20 vs 30 year level term - help me decide with pertinent details!

[pharmmm]

Hello,

We are planning on our second child and I applied for a term policy with Transamerica via Policygenius. We have a crappy, expensive 30 year 500k term with another company I'm going to cancel once we get this. I initially leaned towards a 20 year term but the policygenius rep told me to quote at 30 year and it was easier to de-escalate than go up in term length. I read this as genuine but I'm wondering if it also could stink of commission. Insurance agents have over and over again suggested 30 year terms at our age, but I'm thinking that doesn't apply to FIRE seekers.

Choosing between:
20 year/1.5M each spouse
$1035 annually

or

30 year/1.5M each spouse
$1965 annually

Details:
33 & 34 yo, good health.
Daughter 3, other not expecting yet but likely soon.
Dual pharmacists-270k joint income.
Have been growing net worth an average of +/- 10k/month since 2014, starting at -350k and currently at 500k.

My thought is that we'll be self-insured in 20 years if this pace continues, and we'll have thrown away an extra 1k/year for a policy we won't even really need to dip into the extra 10 years for and not even need to continue. We plan on getting out of work in about 15 years if everything goes to plan, but don't hate our jobs currently. Things like disability, wanting to downshift, or job loss seem like the only potentials that a 30 year would insure vs the 20 year term, but really by then they should be largely ready for life on their own and anything we've accumulated to that point would be theirs anyway, which should be significant if not the full policy amount.

In short - $20k extra in premiums over 20 years to make sure I cross the t's on unlikely scenarios? Anyone able to provide hindsight (whose life insurance bet worked out ;-) )?

[HPstache]

Hello,

We are planning on our second child and I applied for a term policy with Transamerica via Policygenius. We have a crappy, expensive 30 year 500k term with another company I'm going to cancel once we get this. I initially leaned towards a 20 year term but the policygenius rep told me to quote at 30 year and it was easier to de-escalate than go up in term length. I read this as genuine but I'm wondering if it also could stink of commission. Insurance agents have over and over again suggested 30 year terms at our age, but I'm thinking that doesn't apply to FIRE seekers.

Choosing between:
20 year/1.5M each spouse
$1035 annually

or

30 year/1.5M each spouse
$1965 annually

Details:
33 & 34 yo, good health.
Daughter 3, other not expecting yet but likely soon.
Dual pharmacists-270k joint income.
Have been growing net worth an average of +/- 10k/month since 2014, starting at -350k and currently at 500k.

My thought is that we'll be self-insured in 20 years if this pace continues, and we'll have thrown away an extra 1k/year for a policy we won't even really need to dip into the extra 10 years for and not even need to continue. We plan on getting out of work in about 15 years if everything goes to plan, but don't hate our jobs currently. Things like disability, wanting to downshift, or job loss seem like the only potentials that a 30 year would insure vs the 20 year term, but really by then they should be largely ready for life on their own and anything we've accumulated to that point would be theirs anyway, which should be significant if not the full policy amount.

In short - $20k extra in premiums over 20 years to make sure I cross the t's on unlikely scenarios? Anyone able to provide hindsight (whose life insurance bet worked out ;-) )?

Faced with the same decision a few years ago, I chose the 20 year... I was 30 at the time.  My reasoning is that at the rate I am going, our investments and savings will be high enough in 20 years (aka, we should hopefully be quite well off) that life insurance will not be necessary and if myself or my wife would die, there would be no problem living off investments.  Another factor I considered is that the house will be paid off and the kids will be out of the house in 20 years significantly reducing our spending.  Curious to know what other people think.

[partgypsy]

Ex and I got 20 year term life insurance policies (a fraction of what you have, 300k) after having 2nd kid to cover when the kids are dependents. We are now divorced and it makes even more sense as I won't need to take care of him if/when I die, and vice versa. We updated beneficiaries so if either dies, goes directly to kids vs each other.  The only case to argue longer if have non working spouse and know there will be financial hardship for surviving spouse. Doesn't apply in your case.

[Hvillian]

I would go with 20 years.  You will likely have have more than enough money saved/invested to cover a fat FIRE by the end of the 20 years. 

I went through a similar comparison about 2 years ago, and the insurance rep told me that a lot of wealthy folks are ready to "self-insure" (his words) after the 20 years is up and kids are grown.

[FLBiker]

We did 20.  We did it for both of us initially, but once DD started school we only kept mine.  I earn more money, and I feel like I can figure it out if DW were to die unexpectedly.  She's more risk averse and wanted to know that she'd have enough money, so I still have a policy.

[rmorris50]

My spouse and I each got a $1.5 million 20-year term policy at 33 and 37, and we are now 46 and 51. And 13 years later we are close to the point of really not needing them. I think we need them another 4 years, and by then there is only three years left so we will see if we keep them or let them go the fully 20 years.

So in our situation 30 years would have been overkill. I suspect you find yourself in a similar situation in 10-15 years.

[acepedro45]

I think your preference for 20 year term is based on sound logic. Like most of your other respondents, I chose 20 year for similar reasons.

I even wonder if $1.5M each is too much insurance. Worst case, the surviving spouse would be holding $2M and a $135k a year job. I don't want to minimize the emotional/caregiving burden, but that seems like overkill to me for a FIRE seeker. Worth thinking about.

[YttriumNitrate]

I even wonder if $1.5M each is too much insurance. Worst case, the surviving spouse would be holding $2M and a $135k a year job. I don't want to minimize the emotional/caregiving burden, but that seems like overkill to me for a FIRE seeker. Worth thinking about.

Don't forget about social security insurance the minor children would receive. That's likely another $20-$40k a year.

[JoJo]

My spouse and I each got a $1.5 million 20-year term policy at 33 and 37, and we are now 46 and 51. And 13 years later we are close to the point of really not needing them. I think we need them another 4 years, and by then there is only three years left so we will see if we keep them or let them go the fully 20 years.

So in our situation 30 years would have been overkill. I suspect you find yourself in a similar situation in 10-15 years.

Typically with 20 year term, since the premiums are level, statistically, in the last few years of the level term, the probability and payout amount of dying probably exceeds the premiums you pay in those last few years.   This is especially true the longer the level term. 

[rmorris50]

I think your preference for 20 year term is based on sound logic. Like most of your other respondents, I chose 20 year for similar reasons.

I even wonder if $1.5M each is too much insurance. Worst case, the surviving spouse would be holding $2M and a $135k a year job. I don't want to minimize the emotional/caregiving burden, but that seems like overkill to me for a FIRE seeker. Worth thinking about.

It might be too much, but term is so cheap, it's just not worth skipping on. I mean god forbid your spouse dies, who knows how that is going to shake up your and your family's life emotionally and financially. I say look for other places in the budget to skimp on.

[rmorris50]

My spouse and I each got a $1.5 million 20-year term policy at 33 and 37, and we are now 46 and 51. And 13 years later we are close to the point of really not needing them. I think we need them another 4 years, and by then there is only three years left so we will see if we keep them or let them go the fully 20 years.

So in our situation 30 years would have been overkill. I suspect you find yourself in a similar situation in 10-15 years.

Typically with 20 year term, since the premiums are level, statistically, in the last few years of the level term, the probability and payout amount of dying probably exceeds the premiums you pay in those last few years.   This is especially true the longer the level term.

I suspect we will keep it the full 20 years just in case. I think we also have the option to convert some/all to permanent insurance at originally underwritten ratings, so that will give us more time to see if we stay healthy or do we want to convert some if one us has a health issue. My spouse works in a hospital and was in the COVID mess in NYC. So far he is fine from that but who knows what the future holds.

[Michael in ABQ]

I bought a $500k policy a few years ago when I was in my early 30s and went with a 20-year term. I was originally looking at 15-year but at $188/year vs. $249/year it seemed worth it to get the longer term. I know that it will take longer for us to retire with a single income and a large family. FIRE in 15 years is not very likely and we'll still have kids at home and in college. 20 years though and most of them will be out of the house, plus that's another 5 years for our assets to grow. I've got another half million through the military and between Social Security and existing investments, I felt like that was sufficient. 30 years in the future all the kids would have been finished with college and I knew our assets would be more than enough along with Social Security to cover my family so that didn't make sense to buy 30-year term. 

[pharmmm]

Thanks for the feedback! I converted over to the 20 year. Now every year I'll get 1k of slush fund that I otherwise would be wasting.