Author Topic: What's the mustachian way of life insurance?  (Read 9068 times)

sdavis

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What's the mustachian way of life insurance?
« on: October 15, 2013, 01:41:44 PM »
I'm about to sign up my DH for term life insurance.. but since his brother and his Mom passed before the age of 50 (both due to colon cancer). It's 85 dollars a month for a 500,000 policy, and 123 dollars a month for 750,000. (30 years for both).

This is a little astronomical I feel... but at the same time, we are still currently broke, as I am new to the mustachian way. We don't have any debt, and are relatively young (25 & 29), but we only have about $7,000 in retirement accounts & a 170,000 mortgage.

Anyway, what is the mustachian stance on term life insurance? Necessary evil? Only get short lived policies? (like a 10 year)

Thoughts?

hybrid

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Re: What's the mustachian way of life insurance?
« Reply #1 on: October 15, 2013, 01:55:04 PM »
Can you get by with a $250,000 policy?  That's what I have, and it was $40 a month for a 20 year plan for a 41 year old.

Have you shopped plans?  I agree, $85 a month for someone in their mid to late 20s sound like a good deal - for the insurance company.  Maybe there are health factors beyond the family history?

Also, the older get and the bigger your stash grows, the less you will need life insurance.  $500,000 seems like a large policy for just a couple unless there are toddlers you have not mentioned.

Jamesqf

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Re: What's the mustachian way of life insurance?
« Reply #2 on: October 15, 2013, 02:01:11 PM »
Do you have a family that you would have to support alone if your spouse died?  If so, would you be able to support them single-handedly?  If not, then you need life insurance.

If you don't have a family, could you support yourself on your own earnings?  If you can, then you don't need life insurance.

sdavis

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Re: What's the mustachian way of life insurance?
« Reply #3 on: October 15, 2013, 02:03:18 PM »
Can you get by with a $250,000 policy?  That's what I have, and it was $40 a month for a 20 year plan for a 41 year old.

Have you shopped plans?  I agree, $85 a month for someone in their mid to late 20s sound like a good deal - for the insurance company.  Maybe there are health factors beyond the family history?

Also, the older get and the bigger your stash grows, the less you will need life insurance.  $500,000 seems like a large policy for just a couple unless there are toddlers you have not mentioned.

No, besides the colon cancer family history, he is perfectly healthy. I used select quote, and that was the best rate the broker had for me. I can try Zander insurance or some other broker, but supposedly with colon cancer being a hereditary thing, some term life insurance companies won't even take him. Stupidness.

And yeah, we have an 8 month old. He also has 2 children from a previous marriage. They don't live with us full-time though.

I mean, maybe we could do a 250,000 dollar policy, that just doesn't sound like very much on the chance that he were to die tomorrow. .?

Mr.Macinstache

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Re: What's the mustachian way of life insurance?
« Reply #4 on: October 15, 2013, 02:11:38 PM »
He won't die tomorrow. $250k will pay off your house and give you extra for expenses.

brewer12345

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Re: What's the mustachian way of life insurance?
« Reply #5 on: October 15, 2013, 02:16:30 PM »
Buy 20 year level term with a conversion option from a highly rated (at least AA-/Aa3) mutual insurer.  Make sure you buy enough and if you are not sure it is enough buy some more.

Bank

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Re: What's the mustachian way of life insurance?
« Reply #6 on: October 15, 2013, 02:20:38 PM »
I would look at this in the context of your financial plan.  If you need, say, $500,000, for how long will you need it before your stash grows to the point where you are effectively self-insured?  Then buy the term to match that, with some safety margin if it makes you feel better.  Shortening the term of your policy would likely drop the premium.

sdavis

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Re: What's the mustachian way of life insurance?
« Reply #7 on: October 15, 2013, 02:24:27 PM »
He won't die tomorrow. $250k will pay off your house and give you extra for expenses.

Yes, but I currently only work part time and from home, but if he died I'd have to work full-time, and pay for daycare.

Thus, the $250k would pay off the house, and then not be very much money.

I was thinking doing a shorter term policy would be a good idea, just so we have life insurance, and work on building up our nest egg before then?


sdavis

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Re: What's the mustachian way of life insurance?
« Reply #8 on: October 15, 2013, 02:28:09 PM »
I would look at this in the context of your financial plan.  If you need, say, $500,000, for how long will you need it before your stash grows to the point where you are effectively self-insured?  Then buy the term to match that, with some safety margin if it makes you feel better.  Shortening the term of your policy would likely drop the premium.

Is this the whole 4 percent thing? Sorry, I'm still really new.. I don't have a "financial plan" in order yet.. I hate to ask you stupid questions, can you maybe point me in a direction to start reading?

brewer12345

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Re: What's the mustachian way of life insurance?
« Reply #9 on: October 15, 2013, 02:29:35 PM »
He won't die tomorrow. $250k will pay off your house and give you extra for expenses.

Yes, but I currently only work part time and from home, but if he died I'd have to work full-time, and pay for daycare.

Thus, the $250k would pay off the house, and then not be very much money.

I was thinking doing a shorter term policy would be a good idea, just so we have life insurance, and work on building up our nest egg before then?

In your shoes I would be looking at a 500k policy.

I would not do 30 year term, however.  At most, I would do 20 year which would be a lot less expensive.  You could also look at annually renewable term policies.  They start cheaper than level term policies, then the premiums gradually rise as you age.  You can keep the policy as long as you want to pay for it.

Bank

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Re: What's the mustachian way of life insurance?
« Reply #10 on: October 15, 2013, 02:49:02 PM »
I would look at this in the context of your financial plan.  If you need, say, $500,000, for how long will you need it before your stash grows to the point where you are effectively self-insured?  Then buy the term to match that, with some safety margin if it makes you feel better.  Shortening the term of your policy would likely drop the premium.

Is this the whole 4 percent thing? Sorry, I'm still really new.. I don't have a "financial plan" in order yet.. I hate to ask you stupid questions, can you maybe point me in a direction to start reading?

You're not asking stupid questions.  Based on your posts, I think you're already on to what I'm talking about.  If you plan on building up your savings, eventually you won't need the insurance payout if something bad happens.  So the question is, how long until your savings get to that point?  For most mustachians, that will be less than 30 years, but it will be different for everyone.  Tough to know without your own financial plan, however.

When my wife and I bought policies, we decided that if one of us kicked the bucket in the next couple years, we would need $1 million to "replace" the other person's contribution in terms of child care, lost income etc.  This was pre-mustache and had a lot of safety margin built in even at that time.  However, we considered things like:

-likely rent/mortgage in our current area (high COL).
-cost of "replacement workers" to fill functions of missing parent.
-need to reduce income generating activities to spend more time with children.
-potential need of surviving spouse to take time off or go to therapy to deal with loss (we like each other quite a bit).

The amount we ultimately settled on was the one that let us sleep at night.  The numbers helped, but it also just felt right.  We did not consider the 4% rule, because the life insurance policies were not bought with the mindset that the surviving spouse would be able to retire on the proceeds.  I can see how others would, however.