Term Insurance

[FI Seeker]

My spouse and I are considering purchasing term life insurance for both of us and are trying to figure out answers to ‘how much’ and ‘how long’.

We are both around 35 years old and live in a super expensive part of the country. We have a 3 year old and hope to have another baby soon. We also have a mortgage with 1.1M left on it.

We ideally plan to be FI/retire in another 10-15 years.

For the term insurance policy, I am generally thinking that we should get a policy that covers the mortgage and also covers the bulk of the kids' undergraduate costs.

I am leaning towards 4 policies - 2 each for myself and spouse - a 20 year policy with coverage of 1.5M and a 30 year policy for coverage of 0.5M, for each of us. My reasoning is that within 20 years we should have enough saved up so a smaller policy from years 20 to 30 should be ok. We met with a fee based financial advisor and he recommended going with Prudential for lowest rates.

I’d love to get any feedback or thoughts about whether this seems ok or on how to think about the duration and amount of the policy. For instance, would a 30 yr policy for 2M for each of us make more sense, or is that overkill?

I am also not aware of how various providers stack up in terms of payouts, exclusions in the fine print, convenience etc — if something happens, the last thing that I’d want is for the insurance company to delay or avoid paying out the policy. So, I am trying to get a sense of whether Prudential is a good choice from this perspective — any advice or pointers here would be greatly appreciated.

 

[king smoothie]

Although mortgage and college are good to cover, but what about income replacement? If your spouse doesn't work will you need money to help care for the kids if she is gone? I have a 20 year term with 13 years left and I don't plan to have life insurance at all after that. I will be self-insuring with our retirement funds.

 

[Dash man]

Your mortgage balance will decrease over time, so the extra money will help cover living expenses. My concern is for the first few years while the children are young. Will your wife work and need child care? Health care isn't cheap. There's more to cover than mortgage and college.


Enjoying life!

 

[Lsbcal]

...
I am also not aware of how various providers stack up in terms of payouts, exclusions in the fine print, convenience etc — if something happens, the last thing that I’d want is for the insurance company to delay or avoid paying out the policy. So, I am trying to get a sense of whether Prudential is a good choice from this perspective — any advice or pointers here would be greatly appreciated.

Watch out for the insurance sharks. I used to have term insurance from IEEE when we had a young son, mortgage, and DW had a very low income. My company even paid for the IEEE membership fee.

We are ancient retirees now do I don't have good insurer recommendations. Decided to self insure years ago.

 

[jazz4cash]

I recently replaced the coverage provided by my employer with term insurance. We ended up with Metlife on the spouse and Prudential for me. These are 15 yr policies and my understanding is that we can reduce the coverage at any time if our needs diminish. This is better because the cost/benefit declines at higher face values of coverage. I assume we could get the higher cost/benefit rate if we reduce coverage in the future, but that's just a contingency anyway. We should have gotten away from the mega-corp group coverage years ago.

 

[Morgan22]

Do a little comparison shopping on the Term before you buy. Check out term4sale.com.

 

[FI Seeker]

Thanks a bunch for the thoughtful replies! We are both working, so indeed we would need to factor in childcare/income replacement as well. And yes it does make sense to worry more about the first few years while the kids are young.
With that feedback from you all, we are now thinking to up the coverage amount to 2.5M for each of us, atleast for the next 10 years. And reduce coverage as/if needed later.

Edited to add: Thanks for the pointer to term4sale.com. Will check that out!

 

[pb4uski]

You're on the right track in thinking what you would need the insurance proceeds for if one of you were to die... at a minimum you would want to to be sufficient to replace the gap between what you spend and what the surviving spouse would take home... and perhaps help fund kids college, paying down or off your mortgage, etc. You are also wise to recognize that your need for life insurance will decline over time as you build savings, the mortgage gets paid down, less years of the kids in the nest, etc.

Back when we needed term insurance, my professional association offered really good rates. The program was underwritten by Prudential... it was annually renewable so the rates could change and were not fixed like 15 or 20 pay life but the rates were very good so if you have a professional association see if they have such a program.