Role of life insurance

[brewer12345]

Az, don't take this the wrong way, but sometimes I feel sorry for your wife and kid.

 

[saluki9]

Generally speaking, i do not agree with this. Why should anyone feel obligated to completely replace themselves, as if the people left behind have no ability to adjust to the new situation.

Take me for instance. I have a wife and one kid. My wife is a knockout. I know plenty of men that would "adopt" a free kid (a damn cute one too), and take care of her, for the opportunity to sleep with her every night. I have no question in my mind my wife could replace me with a new husband. I have little doubt she could find one too with a decent job.

Wow, that may be the coldest thing I have ever read here, and that is saying a lot.

For the sake of my hectic job, my wife does not work. I would not want her to have to start over and find some guy to support her right away if I kick over. As soon as I married her I consider her my responsibility for the rest of her and our childrens lives reguardless of whether I'm alive or not. I have a $2m term policy which costs me all of about $90 a month through the CPA life insurance program. I wind up getting most of it back at the end of the year because the plan refunds the excess. I also keep a perm variable policy which I expect to use to pay estate taxes eventually.

I've heard the excuse from people "well I don't want her on the beach drinking pina coladas on the insurance money if I die" I guess I was never able to follow that thought.

 

[grumpy]

As an aside, I am an extremely careful and healthy person.

azanon,

So was I. I carried only the basic term life insurance offered by my employer (approx. 1 year's salary). Then at age 36 I found myself with a wife, two small children and a diagnosis of testicular cancer. I couldn't buy more insurance then at any price I could afford. Fortunately, a few years later the insurance "open season" allowed me to enroll in 5 X salary coverage with no medical exam. I carried that until the kids were out of college, cut it back then to $250K and dropped that when I retired.

The point is, you can only get reasonably priced life insurance coverage when you don't need it (i.e. when you are healthy). When you are sick and need it, you can't get it. Something to think about.

Grumpy

 

[vinhmen]

My wife is a knockout.  I know plenty of men that would "adopt" a free kid (a damn cute one too), and take care of her, for the opportunity to sleep with her every night.   

Why not post a pic and let us decide for ourselves 

www.hotornot.com

 

[Nords]

Untimely death is a misfortune, certainly for the one who dies. Shouldn't at least some of that misfortune be shared by his survivors? Since almost all woman today are trained to work at something, it seems to me that one needs only enough life insurance to to get the kids to school age, and if the widow isn't current in her skills, to give her time to become current. A lot less than life for a 28 year old mother! Also, it's not like widows lose all attractiveness in the big marketplace of love.

Reverse he/she, his/her, man/woman, widower,/widow in the not infrequent case where the woman is the main or only breadwinner.

Sure, Mikey, if I'm gonna die I don't want to suffer alone! I don't want to inflict that suffering on total strangers, either, I want to share it with family & friends!!

I'm not sure which implication is more repugnant:
- that we're foolishly funding beneficiaries who are all more than capable of pulling their lives together by their own damn bootstraps and don't need our largesse, or
- that we (both genders) need to trade sex for survival.

No one has suggested that we should sacrifice our own well-being to support our families in a life of luxury. Life insurance is a substitute for what we implied would be provided by our continued presence. The size of that substitution is up to the individual... and clearly some feel more of a commitment than others.

We're in the same situation as SG-- we both had our own earnings and we've set aside enough to raise our kid. So we don't carry life insurance.

 

[SteveR]

AZ, I can only hope you are kidding about your wife easily finding a new husband.

My personal experience with not only being widowed myself, but also discussing a wide variety of dating and financial issues with many many widowed persons over the past few years says you are clueless in this matter.

The shared experiences indicate that most widows do not remarry and if they do, it won't happen for several years. If there are small children in the picture, then add some more years to that. You are making a really big assumption that your wife would even want to remarry. By the time your kid(s) are grown and gone she may find she likes being on her own and will ER by herself. It happens all the time. That would mean she would need to support a family, support herself, work full time, take care of a house, lawn, repairs, cook, clean, auto maintenance, pay bills, shop and so a hundred other things as a single parent and sole breadwinner. Try to find time to breath much less date with all that going on.

Maybe you she will find a nice wealthy guy and will live in the lap of luxury for the rest of her life. Don't count on it. She would have a very tough life ahead of her and one filled with stress and emotional trauma. If she also has financial issues to deal with because she cannot work or cannot make enough money to support a family then your role as a husband and supporter of a family was truly inadequate. Life insurance is a way of allowing those left behind to have what you intended they have in life had you lived. It is not intended to be a a ticket to Easy Street but is intended to help the family keep the intended standard of living for as long as the need exists.

What happens if your wife gets in a car accident and is disabled or one of the kids gets a disability? The added expenses can wipe out a lot of net worth in a hurry.

This stuff happens to real people and I can cite more examples than I care to of destitute widows scratching to survive after the loss of their spouse. It is an individual choice and one that should be carefully considered.

 

[JPatrick]

AZ, I can only hope you are kidding about your wife easily finding a new husband. 

My personal experience with not only being widowed myself, but also discussing a wide variety of dating and financial issues with many many widowed persons over the past few years says you are clueless in this matter.

The shared experiences indicate that most widows do not remarry and if they do, it won't happen for several years.  If there are small children in the picture, then add some more years to that.  You are making a really big assumption that your wife would even want to remarry.  By the time your kid(s) are grown and gone she may find she likes being on her own and will ER by herself.  It happens all the time.  That would mean she would need to support a family, support herself, work full time, take care of a house, lawn, repairs, cook, clean, auto maintenance, pay bills, shop and so a hundred other things as a single parent and sole breadwinner.  Try to find time to breath much less date with all that going on.

Maybe you she will find a nice wealthy guy and will live in the lap of luxury for the rest of her life.  Don't count on it.  She would have a very tough life ahead of her and one filled with stress and emotional trauma.  If she also has financial issues to deal with because she cannot work or cannot make enough money to support a family then your role as a husband and supporter of a family was truly inadequate.   Life insurance is a way of allowing those left behind to have what you intended they have in life had you lived.  It is not intended to be a a ticket to Easy Street but is intended to help the family keep the intended standard of living for as long as the need exists. 

What happens if your wife gets in a car accident and is disabled or one of the kids gets a disability?  The added expenses can wipe out a lot of net worth in a hurry. 

This stuff happens to real people and I can cite more examples than I care to of destitute widows scratching to survive after the loss of their spouse.  It is an individual choice and one that should be carefully considered. 

Very good post Steve, although I'm sorry you experienced it first hand.

 

[haha]

Looks like this board is foursquare in favor of life insurance, and lots of it! Anyway, it is nice seeing one of my posts quoted for a change. Even if everyone but Azanon thinks I am wrong.

For the record, I never said no life insurance, just that it seemed excessive to me to feel that one had to literally make oneself worth more dead than alive.

Never did think that was a good idea. But I think it is totally cool for you guys to do it! Just watch your backs.

Ha

 

[brewer12345]

Here's the thing, Ha: I like to think that I mean more to my wife and kids than a paycheck. Would you off your spouse for any sum of money? I wouldn't.

 

[haha]

I was planning to post a life insurance question tonight and saw this discussion. After reading this thread, I think I can guess what you will say, but here goes anyway...

My husband and I are both 55. Our children are all financially independent. We have each carried $200k term life for a long time. My husband retired 18 months ago. He has some serious health problems and is nervous about dropping the insurance. I plan to continue my life insurance until I retire to protect him if I should drop dead in the near future. At our ages, I expect our premiums to increase dramatically. Currently we are each paying a little over $700 a year for our policies. Is this a waste of money?

If by paying $700 per year, you avoid feeling nervous, it is way cheaper than therapy, and works better too.

Keep the policies until you are sure you don't want them any longer. As Grumpy said, if you are sick you can't elect to buy life insurance, but you can elect to keep it. In fact, if he is quite sick, paying the premiums could be a very good investment for the survivor. Kind of an unpleasant thought but true anyway.

Ha

 

[haha]

Here's the thing, Ha: I like to think that I mean more to my wife and kids than a paycheck.  Would you off your spouse for any sum of money?  I wouldn't.

Me neither Brewer. But then you and I are superior individuals.

Ha

 

[New Thinking]

I look at life insurance a little bit differently than many on this board...Life insurance does provide a tax efficient source of income when it is needed.
As many have posted, I can replace my lost income for my wife and kids with insurance while I am working.

Permanent life insurance can be left to my kids when my wife and I are gone. We can leave each child say, $500,000 tax-free when we are dead..If I leave them an IRA, they pay mucho taxes..With life insurance set up, I CAN SPEND EVERYTHING COMING IN ON RETIREMENT AND ENJOYING LIFE DURING RETIREMENT. We want to leave the kids something and this is our choice.

Another other way to use life insurance is to provide it on my life so that when I die during retirement (and chances are I will as I am a man and 4 years older than my wife), I leave a tax-free source of income to my spouse..She takes essentially tax-free income from the life insurance proceeds and she "inherits my higher Social Security benefit, which also comes to her tax-free...Now that I know I have her set up when I die..We can move to a higher spending rate (safe withdrawal rate) or single life immediate annuity because I don't need the money to last as long. Again, the idea is to risk manage to adopt a higher standard of living during retirement and have peace of mind.

 

[JPatrick]

I look at life insurance a little bit differently than many on this board...Life insurance does provide a tax efficient source of income when it is needed.
As many have posted, I can replace my lost income for my wife and kids with insurance while I am working.

Permanent life insurance can be left to my kids when my wife and I are gone. We can leave each child say, $500,000 tax-free when we are dead..If I leave them an IRA, they pay mucho taxes..With life insurance set up, I CAN SPEND EVERYTHING COMING IN ON RETIREMENT AND ENJOYING LIFE DURING RETIREMENT.  We want to leave the kids something and this is our choice.

Another other way to use life insurance is to provide it on my life so that when I die during retirement (and chances are I will as I am a man and 4 years older than my wife), I leave a tax-free source of income to my spouse..She takes essentially tax-free income from the life insurance proceeds and she "inherits my higher Social Security benefit, which also comes to her tax-free...Now that I know I have her set up when I die..We can move to a higher spending rate (safe withdrawal rate) or single life immediate annuity because I don't need the money to last as long.  Again, the idea is to risk manage to adopt a higher standard of living during retirement and have peace of mind.

Ok, some fine intentions expressed in you post, but you are throwing around figures that I would suppose would reach or exceed 2 million $$.
That amount of cheap term poses no serious challenge when you are forty something, but what are you facing in premiums when you reach 70 and perhaps way beyond?

 

[Mr._johngalt]

Ok, some fine intentions expressed in you post, but you are throwing around figures that I would suppose would reach or exceed 2 million $$.
That amount of cheap term poses no serious challenge when you are forty something, but what are you facing in premiums when you reach 70 and perhaps way beyond?

As usual, I have a little different slant. I dropped all life insurance
years ago, except for what my employer provided or what my
creditors demanded. I figured that if I dropped dead, anyone left would be
"okay" without life insurance, if they were careful. Still feel that way today.
I am ERed with a very small pile, but DW could make it if she was
frugal (she is for the most part). Thus, I have saved a lot of premiums over the years. Besides, I don't plan on using up any of my meager base
in retirement,
so if all goes well my heirs will still get that.

JG

 

[SteveR]

As usual, I have a little different slant.  I dropped all life insurance
years ago, except for what my employer provided or what my
creditors demanded.  I figured that if I dropped dead, anyone left would be
"okay" without life insurance, if they were careful.  Still feel that way today.
I am ERed with a very small pile, but DW could make it if she was
frugal (she is for the most part).  Thus, I have saved a lot of premiums over the years.  Besides, I don't plan on using up any of my meager base
in retirement,
so if all goes well my heirs will still get that.

JG

JG,
What happens if your DW dies first? Without her income would you be OK? Also, you might consider disability insurance on DW while she is still working. If inflation takes off you could get really screwed if she cannot work.

 

[popyee]

I dropped my life insurance a couple of years ago. Investments made much more sense and should cover all contingencies. If the wife can live with the 4% rule (and SS or pension) why do you need insurance?

 

[brewer12345]

Ok, some fine intentions expressed in you post, but you are throwing around figures that I would suppose would reach or exceed 2 million $$.
That amount of cheap term poses no serious challenge when you are forty something, but what are you facing in premiums when you reach 70 and perhaps way beyond?

I generally am not a fan of this kind of strategy, but if one wishes to do this sort of thing, you don't use term. Instead you use a newer product which many life insurers appear to have irrationally underpriced in some cases: guaranteed no-lapse universal life. It is basically the equivalent of fixed term for life. Even so, a $2 million No-lapse policy on a 55 year old is a significant chunk of change.

 

[SteveR]

I have life insurance and I support the idea, even in ER.  To me, the money is just a small way of apologizing for dying and trying to make the rest of the family more comfortable now that I'm gone.

What I do worry about is some money grubbing low life putting on a song and dance to marry my beautiful, loving and trusting wife and then leaving her a year or two later, after he's emptied the coffers.

I have thought about setting up a trust or something that would simply provide income, rather than a pile of money that someone could take.

Anyone else think about doing that?

Have done it.
My trust is by far the larger of the two between my DW and I. My kids are not hers and vice versa so our trusts protect our respective assets as much as possible from a future GoldDigger. While our trusts will provided for the surviving spouse first, they still have some restrictions on remarriage and use of the funds.

Sometimes you just need to plan for the worst but hope for the best. My kids will be provided for no matter who shows up after I am gone. It is not a matter of trust, it is a matter of reducing the variables in getting my net worth to my kids in the amount I wish for them to have.

 

[Martha]

All of you guys with your unsophisticated wives--don't worry, we will figure out what we need to figure out when you are gone.

My aunt--never drove, never handled a checkbook. My uncle died, she is taking care of business just fine.

 

[BigMoneyJim]

I have thought about setting up a trust or something that would simply provide income, rather than a pile of money that someone could take.

Anyone else think about doing that?

Another angle is that one spouse may be the money manager and the surviving spouse may not be as savvy in how to manage the portfolio and take distributions from it. A while back someone posted a lettter written for his wife with instructions on managing the investments in case of his passing.

Aside from gold digging next spouses there are FPs and well-meaning relatives that could damage the portfolio with poor investment vehicles and/or high fees.

But Martha says the women will figure it out, so nevermind.

 

[Martha]

Another angle is that one spouse may be the money manager and the surviving spouse may not be as savvy in how to manage the portfolio and take distributions from it. A while back someone posted a lettter written for his wife with instructions on managing the investments in case of his passing.

Aside from gold digging next spouses there are FPs and well-meaning relatives that could damage the portfolio with poor investment vehicles and/or high fees.

But Martha says the women will figure it out, so nevermind.

Or maybe I overreacted to the trust idea--controlling a spouse's life after you are gone is troublesome to me. Greg has his "Martha when I am dead, buy these funds" list. And I have my "Greg, please take care of my family" request. Maybe just a simple discussion with your spouse where you can air worries as to your spouse's lack of sophistication regarding investments and money managment skills.

EDIT: I am not talking about complicated family situations where there are children from prior marriages, etc., like Steve's situation.

 

[brewer12345]

Or maybe I overreacted to the trust idea--controlling a spouse's life after you are gone is troublesome to me.   Greg has his "Martha when I am dead, buy these funds" list. And I have my "Greg, please take care of my family" request.  Maybe just a simple discussion with your spouse where you can air  worries as to your spouse's lack of sophistication regarding investments and money managment skills.   

I agree with Martha. Trying to control people from the grave (or pimp them, in Azanon's case) is of questionable judgement, IMO. Ultimately, we are all responsible for ourselves. I periodically walk DW through out investments (pausing when her eyes glaze over) and included in the packet with our wills is a step-by-step list of instructions of what to do WRT money after I croak. If she can't follow the instructions or come up with a better idea, she will have to live with the consequences.

My minor children are another story. Until the kids are grown the assets would be held in trust and doled out as appropriate. Once they are grown, though, they will have to abide by the consequences of their actions, especially after I am not around to help pick up the pieces.

 

[Outtahere]

But being a woman I also understand how other women think and knowing my dh he could be taken advantage of quite easily. So I think the argument works both ways, you have to do what's best for whom ever is left behind. If they are unable or unwillng to deal with handling the nestegg then I see no reason not to leave something in place to assure they are taken care of. I know if something happened to me the wolves would be knocking at the door.

 

[Nords]

and knowing my dh he could be taken advantage of quite easily.

Yes, but it happens to us guys all the time and we actually enjoy it.  There's no conscious thought process ocurring then anyway.

I know if something happened to me the wolves would be knocking at the door.

And that's why no one posts any addresses or phone numbers here!

 

[JonnyM]

I initially would have stated I don't see any need for Life Insurance upon the beginning of FIRE, but I realize after reading this thread that indeed, we have allocated significant resources to the Life Insurnace concept, albeit with a twist. Since we are both pensioners, DW already there, and me soon to join, we let our "real" LI expire when we left employment as it was maintained by Payroll deductions and very reasonable in cost for a few hundred thousand coverage. And it made sense during my working years, as I wanted insure sufficent funds to make up for DW's loss of my workaday income.

However upon termination of employment one of those questions for the Retirement Division is what kind of surviorship provisions does one wish to choose...

So in effect we both decided in advance to "pay" for 100 percent lifetime survivorship payments to be paid to the surviving spouse for ever and ever, IOW until the second one croaks.

This will reduce my pension about 100 dollars or so per month, so I realize now that I am indeed agreeing to pay life insurance premiums for life, as is DW to provide for me. The beauty is the rates never change, and the payout is completely uncomplicated, basically the money just keeps showing up in our Joint Bank Account as long as one of us lives. Other options included providing a percentage of the Pension in exchange of less of a deduction, and of course we could have opted to leave each other nada, for no reduction. I'm happy with the trade off, as it's pretty reasonable in cost, we'll never feel it as bill to pay, and no decisions will ever have to made re: investments etc.

I like it.