Author Topic: Life Insurance in Early Retirement  (Read 6218 times)

Malaysia41

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Life Insurance in Early Retirement
« on: January 23, 2015, 07:38:35 AM »
I'm 42, DH is 51.  We FIREd in 2014.  Should we continue the life insurance or no? 

My policy: $800k, annual premium: $357. 11 years left on policy.
DH policy: $800k, annual premium: $538.  1 year left on policy.  (premium goes to $8k in a year).

cFIREsim gives us 98% chance of success with current plan (after I finish investing our cash holdings it'll go to 100% - but that's with a strict 4% SWR. 4.5% - success rate goes down.  So we're on the edge. 

If we canceled and one of us died this year, the other would probably be financially ok.  But, these premiums seem pretty damned cheap for that much coverage.  DH only has one year left anyway.  My head is telling me to cancel now.  The gambler in me is telling me to pay the premium. 


So:  Question - maintain or cancel Life Insurance?

MrFrugalChicago

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Re: Life Insurance in Early Retirement
« Reply #1 on: January 23, 2015, 07:43:46 AM »
If you are in FIRE, you have enough money to live off of.  So what is the life insurance for?

The only case I could see it being useful if say one of you had a big pension you guys lived off of that went away after that person died. That person should have some term life insurance. The other person doesn't need anything.

With all insurance, on average, you lose. That is how they stay in business. The less you have, the better off you will be (on average).

Left

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Re: Life Insurance in Early Retirement
« Reply #2 on: January 23, 2015, 07:44:16 AM »
since you are FI now, did you plan for the expense in retirement?

I'd keep it myself only because once I'm FI, the $1000/year (for both) wouldn't affect me much. Sure $1k is a lot, but over a year, you can't do much with it unless you spend it at one time. What I mean is that it is about $84/month, so unless you're FI numbers are that tight, you probably wouldn't "need" it. What upside is there to saving the money? Do you anticipate that it'll grow your FI money so you'll spend more in the future? If it is because you might need it for health spending, the insurance covers the extreme of it for cheaper than out of pocket costs

TN_Steve

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Re: Life Insurance in Early Retirement
« Reply #3 on: January 23, 2015, 07:45:09 AM »
Assumptions: 1) no children;  2) there are no income streams that will cease at death of either of you; 3) neither of you has health or other issues that make you more likely to die than a typical person your age/sex.

If those assumptions are correct, the life insurance payments are just lottery tickets that might let the surviving spouse live better--the fact that they are so cheap indicates that, actuarially, there is little chance of "winning" the jackpot.  I'd cancel.

If those assumptions are wrong, things may go the other way.

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #4 on: January 23, 2015, 07:50:41 AM »
Assumptions: 1) no children;  2) there are no income streams that will cease at death of either of you; 3) neither of you has health or other issues that make you more likely to die than a typical person your age/sex.

If those assumptions are correct, the life insurance payments are just lottery tickets that might let the surviving spouse live better--the fact that they are so cheap indicates that, actuarially, there is little chance of "winning" the jackpot.  I'd cancel.

If those assumptions are wrong, things may go the other way.

3 kids. 
No income streams that will end upon death. 
DH rides a geared unicycle like a crazy man in traffic nearly everyday, so his/my chances of winning the jackpot are higher than nil. 

Yeah - honestly the only reason I'm considering paying is that if we were to go buy insurance today it would cost 10x more than this. 

But $900 isn't nothing.  I could spread it across the 529s or put it in VTI or pay down the mortgage further. 


lackofstache

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Re: Life Insurance in Early Retirement
« Reply #5 on: January 23, 2015, 08:02:35 AM »
The only reason, if you've got kids, spouse,etc., not to have life insurance is FI. You're there, you don't need it. If you're looking to pass on money to your children, it may not be a bad choice, but term probably isn't going to do that for you (you rarely die w/ it.)

ILoveMyBlondeStache

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Re: Life Insurance in Early Retirement
« Reply #6 on: January 23, 2015, 08:03:58 AM »
I'm 42, DH is 51.  We FIREd in 2014.  Should we continue the life insurance or no? 

My policy: $800k, annual premium: $357. 11 years left on policy.
DH policy: $800k, annual premium: $538.  1 year left on policy.  (premium goes to $8k in a year).



Those rates are pretty good! Did you get the policies a long time ago? Or please share who the policies are through.  We just bought my fiance's coverage and it's $864 per year for a $550K policy.  He's 42.  I got denied for a medical reason I won't get into...so that's a whole other problem.  But he's in perfect health and got great scores on all of their tests.  Please share. :-)

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #7 on: January 23, 2015, 08:10:44 AM »
My policy is with Prudential.  His is with Protective.

We purchased these policies 9 years ago.  His is 10 year term and mine is 20. 

I think I'm going to let them go.  If he dies, $800k ain't gonna bring him back.  Of course, it could go a long ways toward buying a flat in San Remo, Italy.

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #8 on: January 23, 2015, 08:16:11 AM »
As I hit 'post' on that last entry, it occurred to me that the $ could be used for my parents.  I'm kind of their LTC insurance.  If one of them gets to a point where they need regular daily care, our plan is to move back to the states and move in with them - perhaps hire a nurse to help ( I realize it could be a big job) -  but we'd do a lot of care ourselves.  It'll probably be very hard, but that's the plan.  If I died and then mom's or dad's health declined, DH could use the $ to pay for in-home care.  And vice-versa. 

frugalnacho

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Re: Life Insurance in Early Retirement
« Reply #9 on: January 23, 2015, 08:29:52 AM »
I'm confused.  You have enough money to support both of you indefinitely with a 98+% chance of success, and are already fire.  How could your success rate possibly go down in the event of one of your deaths? You will have a few thousand in funeral expenses, but beyond that your expenses should drop because you have 1 less person.

bogart

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Re: Life Insurance in Early Retirement
« Reply #10 on: January 23, 2015, 09:04:45 AM »
The only reason, if you've got kids, spouse,etc., not to have life insurance is FI. You're there, you don't need it.

Would your household's costs go up if something happened to one of you?  I see you are living in Malaysia now, where I assume COL is lower than US, but you mention 529s, suggesting that your kids will go to school in the US; if something happened to one of you two, would the other want to move back sooner?  What if something happens to one of your parents and they need assistance sooner rather than later (I realize there we are talking about two presumably unrelated, unexpected bad events coinciding, but you know what they say about raining and pouring). 

And yes, having term insurance to protect potentially dependent parents (not just kids) does seem like something some people must do, though here it seems like your terms are WAY too short.  Have you shopped for renewing/replacing coverage?  Because the jump in price for your DH seems nuts relative to what life insurance typically costs, though of course there's plenty we (on this board) don't know about your situation, which could easily explain it.

MrFrugalChicago

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Re: Life Insurance in Early Retirement
« Reply #11 on: January 23, 2015, 09:06:28 AM »


Those rates are pretty good! Did you get the policies a long time ago? Or please share who the policies are through.  We just bought my fiance's coverage and it's $864 per year for a $550K policy.  He's 42.  -)

Its not just about rate + amount.. you also need to look at term.

At 42... a 10 year term should be pretty cheap. Odds of a 42 year old dying by 52 are not that high.

At 42, a 30 year term should be pretty expensive. Odds of a 42 year old dying by 72 is fairly high.


Really you only need to get a policy that lasts until FI. Extra long of a policy is generally a waste, as is a policy on the non-breadwinner.

So my wife = no policy. I don't depend on her for income, so why?
For me, I got a 30 year fixed term at 30 years old. So have until 60 to have enough money to not need it anymore. If somehow I end up being MMM like and retiring before then, I would likely cancel it.

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #12 on: January 23, 2015, 09:15:53 AM »
I'm confused.  You have enough money to support both of you indefinitely with a 98+% chance of success, and are already fire.  How could your success rate possibly go down in the event of one of your deaths? You will have a few thousand in funeral expenses, but beyond that your expenses should drop because you have 1 less person.

Yup. Maintaining the policy would be frilly extras.

TN_Steve

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Re: Life Insurance in Early Retirement
« Reply #13 on: January 23, 2015, 09:42:37 AM »
...

Really you only need to get a policy that lasts until FI. Extra long of a policy is generally a waste, as is a policy on the non-breadwinner.

So my wife = no policy. I don't depend on her for income, so why?
.....

True, unless kids.  Then, unless wage-earner can cashflow childcare and other SAHP work, you may need/want sufficient coverage on the SAHP to meet those requirements.

Mr. Green

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Re: Life Insurance in Early Retirement
« Reply #14 on: January 23, 2015, 09:48:58 AM »
Many life insurance policies have a rider in the case of terminal illness where half the policy value can be withdrawn before death. I don't know what your health insurance situation looks like but if it wasn't great a terminal illness could wreck havoc on FIRE.

Bob W

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Re: Life Insurance in Early Retirement
« Reply #15 on: January 23, 2015, 11:55:44 AM »
You should check into social security benefits if one of you dies.  My guess is the surviving spouse and surviving children would receive in the order of $1,800 per month if one of you dies as long as the kids are under 18.  (you'll have to check and not sure what country you're in?)

20K per year in SSI is equal to about 500K in insurance, assuming the 4% wishful SWR.

Also, note that about 85-90 of surviving spouses spend all the life insurance money within the first 18 months.  (please don't anyone ask me to fact check, it is close enough for this discussion)

With that in mind it is more important to set up a decent trust that the life insurance would go into upon death.  The trust should be structured to invest in something like the S and P 500 with a 4% draw down and a trustee wiling to administer for less than 1/2% per year.    You should have this set up anyway in your will if you should both die.   

Really life insurance is something to consider after the trust, will, guardians and other items are in place.

Then if you decide to purchase life insurance look into bidding out a 10 year term policy.  http://www.mozdex.com/life-insurance-by-age.php

It looks like DH could find a 500K 10year term for around 500 per year.  The dirty secret about life insurance is that people seldom keep them for very long and that is why companies can make money on them. 

Your short term focus should be on the trust, will, guardian though.  IMVHO

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #16 on: January 23, 2015, 03:36:54 PM »
The plan is to set up a revocable living trust ( http://www.nolo.com/legal-encyclopedia/revocable-living-trusts.html).  I'm going to see how far I can get with the nolo advice, then hire someone if it gets too complex.  I don't want to pay a trust agency $5000 to create a simple document and file it with the courts for 2 hours work and a $50 filing fee.   We do need to re-title two pieces of RE.  One is in an LLC, so that is probably the most complex thing. 

In the meantime, I was about to cancel the life insurance, but thought I'd put it to the board here.   SS does pay survivor benefits.  I'm not finding the latest statement right now - but I do know they get something.

I'll tell you this: It's easier to decide who gets property than who gets children.  I still don't know who I'd want to raise my son if we both died.  Potential candidates are some combo of too old, too addicted, too rigid, too inexperienced, or too Bakersfield-ed.   All equally devastating fates for my DS. It's easier holding out for living another 9 years.




TreeTired

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Re: Life Insurance in Early Retirement
« Reply #17 on: January 23, 2015, 03:50:14 PM »
Quote
The gambler in me is telling me to pay the premium.


Interesting perspective.   So if you win the bet you are dead?


I looked at it exactly the other way.   I cancelled my life insurance when I stopped working and both of my boys were in college with plenty of money put aside to cover their college expenses.  I felt like I won that bet after 5 years.   Still winning....  :)

 

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #18 on: January 23, 2015, 03:58:48 PM »
Quote
The gambler in me is telling me to pay the premium.


Interesting perspective.   So if you win the bet you are dead?


I looked at it exactly the other way.   I cancelled my life insurance when I stopped working and both of my boys were in college with plenty of money put aside to cover their college expenses.  I felt like I won that bet after 5 years.   Still winning....  :)

I know.  Sick, morbid.  Right?

netskyblue

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Re: Life Insurance in Early Retirement
« Reply #19 on: January 24, 2015, 08:10:36 AM »
Also, note that about 85-90 of surviving spouses spend all the life insurance money within the first 18 months.

This may not be nearly as bad as it sounds.  The person may have gotten life insurance for the specific purpose of allowing the surviving spouse to pay off a mortgage if they die, and the survivor does exactly that.  That's what we'll be getting life insurance for, when we buy a house.  Should one of us die, the other won't lose the home.

Catbert

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Re: Life Insurance in Early Retirement
« Reply #20 on: January 24, 2015, 10:15:00 AM »
I dropped my insurance when I retired because we no longer needed it.  When determining whether each of you would need the insurance also consider what tasks the each spouse performs that the remaining spouse might need/want to pay for.  If the primary cook died, would the remaining spouse eat out more rather than learning to cook?  Does one person do the house maintenance?  Would the remaining spouse be able/willing to take it on? 

Malaysia41

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Re: Life Insurance in Early Retirement
« Reply #21 on: January 24, 2015, 04:21:04 PM »
I looked at my SS statement.  If either of us dies, the surviving spouse gets $1800 a month, and DS gets $1800 a month (til 18 I think?).   

$3600/ month for 9 more years can more than cover activities no longer being done (like cooking) by the other spouse. 

We do have a mortgage on our house, but it's rented out - if nothing else it's an income vehicle for surviving spouse. 

Going into this thread I leaned toward canceling the policy.  I've decided I will.

Thanks guys.