Life insurance

[livingalmostlarge]

Do other people hoping to er have life insurance? When we had our first kid we bought 25 year term life insurance for dirt cheap. If all goes to plan we could be fi in 10 years but possibly not retired at 45 if my DH still wants to work.

Do most people just ride out the term policies? I mean it's ridiculously cheap $250/year for me and $1k for DH. We bought enough to cover getting kids into college and me not working or worrying about money for a long time

 

[brewer12345]

We bought an ass-load (technical term) of 20 year term when we were about 30. Cancelled both policies once we were FI. Why carry a policy you do not need?

 

[Dash man]

The intent of life insurance is to protect against lost income if the insured dies. If you're relying on their salary or pension, and the pension spousal survivor payment is not 100% to the beneficiary, then maybe it's worth keeping some life insurance. Otherwise it's just to pad your wealth for your beneficiaries.

 

[donheff]

We bought an ass-load (technical term) of 20 year term when we were about 30. Cancelled both policies once we were FI. Why carry a policy you do not need?

+1. Our insurance policy was to carry enough that the survivor could ER if one of us died. Might as well get something out of a tragedy. Once we were FI we dropped it.

 

[pb4uski]

For the vast majority of people, 20 or 30 year term life is ideal. They are affordable if you shop around, provide protection you need for the period you need it.

For LBYM savers/investors, quite often after 20 or 25 years you have enough wealth accumulated that you no longer need the insurance.

That said, I bought a whole life policy when I was 22 and young and foolish and it has been a reasonably good performer for me over the long run (36 years in my case). As of my last policy anniversary, totally ignoring the value of the insurance protection, the IRR would be 5.07% if I surrendered it. The IRR would be 8.29% (tax free) if I die.

 

[Sue J]

We bought 20 year term policies at age 45. They are not needed anymore since the kids are grown, no debt and DH's COLAed pension is 100% to survivor. We don't have large wealth like many retirees here. We will keep the term policies until the 20 years is up just because they are very inexpensive, we can afford the minimal cost and if either one of us died before age 65 the chunk of money would be handy.

 

[psweath]

In our case, our SS amounts are almost identical, so if one of us goes, the other one just continues on with only their own SS. Plus the joint survivor on our pensions is 50%. So if one of us dies, the survivor loses all of the deceased's SS dollars, plus half of their pension. That's a sizeable amount of income that is relied on, so we maintain life insurance.

 

[golfnut]

Back in the mid 80's, my wife each purchased a whole life policy thru Northwest Mutual. Now the cash value on the policies are equal to our home mortgage balance (about $40,000). We are wondering if we should cash the policies in and pay off the mortgage. Has anyone done this?

 

[rodi]

I remember when I bought my 2nd home, for some reason I started getting cold calls about my "need" for life insurance. I was single, no kids. The argument was that I would want the house paid off if I died. They really didn't like my answer that my parents could sell the house to pay off the mortgage and my cat could fend for herself (she was a good mouser.)

I was late to the marriage/kid thing (ages 39 and 41 when I had my kids). We got term life when the kids were born - enough to pay off the mortgage. Our planning/spreadsheets pretty much showed that if the survivor didn't have a mortgage bill, things would be fine. We cancelled it when our mortgage went under $100k and our investible assets went over 1.1M. My husband is now retired, and I hope to retire in 2015. We're self insured at this point.

 

[Mulligan]

I have never had life insurance but probably will have to buy it in my 60s for a few years in order to allow my GF to retire a few years early. The whole plan will depend on me staying alive and living off my pension while delaying her SS. If I croak my pension dies too and she would be put in a bad spot. So I will probably get a few hundred grand for about 5 years at that point allowing her to delay drawing SS and withdrawing 401k money. If I become uninsurable before this occurs, I guess she will keep working and increasing her pension.


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[samclem]

Do most people just ride out the term policies?

That's what seems to make sense for most ER folks: Get the coverage to assure the kiddies can go to college and the surviving spouse can make it if the/a breadwinner dies before reaching the ER finish line. If it turns out you reach FIRE and the kids are through school before the term runs out, it can make actuarial sense to keep paying on the policy for the remaining few years on a term policy if you've been paying a level premium: You've already "overpaid" in the early years to allow lower payments (compared to the risk of death) in the later years of the policy, so it's probably smart to just keep paying for the last few years if the remaining spouse would have any use at all for the money.
For planning, lots of people figure the kids may go beyond a BS/BA degree, and that a "4-year" degree can often now take students 5+ years to finish.

 

[Khan]

Had term life from work for a while; had none for several years; now that I will be getting married and cohabiting, have taken out small term as I expect to die first and $100K could assuage any grief.

 

[pb4uski]

Back in the mid 80's, my wife each purchased a whole life policy thru Northwest Mutual. Now the cash value on the policies are equal to our home mortgage balance (about $40,000). We are wondering if we should cash the policies in and pay off the mortgage. Has anyone done this?

I would NOT do that. First, if you cashed it in you will probably have a taxable event for the excess of the cash value over the premiums you have paid in. Second, my guess would be that the current growth of your whole life policy is greater than your mortgage interest rate. Finally as you probably well know, it you were to die your beneficiaries would receive the death benefit tax free.

I view my whole life policy as a bond equivalent. Even ignoring the mortality protection I am earning a long term bond rate with minimal credit risk and no interest rate risk. The mortality protection is gravy.

Just keep making the payments on your mortgage - it will be gone soon enough if you stay the course.

 

[livingalmostlarge]

Right the time we need it most we've already paid for. I figure we'd have to be around 15 years in since we're in 4 years already and have another 10 to FI possibly sooner. But by that point perhaps we'll just keep it. It's a locked term and seriously dirt cheap for a S*$& load of insurance.

 

[pb4uski]

Right the time we need it most we've already paid for. ....

What do you mean by this?

You need it more since you are not FI. Once you are FI you no longer need it. I stopped paying my term insurance once I was FI because it wasn't needed since if I was hit by a beer truck we had enough assets to provide for DW and the kids.

I think the notion of keeping it since it is cheap is only a tad better than playing Powerball (lower prize but higher likelihood).

 

[samclem]

I think the notion of keeping it since it is cheap is only a tad better than playing Powerball (lower prize but higher likelihood).

Once the ((Payoff amount/chance of payoff)/price of playing)>1, it doesn't make sense not to play (from a pure actuarial perspective). I don't know if this ever happens with Powerball, but it can happen with level premium life insurance near the end of the term, or if likelihood of death goes up, etc.

 

[pb4uski]

If the insured has health issues towards the end of a long term life contract I can see it as a possibility, albeit rare. I guess my statement presumed some in their late 40s or early 50s in good health.

 

[LendingWire]

Yeah I mean if you have enough savings you really don't need life insurance or disability insurance or things like that. Whole life insurance can be a pretty great savings vehicle for retirement though, or so I've heard. If you have enough money that's the only reason I could see anybody ever needing it though. Smart to get for people who have kids/other dependents, and smart for people with lower incomes. I don't have any though.

 

[growing_older]

I still carry disability insurance because I am almost, but not quite FI. If I am disabled I will need it to carry me to full FI. I had life insurance when kids were younger, but no longer need it. If I die, then the estate will be more than enough to get them through college and any grad schooling they may want, plus set them up with down payments and a good start on life. I see no need to pay life insurance premiums to essentially make a bet that I will die and make my kids FI before they even try working. It's expensive for me, and bad for them.

 

[nash031]

We just bought term to cover house and (potential) kid college expenses. Expires at 62/59 and I don't intend to re-up at that point (since we'll be FI, retired most likely).

 

[samclem]

Whole life insurance can be a pretty great savings vehicle for retirement though, or so I've heard.

Well, not so much. Whole life insurance is only "pretty great" for the person selling it, there are >much< better ways to save money for retirement.

 

[Alan]

We have a policy on my life since DW will only get 50% of my non COLA pensions when I die, so the longer I stay on the right side of the grass the less important the policy is.

 

[pb4uski]

Well, not so much. Whole life insurance is only "pretty great" for the person selling it, there are >much< better ways to save money for retirement.

While I wouldn't agree with whole life being a "pretty great" investment for retirement in the post you're responding to I don't view it as bad as you and many others do.

If I die tomorrow, the death benefit paid to DW on the whole life policy that I have had for 36 years will have an after-tax return of over 8% since the death benefit is tax free.

Probably not very far behind buy term and invest the difference using the same cash outflows and allowing for taxes.

But I concede you need to have discipline and a long time horizon for whole life to make sense - that's why they also call it "permanent" insurance.

 

[RetireAge50]

When the kids were young we bought 20 year level term on me. Costs $25/mo and will expire about the same time we retire (and the kids finish college).

Simple and cheap, and just about to be unnecessary.

 

[samclem]

If I die tomorrow, the death benefit paid to DW on the whole life policy that I have had for 36 years will have an after-tax return of over 8% since the death benefit is tax free. . . .

But I concede you need to have discipline and a long time horizon for whole life to make sense - that's why they also call it "permanent" insurance.

It also helps a lot to buy when fixed interest rates are at/near historic highs, as you did, especially if inflation later falls, as it did.

For most people, I don't think whole life ever makes sense. There are a few people who can benefit if their tax situation is just right and they've run out of other ways to avoid high tax rates. For every person like that there are probably 20 people paying more than they should for less coverage than they could otherwise get (and might really need).