Help choosing insurance options

[62caster]

Hi all,

I'm shopping term insurance right now, and need a little feedback on what may be best. My wife and I are both in our mid twenties with 3 little kids (under 3). I make about 66k a year, no debt except a 250k mortgage. Here are my annual options for a 30 year term.

500k 628.98
550k 685.88
600k 742.78
650k 799.67
750K 913.47

I'm also considering 25 years on all of these to bring down the premiums since I plan on being FI by 50. However, things happen, and I'm wondering if tagging the extra 5 years is worth the bump in premium from 25 to 30 years (about $150 +/- per year).

Thanks!

 

[Whisper66]

Some details that may help people offer opinions:
(1) Who is being insured? I assume it's for your wife in the event of your death?
(2) If you died, does your wife have work skills to make a living? How much insurance you buy depends partly on how well the survivor can deal with the consequences of your death. Would they be able to support themselves....if so, how long would it take to get on their feet.
(3) How much you need also depends on how much other assets the survivor has available to them and if they have family support available.
Edited to add (4) Do you have mortgage insurance to cover your home mortgage already?

For example, in our family, I was the working person. My wife stayed home and took care of children. She would have been able to get work but probably take some time to do so and we felt it would be good to be able to stay with the kids and not work until they got at least to high school. We had some savings but didn't want to use them up as living expenses. They were for longer term life needs. Considering our situation, we ended up with term insurance to cover about 6 yrs of my salary during our early to mid career days. We felt that was a reasonable position to leave her in if I got killed. When I retired, we dropped all insurance as our assets will cover her if I passed tomorrow.

 

[Whisper66]

BTW - I was getting insurance under an ASME Group Insurance Plan. Rates seem much lower than what you are getting. For example around $201/hr for 500k coverage if I'm reading that right. (500,000 / 10,000 x $2.01 per 6 months x 2 per year). May be worth checking if you are getting the best deal you can. For example, if you are a member of professional societies or alumni organizations....sometimes they offer good rates. Just a thought.

 

[Big_Hitter]

if you are in your mid 20s with 3 little kids you need way more than $750K in term.

 

[Avocadorunner]

I concur with Big Hitter. You need a minimum of $1M and at least $250K-$500K on your wife to pay for child care expenses while you are working. (The rates on females is lower than males). Go for a 20 yr term max - not 30 yr term. Consider 10 year term if the price is too high. At your age term life will still be very affordable and the odds are in your favor that you will still be quite insurable in your mid-30s. Don't minimize the affect of inflation on what sounds like a large face value today. I'd opt for a $1.5M 10 yr term if I was in your shoes. If anyone suggests whole life or universal life run fast!

 

[pb4uski]

Check out this: How Much Life Insurance Do You Need?-Kiplinger

Your first priority is to assume that you die tomorrow... what would your family need financially? Obviously final expenses, plus perhaps paying off the mortgage and then living costs and perhaps education costs. But the reality is that if you don't die that all of those except final expenses would be paid from your income so income replacement is key because your income would pay the mortgage, pay for education costs, etc. Also, a big factor is whether your wife works or could find a well paying job. There are lots of calculators out there... I haven't used this one but it seems pretty comprehensive. Calculate Your Needs | Life Happens

As mentioned by another poster, if you are a member of a professional association quite frequently they have very competitively priced life insurance. The AICPA plan I used when I needed term insurance could provide $1m of coverage for someone your age for $28/month and they you can get up to half of that back as an experience refund.

 

[62caster]

Thank you everybody for the suggestions.. So it's settled, I should stick with the higher face values. I will add that I have about 180k through work, but of course that can always go away. My wife has a policy to cover childcare if something happened to her. Otherwise she is a stay at home mom. If something happened to me, she would probably work, but not until the kids were in middle or high school. Is the consensus that it's better to go with 25 over 30? Here are the 25 year term premiums:

$500K/25 = $509.99 annually
$550K/25 = $554.99 annually
$600K/25 = $599.99 annually
$650K/25 = $644.99 annually
$700K/25 = $689.99 annually
$750K/25 = $734.99 annually

I'm not sure I'd want to go below 25 years, since that will get the kids through college years.

I'm going to check out a few of these other insurers mentioned as well. Thanks!

 

[Big_Hitter]

I will add that I have about 180k through work,

You can't count that. One of the best decisions I've made was to get a $1M whole life policy in my mid-30s...it now has a cash value north of $250K and a death benefit close to $1.2M.

It definitely beat the "buy term and invest the difference" method....but whole life is expensive.

 

[RE2Boys]

I'm not sure I'd want to go below 25 years, since that will get the kids through college years.

I'm going to check out a few of these other insurers mentioned as well. Thanks!

Why not below 25? Each year that passes means fewer years that income replacement is needed to help your wife raise the kids.

I bought a term policy in 1999 to cover the reduced pension if something happened to me. Now, 17 years later the significance of that policy, particularly as the last child graduates HS and wealth has increased, means it isn't even needed anymore. And you're more likely to need a disability policy than life insurance.

 

[ziggy29]

Hi all,

I'm shopping term insurance right now, and need a little feedback on what may be best. My wife and I are both in our mid twenties with 3 little kids (under 3). I make about 66k a year, no debt except a 250k mortgage. Here are my annual options for a 30 year term.

500k 628.98
550k 685.88
600k 742.78
650k 799.67
750K 913.47

Sometimes life insurers offer price breaks when you reach a new tier -- (say) $100K, $250K, $500K and $1M. If you find an insurer does that (that is, the rate per unit drops with larger policies), you may find $1M may not cost that much more than for $750K here. If the cost for $1M is less than $1258 per year, you would be getting a lower overall rate in a new tier. And if that's the case, you may want to consider going to $1M.

TLDR version -- check the quotes for $1M as well -- it may be considerably less than double the quote for $500K.

 

[pb4uski]

You should shop around some more... those quotes look very high compared to what i see available on term4sale.com for 30 year, $750k for a 25 year old male in Tennessee.

Assurity Life Insurance Company.............$565.00
Grange Life Insurance Company..............$645.00
Cincinnati Life Insurance Company...........$645.00
United of Omaha Life Insurance Company.$677.50
Banner Life Insurance Company...............$686.22
Savings Bank Life Insurance Co of MA.......$686.24

 

[62caster]

I just checked term4sale with my standard plus health rating and it seems to be in line with what I've received..

I know I need 750k. What I don't know is if I want to pay $913.47 for a 30 yr, $734.99 for a 25 yr, or $538.49 for a 20 yr.

 

[Another Reader]

In your shoes, I would not buy less that $1MM. Term life is cheap, and inflation is unpredictable but likely to rise. The cost difference is small. Look at the forest, not the individual leaves on the trees. What will college cost when your kids are ready to go?

 

[pb4uski]

I just checked term4sale with my standard plus health rating and it seems to be in line with what I've received..

I know I need 750k. What I don't know is if I want to pay $913.47 for a 30 yr, $734.99 for a 25 yr, or $538.49 for a 20 yr.

It's hard to know since your life insurance needs in 20 or 30 years will depend on your financial success. Another approach might be to get three policies for one for 20 years, one for 25 years and one for 30 years to reflect that your assets and savings will grow and your needs will decline. For example, if the pricing is proportional and you got a 20 year for $750k, a 25 year for $150k and a $30 year for $100k you would have $1 million of coverage until your kids finish school, then $250k for 5 years and then $100k for 5 years at a cost that is less than the 30 year, $750k of coverage.

You may want to tweak the ratios some but most of your need is for the next 20 years and it grades off after that.

 

[ivinsfan]

I have a little different take. Once you qualify for SS survivors benefits( and I'm not familiar with exactly when that happens), your family will get payments until the oldest is 18 years old. Which will help with living costs. You should check into this yourself.

I'd take the 500 for either 20 or 25 years so you don't need to worry about qualifying if you get a health problem. Then I would invest the difference between the cost of the 500 and the 750.Make it like a payment in your budget. You'd be surprised what that number will look like in 20 or 25 years. This way it isn't a use it or lose it proposition. It won't be 250K obviously but hopefully you'll be around to enjoy spending it.

I'm not in the camp that thinks you need to siphon that much off your paycheck to guarantee your kids a debt-free college life.

 

[euro]

I'm not in the camp that thinks you need to siphon that much off your paycheck to guarantee your kids a debt-free college life.[/QUOTE]


I agree. I think you want to carry enough insurance that the absolutely ESSENTIAL needs of your family are taken care of. There are other ways to get through college if it is really necessary - remember, your early demise is an impactful (obviously), but unlikely event, so it makes sense to me to make sure your family can keep afloat, but no more - along these lines, I like ivinsfan's suggestion as an attractive compromise.

 

[Whisper66]

Interesting discussion. Old rule of thumb was to get somewhere in the range of 7-10 times your yearly income OR calculate whatever you felt was needed based on what you wanted to cover. Looking around the Internet a bit I see similar guidance today but much more focused on the calculation method. Whatever you do it basically just boils down to what you and your wife really want to cover. I am of the camp that got less insurance (about 6 x salary) and was very comfortable with that decision. We were lucky and my kids all are grown without insurance ever needed. But every family situation can be quite different.

To your specific question, I think picking a term that gets your kids through school makes sense. 25 yrs?


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[Big_Hitter]

In your shoes, I would not buy less that $1MM. Term life is cheap, and inflation is unpredictable but likely to rise. The cost difference is small. Look at the forest, not the individual leaves on the trees. What will college cost when your kids are ready to go?

One of my golf buddies (who happens to be a FA, go figure) has $4M in whole life and 5 kids.

As cheap as term is, I wouldn't risk my families' financial security over a few hundred bucks a year, assuming you get past the underwriting.

 

[Yarnstormer]

As a single - now only parent as a result of my ex husbands death I say get the most you can as young as you can. He had no insurance, and it cost significantly more for me to get life over age 50. My work ins limited to income x 5. Social security is not as much as you think and it ends at age 18 for each child.


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[COcheesehead]

You can't count that. One of the best decisions I've made was to get a $1M whole life policy in my mid-30s...it now has a cash value north of $250K and a death benefit close to $1.2M.

It definitely beat the "buy term and invest the difference" method....but whole life is expensive.

If you look at this type of insurance as part of your bond/cash allocation in your portfolio, it starts to make more and more sense especially if you are in a high tax bracket. In the market melt down of 2008/2009, those tax deferred 4% returns inside the policy were looking pretty sweet. These funds also cannot be accessed in a lawsuit either. Think of it as your super safe money.

 

[Big_Hitter]

If you look at this type of insurance as part of your bond/cash allocation in your portfolio, it starts to make more and more sense especially if you are in a high tax bracket. In the market melt down of 2008/2009, those tax deferred 4% returns inside the policy were looking pretty sweet. These funds also cannot be accessed in a lawsuit either. Think of it as your super safe money.

I pulled up my last statement CV is closer to $300K now - I may cash it in when I retire - who knows...

 

[sheehs1]

Think of it in terms of "if something happened to you today", what would your family need and for how long. You could always do 1 million (plus) for 20 years now and as the years roll by reassess your need and add more….or not. I included the plus because your children are so very young and a million is not what it used to be.

Also if you think about it, the more insurance you have, the fewer years you might need it. Meaning if you went as high as 1.5 million, 20 years might be enough rather than going for 1 million for 25 years. At 25 years I am assuming your oldest will be almost 28 years of age. I am not sure covering for that age is necessary.

I too think disability insurance is needed at this stage.

 

[runchman]

My 2 cents, don't discount that if your wife were to pass away, you'd necessarily just seamlessly continue on as the breadwinner. I only had 200k on my wife, and she died unexpectedly at 46 years old, leaving me with 11 and 16 year old daughters.

That 200k allowed me to payoff the house, and with survivor benefits from SS, chuck working for a few years. That was priceless, as getting my girls through that timeframe would have been near impossible had I been trying to work full time.

I only wished I'd had a few hundred grand more! It's cheap in the grand scheme of things.

- John