciding factors in my scenario here? Not enough in savings? Not enough income for me to live alone?

I don't know what "an estate" includes actually. We just have a house and retirement accounts right now.

Thank you Midpack for those explanations. I still need more explanations though!

There are no dependents.

From wiki,

An estate is the net worth of a person at any point in time. It is the sum of a person's assets – legal rights, interests and entitlements to property of any kind – less all liabilities at that time.

If your net worth and income is enough to cover your expenses for life, you probably don't need life insurance. Sounds like you'll want to consult an insurance agent anyway, to arrive at an amount and type (term) of life insurance if for no other reason. And then get an impartial second opinion, or several before you act.

 

[rodi]

Our plan is/was to have enough term to pay off the mortgage. We figured either of us could make enough money to pay for everything else (including college for the kids) if the mortgage was eliminated.

Our mortgage has 3 months left - and we're cancelling the life insurance at that point. We've been downsizing it along the way.

 

[iam21177]

Our plan is/was to have enough term to pay off the mortgage. We figured either of us could make enough money to pay for everything else (including college for the kids) if the mortgage was eliminated.

Our mortgage has 3 months left - and we're cancelling the life insurance at that point. We've been downsizing it along the way.

That is a good way to look at it. I'd be just fine on my salary without THIS mortgage for sure. (Smaller house/mortgage would be doable.)

Congrats on being almost done with the mortgage!

 

[Walt34]

That is a good way to look at it. I'd be just fine on my salary without the mortgage for sure.

Then decreasing term insurance is the product to look into. If all you need it for is to pay off the mortgage then make the term the expected term of the mortgage, plus another $20-$30-$40k or so for incidental expenses or maintenance that your DH does now that you'd have to hire someone for.

 

[pb4uski]

I like Walt's idea of a decreasing term product.

Alternatively, since you could live on your earnings absent your mortgage, you could look for a term policy with a term that is equal to your mortgage and an amount equal to the mortgage balance today plus the cost of a funeral less the $100k death benefit you expect to get from his employer. In your mid 30s term insurance should be pretty reasonable.

 

[scrinch]

Check to see if you belong to any groups/professional societies that offer group term insurance. I got a group rate for term life insurance through a professional society that was much lower than anything I could find locally.

 

[Sarah in SC]

We have twenty year level term this we bought back when we had a mortgage. Only a modest amount, $100k, on each other. It is quite inexpensive so I've not felt the urge to cancel now that we don't have a mortgage. It would be used to provide a cash cushion in case of death, and help fund retirement savings for the remaining spouse. We have never had an employee benefit that would pay out any money like some of you have described.

 

[MichaelB]

It would be used to provide a cash cushion in case of death, and help fund retirement savings for the remaining spouse. We have never had an employee benefit that would pay out any money like some of you have described.

Insurance benefit is not taxable, while an employer lump sum might be. Having that extra money at a moment of crisis can be very helpful, people underestimate just how long it can take to deal with such a situation.

 

[Sarah in SC]

Insurance benefit is not taxable, while an employer lump sum might be. Having that extra money at a moment of crisis can be very helpful, people underestimate just how long it can take to deal with such a situation.

This I do know. Having cash to take care of basic expenses at a time when you are likely to be overwhelmed by decisions is a huge benefit. I've seen it with clients, and with friends. And without getting too mushy, I'd pretty much be in a state of collapse if DH passed away. There's no way I could go to work. Not at least for a while.

 

[jollystomper]

I agree with going with enough term insurance to cover the mortgage. Since I am by far the higher wage earner, when we still had kids at home I had enough insurance to cover paying off the house plus some years of my salary so that DW wouldn't be forced to sell and had some breathing room to find better employment, if needed. Now that the nest is empty and the house almost paid off we are reducing coverage.

 

[kaudrey]

I also have enough life insurance on me to pay off the mortgages (on the townhouse we live in and our cabin). My DH wouldn't be able to keep them otherwise.

 

[brett]

We have only ever purchased term insurance and we did it through a very attractive employer group plan. We bought lots when our children were small and we reduced it as time passed and the requirement for financial protection decreased.

How much insurance really depends on your financial circumstance. I no longer carry any insurance other than $10K provided by my pension plan. DW has none. But, if we were in a situation where one of would be exposed if the other passed away, we would definitely look at term insurance.

 

[iibgdi]

This seems very, very simple. Unless there is a health issue, buy a term policy and be done with it. At the OP and spouses ages it should be very inexpensive.

 

[TallTim]

I agree with going with enough term insurance to cover the mortgage. Since I am by far the higher wage earner, when we still had kids at home I had enough insurance to cover paying off the house plus some years of my salary so that DW wouldn't be forced to sell and had some breathing room to find better employment, if needed. Now that the nest is empty and the house almost paid off we are reducing coverage.

+1 to this.

We bought term on each of us when our kids were small and we had a mortgage. Smaller amount on DW to basically pay for the childcare I would have to buy if she were to pass unexpectedly. More on me to cover mortgage/college/etc. if the same happened to me, as DW was (and mostly still is a SAHM).

Now our kids are teens, college is funded and no more mortgage. I figure we will keep the term insurance we have (its cheap and would provide a cushion/cash near term to survivors w/o having to deal with any of our investment portfolio) until DD and DS are into or nearly done with college, and stop after that. Dropping the term, a small whole policy I have and my disability insurance will save us ~ $7k per year!

 

[Rothman]

Is anyone here using life insurance as part of a wealth transfer strategy? I watched the PBS show with Ed Slott and have read some of his materials and using the tax free benefit of insurance benefit to get money to heirs.

 

[ERD50]

Is anyone here using life insurance as part of a wealth transfer strategy? I watched the PBS show with Ed Slott and have read some of his materials and using the tax free benefit of insurance benefit to get money to heirs.

No, but I've seen these explained and they always seem very circular to me, and they always seem to lack full disclosure. I suppose they could be useful where liquidity is needed at death. This could be the case if Estate taxes are due, but there isn't enough liquid cash to pay the bill - you might not be in a position to sell things off. But I wonder if there are cheaper ways to gain liquidity?

Here's where it falls apart for me - they usually present this as taking money that is gifted annually from the estate (below the threshold where it needs to be reported/accounted for something like $13,000 these days), and the giftee uses it to pay for life insurance on the estate holder. So then they make this big point that the money buying the insurance escapes estate taxes, and you'll get his big insurance payout.

OK, but I never see them do a comparison to investing the money instead of buying insurance. The gifted money still escapes estate taxes. If, on average insurance would be a better deal, then why don't we all invest in insurance? Again, if the estate needs a guaranteed amount of money at death, even if that happens sooner rather than later, insurance might make sense. But then it is actually insurance, not so much an investment.

So did this Ed Slott show a table where the money is invested, and the break-even points compared to insurance? I'm guessing not. I'll also guess he has some friends who sell insurance.

-ERD50