Author Topic: Looking into term life insurance, how much is enough at this point?  (Read 9166 times)

KidneyBeansMD

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I'm 26 and interested in getting a 30-year term life insurance policy, though I have no dependents (I'm engaged). Should I be looking to get the maximum coverage right now, or will a 30-year term policy allow me to increase my coverage down the road when I am married and have a family?

MorningCoffee

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I'll preface this by saying I'm no expert when it comes to insurance... my understanding is insurance is only to protect your dependents. If you have none at the moment, I'm not sure why you would want any.

In my opinion, term is the way to go, but only once you know how much your dependents would need to live on, should something happened to you. And they would need less as you build wealth. I never had any until I had children since I didn't have anyone to protect.

aj_yooper

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Especially, if you have debt or are building debt and have a dependent, term insurance can be very helpful. 

KidneyBeansMD

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I'll preface this by saying I'm no expert when it comes to insurance... my understanding is insurance is only to protect your dependents. If you have none at the moment, I'm not sure why you would want any.

In my opinion, term is the way to go, but only once you know how much your dependents would need to live on, should something happened to you. And they would need less as you build wealth. I never had any until I had children since I didn't have anyone to protect.

The main reason I'm pursuing it now is that I'm healthy now and who knows where I'll be down the road.

TheDude

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If I were you I wouldn't buy any yet. Is your future spouse employable? At what level? Do you plan on having kids? At what net worth do  you feel you will hit FI?

These are some of these questions I would ask. They should help pinpoint when and how much term you should buy. I bought 500k 10 year on both my wife and myself. I bought that at 27 as we were married and planning on kids. I figure by 37 we should have enough money to be FI or close. On top of that my wife is full employable at decent wage so at worth she just needs a little push forward.

INMO life insurance is about insuring the possibility of leaving you significant others hard up. You don't insure past the point in which you estimate their will be enough money in the bank.

floridaguy

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I'm 26 and interested in getting a 30-year term life insurance policy, though I have no dependents (I'm engaged). Should I be looking to get the maximum coverage right now, or will a 30-year term policy allow me to increase my coverage down the road when I am married and have a family?

Hi brokeresident- that is a great question. First of all, buying when you are young is a great idea since you can lock in lower rates due to age and health. You're also protecting your future insurability- who knows what might happen with illnesses and sickness.

In terms of how much, there are a couple ways to determine how much you need. One way is a needs analysis, which analyzes your cash needs and income needs in the event of your premature death. This method looks at paying off final expenses, debts, mortgages, setting aside emergency funds, college funds, etc and providing income to continue coming into your family for X number of years to the rest of your life.

Another option is the concept of "full replacement" which basically has the idea that you protect your "human economic life value". The idea is that with home or auto insurance, you have full replacement value- in other words, you aren't replacing your stolen Mercedes with a new Honda (nothing against Hondas- I own one). So your human economic life value can be determined by how much income you will earn during your lifetime. As a very basic and raw example, if you are 26 and let's say by age 30 you are making $50,000 per year. If you work until age 65, and assuming no raises or inflation, etc (as I said, a basic example), your human economic life value would be $1.75 million. So your coverage need would be $1,750,000. This would just replace the income that you plan to bring in to your family during your lifetime.

BOTTOM LINE: Life insurance is really love insurance. It is meant to protect your loved ones in the event that something happen to you. It allows them in the worst possible time in their lives to, at least financially, have nothing to worry about. It allows them to maintain their lifestyle, stay in your house, stay in the same schools, keep the same friends, etc.

It is the only financial instrument that can create in one moment what it takes a lifetime to accumulate. And in that event, there is no better way to leverage your dollars. My personal opinion: buy as much as you can afford to make sure your family is protected.

The next question after that is to decide how long you need the coverage.

I hope this has been helpful. Please feel free to email me directly if I can help you with anything else on this topic.

Florida Guy

arebelspy

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Last answer obviously comes from a life insurance salesman.  Watch for biases, and especially manipulation ("Life insurance is love insurance"?  So people who analyze the situation and decide they don't need it it don't love their families? Please.)

I agree with the rest of the posters; you have no need for life insurance now.  Probably not when married, either, if your wife works.  Once you have a kid, you'll want to get term life.

Go to your local library and grab the book "The Wealthy Barber" (the original, not returns) off of the shelf.  You don't even need to check it out from the library, just flip it open to the insurance chapter and read it.  Will probably take about 5 minutes and will tell you all you need to know (get term, get what your family will actually need).
« Last Edit: May 27, 2013, 08:15:38 AM by arebelspy »
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rubybeth

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I'm 26 and interested in getting a 30-year term life insurance policy, though I have no dependents (I'm engaged). Should I be looking to get the maximum coverage right now, or will a 30-year term policy allow me to increase my coverage down the road when I am married and have a family?

You can get what you feel you need now, and add to it later. When we got married, DH and I each got term policies for like $100k each. Then a couple years later, our incomes went up, so we wanted to add coverage. My rate was the same, but DH's has gone up, so we stacked policies, keeping his original $100k and adding an additional $200k on top at the higher rate.

As for figuring out how much coverage to get, only you can really answer that. DH and I don't have any dependents, either, but we think of each other as dependents. If he died, I would want the option of taking 6 months off or whatever in order to grieve and not worry about my job, plus there's the income replacement factor. If I got $300k upon his death tomorrow, I'd invest it and it would function like him working for the next however many years, allowing me to retire early as we've planned. If you've got any shared debts that won't be wiped away upon death, you'd also probably want those to be covered.

BlueMR2

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INMO life insurance is about insuring the possibility of leaving you significant others hard up. You don't insure past the point in which you estimate their will be enough money in the bank.

Depending on how well you grow your mustache, there's a good chance that you won't ever need life insurance at all.  As in all things, it comes down to playing the odds based on the hand you're holding, with the strategies you plan on employing, and staying within your risk tolerance.

In my case I'd decided there was no point when I was single.  Once I was married, I decided there was no point as the wife can be self-sufficient (we have no debt) at the current minimum wage.  If she can't manage to do that, then she doesn't need money, she'd need a friendly mustachian face-punch from somebody on the forum.  :-)  In our case, we have no children and are going to keep it that way.  I've never done the math with children, it might change the result (although my gut feel is it *probably* wouldn't).

rubybeth

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I will add that one thing I think people forget about is the chances of becoming disabled or partially disabled to the point where you'd be unable to even work a minimum wage job until recovered, or you may never fully recover. Health insurance doesn't cover wage replacement. If DH was injured catastrophically, obviously I would take care of him, and vice versa, but if we're both in a major accident and one of us dies and the other is unable to work, that would seriously zap our savings. If you're already financially independent/retired, then that's not such a big deal. But when you are just starting out and have only earned good wages for a few years and are working hard to become financially independent, paying $50/month for $300k in coverage for a 15 or 20 year term can be worth it for peace of mind. I'm a worrier, though, so it may not be worth it for you.

DK

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #10 on: May 27, 2013, 07:01:56 PM »
I'm 26 and interested in getting a 30-year term life insurance policy, though I have no dependents (I'm engaged). Should I be looking to get the maximum coverage right now, or will a 30-year term policy allow me to increase my coverage down the road when I am married and have a family?

Does anyone rely on your income? If no one relies on your income, you don't necessarily need it. If you are planning on a family/wife will rely on you, you could hedge your bets and buy some now to make sure you have some, and at a lower rate due to age/health. Later you could get another policy if you need more coverage. Once you build your cash stash to be able to cover any expenses, you would no longer need it.

The one post was from an insurance guy for sure, but he's right, those are the ways to technically calculate what you need - I know cuz I'm in the same biz. Personally I think it's a bit over the top to have that much coverage, but I definitely think everyone should have some, especially if they have kids.

Undecided

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #11 on: May 27, 2013, 10:58:58 PM »
Getting term insurance for a period beyond when you realistically plan to retire probably doesn't make sense, so if you (like many here) think you'll retire in your mid 30s or mid 40s, a 10 or 20 year term would probably be enough. One other thing to consider is your parents' health (or your best guess at their health in the near future). I had priced insurance at 30, but not bought it; my dad was diagnosed with and then died of cancer the next year;?then I did get insurance the next year when my first child was born. With a parent's death at age 56, though, I had to pay over twice the price I'd been quoted earlier (with no changes in my own health).

floridaguy

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #12 on: May 28, 2013, 07:47:23 AM »
Last answer obviously comes from a life insurance salesman.  Watch for biases, and especially manipulation ("Life insurance is love insurance"?  So people who analyze the situation and decide they don't need it it don't love their families? Please.)

Hi arebelspy- Yes I am in the insurance business and please forgive me if I offended your decision not to purchase life insurance. I do believe in it and believe most people should have it, but of course everyone is free to make up their own mind (there are biases on both sides of the question obviously). As to the rest of my post, he asked how much coverage he needed and I gave him several ideas to think and, again, make up his own mind as to how much he needs.

Here to help and to learn.

Florida Guy

arebelspy

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #13 on: May 28, 2013, 08:36:51 AM »
I'm not offended in whatever you think about my decisions regarding life insurance.

I do object to you emotionally manipulating people to sell a product.

If it's helpful and necessary, let facts and the truth speak for themselves.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

brewer12345

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #14 on: May 28, 2013, 09:36:03 AM »
brokeresident, I can see no reason for you to get a life insurance policy. Wait until you need one.

However, you shoudl absolutely have a long term disability policy, whether through your employer or on your own.

Mr Mark

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #15 on: May 28, 2013, 09:43:18 AM »
Term life is useful to insure against the reduced cashflow that would follow from your premature death.

It only benefits your dependents.

If one is healthy the rates do not significantly go up until your 50s.

At 26 and no dependants, I fail to see what you are insuring against right now. The concern of permanent disability is probably more of a concern.

hybrid

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #16 on: May 28, 2013, 10:14:03 AM »
I purchased a twenty year term plan around age 40 for a very reasonable amount ($44 month 250K) and will keep it right up to the point where my family no longer needs it, perhaps another four or five years.  Meaning I'll have had it in place for about ten years.  After that it shouldn't be necessary, it will simply be exist as a $512 yearly "bet" with a $250,000 "payoff" every year that I'm going to try damn hard to avoid winning!  :)

At age 26 life insurance is dirt cheap, and with good reason.  It's also dirt cheap 10 years later if you are a healthy person.  So I don't see the need to purchase now, you can certainly lock in very reasonable rates later on and avoid the unnecessary expense.  With no dependents, the only thing you don't want to leave behind is a funeral bill.  if you have that covered it's completely unnecessary.  Once you get married and have a family the equation changes.

pom

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #17 on: May 28, 2013, 10:16:22 AM »
Well, if you are really worried and believe that you may fall ill and have a hard time getting insurance, you can take a small amount of insurance.

I would calculate it at the amount you contribute for the family minus that part of that contribution that is used for yourself minus what you will get from other source (social security has surviving child benefits for exemple)

I'll do me as an exemple: I put 2500 a month roughly in our common account; probably 500 of the spending will disapear when I am gone and let's say social security will kick in 500 for my kids so really the need is 1500 x 12 x 25 (I used the 4% SWR here, some use a factor of 15 or 20) = 450 000. From that I substract my personal assets and the insurance that I get from work ... for me the result is that I don't need any insurance.

Don't try to overprotect your family. This is not a lottery, it is protection against them being destitute.

Also, don't buy too long a term-life. If you are a true Mustachian, then in a few years you will not need anything anymore since your assets will be higher than what your dependants need.

Mr Mark

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #18 on: May 28, 2013, 10:49:15 AM »
Yep, a good reminder that whole life, or a life policy that pays out with some sort of maturity value is non- mustashian.

But term life can be a very good bet for your dependants. It's a rare win win win in investment terms if you have a need to replace your labour generated cashflow. A mortgage of the family home is a classic example. You win if you don't die, your dependents win if you do die, and the insurance company wins ( if they get their assumptions right, it's a very competitive market for term life) because unfortunately, some of those people will loose their bets, but almost everybody else will not die. Meanwhile they can invest the premiums. There is a true economic value gap that is shared between insured and insurer.

StarryC

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #19 on: May 28, 2013, 10:56:24 AM »
I am single with no dependents and have a small life insurance policy.  I have a student loan that is private, and co-signed by my parents.  If I died, I think they'd have to pay it.  I got an amount a little higher than that amount, figuring that they could use the rest for burial expenses or to pay my last month's rent with my roommate. 

I think you could look at a very low policy- perhaps 10,000-50,000.  It wouldn't be very expensive and I got mine through work.  Then your fiance/wife could be sure there is enough to pay for a funeral, any debts that might survive you, and a few months living expenses while she grieves without worrying about money. 

ShavinItForLater

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Re: Looking into term life insurance, how much is enough at this point?
« Reply #20 on: May 28, 2013, 11:47:33 AM »
I echo the sentiment that kids (or other dependents) are the driving factor here.  We purchased 20 year term insurance shortly after our first child was born, when we were 26 years old and both healthy.  We bought enough that if I died, DW would not have to work since she would then be a single mom and the last thing I'd want her to worry about in those circumstances would be having to scramble to get a job.  The policy on DW was smaller, since the likely scenario there would be that my income was intact, and we'd need to hire a full time nanny or similar childcare.

Until we had kids, we didn't have any real need for life insurance--we were both working with good incomes, and while it would certainly have been sad if one of us died, nobody would have been financially destitute as a result.

I believe we're on track to be FI by the time the policies run the full 20 years (we'd certainly be at least close), and by then our kids will be college age and DW will likely be working again, so the financial impact if one of us died would not be nearly as much.  If we had planned on having a whole bunch of kids over a longer period of time, or didn't expect to be FI until much later, maybe a 30 year term policy would have made more sense, but as it stands, 20 years has worked out well for us and our two kids.

 

Wow, a phone plan for fifteen bucks!