On the Topic of Life Insurance

[Fredster4]

I'm new to the MMM lifestyle and still warming up to all of it, but here's a question: My life insurance bill ($294) just came in and what do I do with it? My life is insured for about $1.3M. The original idea was to preserve my income stream for my family should anything happen to me.

Specifics -
Age: 56
Term of policy: Will terminate in 6 years at my age 62.
Premiums: about $1,200 per year.

I am still employed and make about $145K annually and have 2 kids in pricey colleges. If something happened to me, my family would definitely need the money.

The thing is - I've been paying the premiums on this policy since I was 42 and if I let the policy lapse now and then die before the policy term date, that would be a shame for my family to miss out on $1.3M.

Just curious what the thoughts are out there. Thanks.

[englishteacheralex]

Sounds like you need life insurance. What's the big deal? Pretty cheap premium if that's the annual rate.

In general: you insure for things that will bankrupt you.

Life insurance: for people with dependents. You have some. So...how is this a question? Pay up and don't think twice.

[sisto]

I would have to agree, at this point you still seem to need it so why not keep it?

[SeaEhm]

$8,000 over the next six years to give me peace of mind that my family will be taken care of? 

Wouldn't be a question.

[Fredster4]

The reason for my post is when I have reviewed the final numbers of the annual spending of FI people like MMM and the Madfientist, there is no place for anything like this. I thought for sure you would all tell me to get rid of it.

Ok since I have you engaged on this, how about this one. My wife had a business that we closed last year. Because of her income in that business, I insured her life for about $1.25M.  Now she isn't working but may go back to work at some point. We don't need her income and should something happen to her, though a terrible tragedy it would be, a financial loss it would not be. Do you agree that I should let her policy go (lapse)? Thanks.

I don't think I completely have the hang of this yet but it appears that the basic principle is to eliminate absolutely everything possible. (Don't know how I'm going to live without my iPhone 6s Plus). Thanks.

[Frankies Girl]

The reason for my post is when I have reviewed the final numbers of the annual spending of FI people like MMM and the Madfientist, there is no place for anything like this. I thought for sure you would all tell me to get rid of it.

Ok since I have you engaged on this, how about this one. My wife had a business that we closed last year. Because of her income in that business, I insured her life for about $1.25M.  Now she isn't working but may go back to work at some point. We don't need her income and should something happen to her, though a terrible tragedy it would be, a financial loss it would not be. Do you agree that I should let her policy go (lapse)? Thanks.

I don't think I completely have the hang of this yet but it appears that the basic principle is to eliminate absolutely everything possible. (Don't know how I'm going to live without my iPhone 6s Plus). Thanks.

Term life insurance is necessary if you have dependents. Mad FIentist doesn't have dependents (his wife is financially independent from him and he from her if I'm remembering it correctly). MMM is married with one kid, but doesn't have term life to my knowledge because he doesn't need it (might be wrong tho - he's young enough to have gotten a decent price for enough to cover through MMM jr's college easily and cheap). In both cases, they and their spouses are completely capable of supporting the family in the event of losing the other. That, coupled with a huge ass stash of investments mean they are "self insured" (their investments are large enough to carry them in the event of a loss of a spouse) and both cases, all of them can go back to work full time in the event that they lost the other one. They don't need insurance in that case.

If you wife is not providing needed income, child/house care or otherwise vital day to day support functions, then she doesn't need to have life insurance. The reason anyone should have life insurance (term) is because you have to replace lost income until such time that the kids are independent and the spouse is able to support themselves, or because you need to hire caregivers to take care of minor children or other life necessities. If you would not need to hire a nanny and could mostly keep up with your house on your own without her, then no, she doesn't need life insurance to replace her in the event of her death.

(this is not to say that she is not a vital member of your family, or that you and your kids wouldn't be emotionally devastated by her loss, just coming at it from purely a monetary/insurance angle).

[MDM]

If something happened to me, my family would definitely need the money.

My wife...isn't working...and should something happen to her...a financial loss it would not be.

You yourself have summarized the differences.  See previous responses for the details.  In short, if your summaries are correct then there should life insurance on you because the rest of the family would need money, but no life insurance on your wife because the rest of the family would not need money

[seattlecyclone]

If you have dependents and still haven't saved up enough to quit working, you probably still need life insurance. However the closer you get to having enough savings to retire, the less life insurance you need. It might be worth evaluating whether you really need as much as you're purchasing, or if that amount made more sense several years ago when you had less money and a larger stream of future expenses to cover if you were to pass away at that time.

[englishteacheralex]

$8,000 over the next six years to give me peace of mind that my family will be taken care of? 

Wouldn't be a question.

Wait...The premium is $264 or something/year....where is $8000 for six years coming from? Is this term life insurance or whole life? Is it $264/month or year? Term life insurance is cheap and worth it. Whole life is stupid but once you're in it there's probably some kind of cost-benefit analysis. But whole life is a dumb waste of money.

[Fredster4]

Sorry - The premium (for the policy on my life) is just under $300 per quarter, so about $1,200 per year. That's where someone came up with almost $8,000 for 6 years.

Thanks for all the responses. I still need the Life Insurance for me, but not for my wife.

But the illustrations make it clear that Life insurance is another example of an expense you still have when you are working, but no longer need when you are FI, making life cheaper when you retire ergo, not needing anywhere near the same income from your "stash" as you do from your job during your working years.

[MrRealEstate]

While your wife isnt working, is she still taking care of the children?

Therefore, if she were to pass, would you have to pay for childcare? you could decrease the payout on her to an amount that would cover childcare services through your remaining working years.

My parents own a business and their insurance policies are at amount to cover a full time accountant for my mother and total expenses minus the cost of selling the business for my father. I do have a solid grasp of both sides of the business, but it makes more financial sense for me to keep my current income streams. Once I FIRE, or come close, I may turn my main income streams into side hustles and return to a larger role in the business that I had in college and high school. I guess that last sentence wasn't necessary, but I like to add sometimes.

[BlueMR2]

If you want to make sure they can stay at the pricey schools no matter what, I think you have your answer.

Me, I'd tell them that if something happens to me that they need to go to normal schools and get jobs.  That's just how I was raised though, we were always poor, so while technically "dependents" we knew we could suddenly have to be independent any day...  :-)

[Goldielocks]

If you have dependents and still haven't saved up enough to quit working, you probably still need life insurance. However the closer you get to having enough savings to retire, the less life insurance you need. It might be worth evaluating whether you really need as much as you're purchasing, or if that amount made more sense several years ago when you had less money and a larger stream of future expenses to cover if you were to pass away at that time.

At age 56, you don't have enough for family saved through retirement, if your costs disappear? 

My two cents are that you need disability insurance more than  6 years of life insurance, but your annual rate is very low, for your age, so keep it.

[MrMoogle]

I honestly don't know much about life insurance premiums, maybe you're getting a great deal, I'm not sure.

What I want to know is what are your current assets and living expenses?  What are your projected school costs for you kids?  I need about half of your $1.3M to retire, and since I'm almost there, there's no need for a $1.3M policy for me.  I would question whether or not you need that full amount, and whether there was a way to easily cut part of it out.

[sisto]

I think I would agree with your assessment that you should keep your insurance and drop your wife's in this scenario. Just keep in mind whether or not you would be able to afford to cover everything your wife does to be sure. For instance in my case I keep a small policy on my wife because she stays at home, but she does all sorts of things around the house that I would need to cover if something were to happen to her. If you have other help then it may not be an issue for you.

[hybrid]

DW retired this year, if she passes I don't need her pension to make ends meet, therefore she does not have life insurance.

I on the other hand am the main source of income until I FIRE in about 8-12 years, so I keep my insurance because DW would require that. And it's a cheap term policy, $44/mo. For 0.25M. OP, we are in roughly the same boat, especially with kids in college.

[beastykato]

I don't know a whole lot about life insurance.  Although, in general I treat insurance as a scam and avoid it unless absolutely necessary.  My question might be relevant to some people here though. 

I have an employee life insurance policy and they give me 1x salary and I pay an additional amount (~$3-4/pay)  for another 3x salary on top of that.  It covers me in the event of pretty much anything that may happen to me.  It is enough to pay off my home and leave my son, my only dependent, with ~$200,000 + whatever I have accumulated at that time.   

Now obviously if I leave my employer I lose this insurance, but I was under the impression that a lot of employers offer similar setups?  For someone in my type of situation is additional life insurance really necessary? 

[Frankies Girl]

I don't know a whole lot about life insurance.  Although, in general I treat insurance as a scam and avoid it unless absolutely necessary.  My question might be relevant to some people here though. 

I have an employee life insurance policy and they give me 1x salary and I pay an additional amount (~$3-4/pay)  for another 3x salary on top of that.  It covers me in the event of pretty much anything that may happen to me.  It is enough to pay off my home and leave my son, my only dependent, with ~$200,000 + whatever I have accumulated at that time.   

Now obviously if I leave my employer I lose this insurance, but I was under the impression that a lot of employers offer similar setups?  For someone in my type of situation is additional life insurance really necessary?

Yes, most reasonable companies do offer life insurance 1X the amount of your salary. I'd never heard of the idea that you could increase the coverage by paying a few bucks more, but sounds like a great deal. Yes, you're completely covered as long as you are employed by your company and have no need for additional unless your son is very young and has no one else to care for him in the event of your death (in which case, 200K might not be enough to last if he's like 10 years old and needs total support for another 10-14 years - since he'd need to have someone caretaking him, paying for his housing/schooling/general upkeep until he is an adult and out of college). Make sure that the policy details are in your will/paperwork and your executor is aware of the coverage.

[Grogounet]

I would even consider Income protection insurance. Not only life.
Almost as important.

[Goldielocks]

I would even consider Income protection insurance. Not only life.
Almost as important.

Hmm,  I think more important..?  If you are relying on income, chance of dying before 62 is less than chance of needing disability insurance income coverage...  especially as expenses go DOWN after you are dead (fewer people), and UP after you are disabled (medical costs).

[Undecided]

While your wife isnt working, is she still taking care of the children?

Therefore, if she were to pass, would you have to pay for childcare? you could decrease the payout on her to an amount that would cover childcare services through your remaining working years.

Also, are you (the OP, that is) counting on her(the OP's wife) returning to work, even if she's not working now, and if so, will it be much cheaper to continue a policy that she got when she was younger than to get a new policy?

[scottish]

You didn't mention - how's your health?    Does cancer run in your family?   Liver disease?   Immune system diseases?    This is a pretty big consideration.

[Grogounet]

I would even consider Income protection insurance. Not only life.
Almost as important.

Hmm,  I think more important..?  If you are relying on income, chance of dying before 62 is less than chance of needing disability insurance income coverage...  especially as expenses go DOWN after you are dead (fewer people), and UP after you are disabled (medical costs).

Agree, should consider both life insurance, income insurance at the same time in this specific case