Author Topic: Reader Case Study- Do I Need Life Insurance?  (Read 1449 times)

meh123

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Reader Case Study- Do I Need Life Insurance?
« on: November 14, 2016, 10:12:40 AM »
Long time lurker, first time poster.

I am currently signing up for my company's open enrollment, and would greatly appreciate some advice from the community reading my insurance/disability selections.

About Me:

I am a 31 female, currently living with my long time boyfriend, aged 32.  We anticipate getting married in 2017, and having our first child in late 2017 or 2018.  We live in a HCOL area.  I have no current health issues.

I am debt free, with approximately $25k in cash and around $85k in retirement savings.  My salary is $70k, stable job. 

He has a mortgage balance of around $300k, no other debt.  Although I do not know his exact current savings amount, I believe he has around $15k cash and $100k in retirement.  His salary is around $120k, but fluctuates.  His job is also stable.

My Questions:

My company offers the following insurance/disability options and I am not sure if I need any of them.  In the past, I have opted out of all selections, but I am planning on getting married and possibly having a child in 2017.

1.  Basic Life & AD&D Insurance: $1.85/paycheck
2.  Voluntary Employee Life: ranges from $.37/paycheck for $10,000 to $12.92/paycheck for $350,000
3.  Long Term Disability: $8.62/paycheck
4.  Short Term Disability: $2.31/paycheck
5.  Flexible Spending Account: Able to fund up to $2,600 pretax, but only $500 rolls over year to year.  I currently have $350 in this account from 2016, and I do not anticipate any other health care expenses in 2016.

I am thinking I should sign up for the short term disability and maybe contribute a couple hundred dollars to my FSA.  Are any of the other insurances advisable to someone in my situation?  Any other advice or considerations I should take into account?

Thanks!

Beriberi

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #1 on: November 14, 2016, 10:52:18 AM »
I know you are asking about your work options, but I wanted to chime in about life insurance - I would recommend getting some private term life insurance.  It should be relatively cheap(~$500/year) and if you get a 25-30 -year term, should get you through launching your kids.

The rationale is that it rarely gets easier to get life insurance - perhaps you are overweight and you will lose 100lbs, but more likely you will have minor (or major) health problems in your thirties that will make you a higher risk.  Also, you can always cancel your term life if you can find a better deal.  I finally got around to getting life insurance when I was pregnant with my second and had gestational diabetes. I was uninsurable - could not buy term life at any price.  Kind of freaked me out how much the actuaries were counting on me not surviving the pregnancy.  Anyway, I got insurance about 6months after delivery, but could have gotten a better deal if I had done it before I was ever pregnant.

Other people can give you better recommendations about disability insurance, but a few things - it is prohibitively expensive to buy on the open market. Without a significant stash, it is generally recommended thing to have - especially if you are planning children soon.  Also, you should make sure your premiums are paid post-tax (so that any benefit is paid post-tax). 

mxt0133

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #2 on: November 14, 2016, 10:55:20 AM »
Since you don't technically have any dependents yet, you don't really need life insurance.  I would strongly consider the disability insurance.  Most people only think of permanent disability and don't consider short term disability, this is where and emergency fund and savings will help out.  For long term disability, probability of disability has gone up while the probability of death has gone down, due to medical advances where things that used to kill us now just disable us*. 

Social Security pays if you become disabled and has a current base of $733 a month and can vary on your martial status and state you live in.  You have to see if you need supplemental disability insurance.

As far as life insurance the general recommendation is to separate your life insurance provider from your employer, because if you move/loose your job you will have to reapply for insurance with the new employer.  Which might cause your rates to skyrocket if you develop some chronic disease later on.

For most people that are only concerned about dependents and not estate planning, term life insurance is the most cost effective option.  Register at the SSA.gov site and see how much your dependents and caretaker of your dependents would get to help you determine how much insurance you should purchase based on your liabilities and expected cost of living expenses.  I would recommend you get two or three quotes for life insurance providers to compare.


*http://www.affordableinsuranceprotection.com/death_vs_disability

rubybeth

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #3 on: November 14, 2016, 11:01:14 AM »
Social Security pays if you become disabled and has a current base of $733 a month and can vary on your martial status and state you live in.  You have to see if you need supplemental disability insurance.

Social security disability is notoriously difficult to get. Don't bank it on ever happening.

I would get all the disability insurances, especially if you're planning on a baby--and make sure you understand how it covers your maternity leave. Your chance of becoming disabled are pretty high (even something like a broken leg that keeps you out of work for 2 months), and the cost of insurance is low: http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp

I would get the minimum life insurance through the employer, and get a separate term life insurance policy for you and spouse. Think income replacement if the worst happens--general rule of thumb is something like 5-10 years of income replacement. If you died and your spouse had a baby to care for, they'd need help. If your spouse died, leaving you with baby, you'd want their income to be replaced (so maybe you can make adjustments like going part time).
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TrMama

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #4 on: November 14, 2016, 11:14:04 AM »
Yes, you should get life insurance. However, I would get a term policy that is not via your employer. First of all, it's often cheaper to get a standalone policy. Secondly, life insurance that isn't tied to your job means you'll still have it if you quit, get laid off or fired.

The reason I advocate for getting it now is that it's cheaper to buy when you're younger. The premiums get more expensive as you get older. Also, even more importantly, as you get older, doctors start looking harder for problems. Some of these problems will increase your premiums (if they're found before buying a policy) or can even make you uninsurable. Since you're planning on getting pregnant, you'll be spending a lot more time being examined. It's not at all unusual for unrelated problems to be found during pregnancy.

I'm an example. I was diagnosed with a congenital heart defect in my early 30s. Never caused me any problems, and may never cause any problems. It was found by accident when I had an ECG during an asthma flare. However, since the main risk is a slightly increase risk of sudden death, I'm sure my insurance company would've charged me a lot more if I hadn't already had a policy in place.

I know of another person who discovered he'd been born with only one kidney during an MRI for a back problem. Oops, good thing he also had insurance since his "condition" makes him uninsurable.

meh123

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #5 on: November 14, 2016, 12:33:04 PM »
Thank you for all of these replies, you have given me lots to think about!

For this open enrollment, I think I will sign up for both long and short term disability through my employer, as well as contributing more to the FSA. 

Thanks for the advice to buy life insurance separate from my job- especially since I may stay home after children arrive.  I will look to buy a private life insurance policy separately, before I get pregnant with my first.

Any advice as to how much life insurance to buy?  As mentioned above, I am debt free, my significant other only has the mortgage, and we make around $200k combined a year.  We hope to have 1-3 kids, and are in a HCOL area.

TrMama

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #6 on: November 14, 2016, 01:04:29 PM »
Enough to make either one of you FIRE in the event one spouse dies. And enough combined to take care of all the kids through to either 18, or 25 if you want to cover college costs, in the event you both die.

Since term insurance is so cheap, it rarely makes sense to skimp on the amount until you are actually FI. The last thing you want is to be a poor widow, or widower, with 3 young kids.

As you get closer to FI status, you can decrease the amount, or cancel the policy entirely when it's no longer needed. However, if you decide you want more insurance later, it will be costly.

Larsg

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #7 on: December 04, 2016, 10:34:13 PM »
Some life insurance policies also offer the ability to draw early - while you are alive - should you get a terminal illness. I would read the fine print to see if it would cover more than catastrophic insurance...although you are young, I have known people in their 30's who have died or gotten cancer unexpectedly and the family was left in a lot debt when they died - sad I know but can happen. not trying at all to be fear based, but instead to offer comparison options within your plans. We recently signed up for life insurance for this benefit where we can take a significant draw while living to pay for medical expenses if needed. Hopefully if no need of that, then the family will be nicely set up should something else unexpected happen and we thought it was worth the money in annual expenses.

rubybeth

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #8 on: December 17, 2016, 02:13:13 PM »
Rule of thumb for life insurance is income replacement for 5-10 years. I'd probably err toward 10 years, or your FIRE number, whichever is higher. And, even if you end up not having kids, or just have one, if you're married, I still think it's nice to have a hefty amount of term life insurance. DH and I have no kids and probably won't have any, but I sure feel better knowing he'd get my life insurance money if something happened to me. He'd probably continue to work, and would invest the life insurance funds, and he'd be set for life if he then became disabled or wanted to FIRE.
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ltt

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #9 on: December 17, 2016, 06:24:56 PM »
Long time lurker, first time poster.

I am currently signing up for my company's open enrollment, and would greatly appreciate some advice from the community reading my insurance/disability selections.

About Me:

I am a 31 female, currently living with my long time boyfriend, aged 32.  We anticipate getting married in 2017, and having our first child in late 2017 or 2018.  We live in a HCOL area.  I have no current health issues.

I am debt free, with approximately $25k in cash and around $85k in retirement savings.  My salary is $70k, stable job. 

He has a mortgage balance of around $300k, no other debt.  Although I do not know his exact current savings amount, I believe he has around $15k cash and $100k in retirement.  His salary is around $120k, but fluctuates.  His job is also stable.

My Questions:

My company offers the following insurance/disability options and I am not sure if I need any of them.  In the past, I have opted out of all selections, but I am planning on getting married and possibly having a child in 2017.

1.  Basic Life & AD&D Insurance: $1.85/paycheck
2.  Voluntary Employee Life: ranges from $.37/paycheck for $10,000 to $12.92/paycheck for $350,000
3.  Long Term Disability: $8.62/paycheck
4.  Short Term Disability: $2.31/paycheck
5.  Flexible Spending Account: Able to fund up to $2,600 pretax, but only $500 rolls over year to year.  I currently have $350 in this account from 2016, and I do not anticipate any other health care expenses in 2016.

I am thinking I should sign up for the short term disability and maybe contribute a couple hundred dollars to my FSA.  Are any of the other insurances advisable to someone in my situation?  Any other advice or considerations I should take into account?

Thanks!

We bought term life insurance through our insurance agent shortly after our first child was born (we were a little bit older than you are now).  We bought a 15-year term policy.  We figured that by the time our child/children were 15, they would, at the very least, be working part-time and pretty much old enough where, if something were to happen to either me or my husband, it would be just a few years and they would be able to go to work full-time, if needed.  And I always figured we'd get our mortgage paid off as soon as we possibly could. Term life insurance is pretty cheap to get.  Looking back, if I were to do it again, I would have gotten a longer term policy at that time---20 year term policy, at a minimum, maybe even 25---enough to get your children through college. 

However, now that our first-born is in a 4-year college and our others are planning on attending  community college, and we have had the opportunity to save for their college well over the past decade, plus also save and invest for retirement, we are starting to cancel our various term policies.  Once the 15-year term was over, the rates skyrocketed.  Our mortgage has been paid off for several years.  So, when  buying term insurance, you really need use your best estimate in when you think your children will be able to be independent.  A lot of things can happen in a 10- to 20-year timeframe, and you just have to use your best judgment.  You can always cancel them years down the road.

mandy_2002

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Re: Reader Case Study- Do I Need Life Insurance?
« Reply #10 on: December 18, 2016, 10:57:55 AM »
Another thing to consider is that getting married and having a child are both considered major life changes, and could both trigger you having the ability to change your coverages. 
Retired:  April 2016
Currently:  Serving in the Peace Corps
Sure this is technically a job (the toughest you'll ever love, I hear), but I went from 60-90 hrs a week to living in a foreign country on Uncle Sam's dime teaching English ~20 hrs/week when schools in session, so I'll take it.
What's next?  Spain!  Vietnam!  Several countries in South America!  I may have a problem.