Author Topic: Dilemma on life insurance for my spouse  (Read 4292 times)

mlr2016

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Dilemma on life insurance for my spouse
« on: March 17, 2016, 08:45:25 AM »
Hi all,

I have an interesting situation involving trying to obtain life insurance for my wife.  To most insurance companies she's either uninsurable at present or the policies offer little to no value, with incredibly high premiums.  To make a long story short, she was diagnosed with stage 3 melanoma when she was 21.  She's now 26, has been cancer free for 5 years and is still going strong.  I'll do the best I can to summarize our current situation below.

At present, she has a $100k term policy that her parents took out on her while she was in college (before her diagnosis). This was basically used as a tool to cover her student loan debt and related expenses in the unfortunate event that she would pass away (her parents co-signed on her loans).  My father-in-law recently informed me that the policy is a 10yr term and will be nearing the end of its' term a year and a half from now.  We're hoping we can convert it to permanent insurance, but are unsure if it's possible without a physical/questionnaire.  Currently the premiums on the policy equate to under $100/year.

In addition to the term policy above, I was able to take out $40k of life insurance on her without a physical/questionnaire through my employer.  This cost roughly $25/year.  So in total we have $140k in life insurance coverage on her, with the possibility of $100k of it going away in the near future.

We recently applied for life insurance through our financial advisor (NW Mutual).   These were the only options presented to us:

- $500k benefit/30yr term/$5,600 per year in premiums (shopped out to a 3rd party)
- $100k benefit/whole life/$2,750 per year in premiums (through NW Mutual)

Now I understand risk and the fact that insuring her would be risky for the insurer, but I almost fell out of my chair with those numbers.  I'm happy that something was offered, but neither of those options are viable for us.  With that said, my financial advisor mentioned the possibility of funding a variable annuity for my wife.  I've done some research on it and it seems like a viable option but I'm hoping a few fellow mustachians can offer some advice/pros/cons.  Would we be better off continuing to pump money into her 401k employer plan?

Axecleaver

  • Magnum Stache
  • ******
  • Posts: 3366
  • Location: New York
Re: Dilemma on life insurance for my spouse
« Reply #1 on: March 17, 2016, 08:52:05 AM »
Had a similar situation for myself. Since I started my first post-college job I've done the max term life insurance I could for every employer possible, and kept it after I left the job. Your ten year term insurance may be renewable without a health cert, but if not, you'll have to drop it because the rate will be too high.

Tips for maximizing insurance with serious health conditions: change jobs often and sign up for new plans, and look for organizations that offer group rates without a health exam. I believe Elks Foundation does this, for example. Beyond that, you're better off funding your 401k and self-insuring with a nice stache on retirement than paying those rates.

acroy

  • Handlebar Stache
  • *****
  • Posts: 1702
  • Age: 41
  • Location: Dallas TX
    • SWAMI
Re: Dilemma on life insurance for my spouse
« Reply #2 on: March 17, 2016, 09:01:33 AM »
Does she need life insurance?

Insurance is a 'bet against' yourself and only to be considered if there is concrete need to hedge against a risk.

For instance I am sole provider for wife/kids. I took out $1M policy 10yrs ago on myself  to provide coverage for them in case I died; until I had assets built up. We now have decent assets and SS benefits, so will not renew the policy when it runs out this year.

Suggest pump the $$ into 401k instead.

Janie

  • 5 O'Clock Shadow
  • *
  • Posts: 77
Re: Dilemma on life insurance for my spouse
« Reply #3 on: March 17, 2016, 09:05:55 AM »
Glad to hear your wife's treatment was successful and that she's doing well years later. Have you looked at whether your family needs for her to have life insurance coverage? We had a term policy when we were a single-earner family with young children. Now that we're two-earner, kids are older, and assets have accumulated, we've cancelled.

catccc

  • Handlebar Stache
  • *****
  • Posts: 1681
  • Location: SE PA
Re: Dilemma on life insurance for my spouse
« Reply #4 on: March 17, 2016, 09:39:29 AM »
What are your life insurance needs?  For what expenses or duties do you rely on her or her income?  I would start with needs.  You are already looking at solutions, but defining true needs first is really helpful when problem solving.
 

mlr2016

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Dilemma on life insurance for my spouse
« Reply #5 on: March 17, 2016, 12:14:18 PM »
Had a similar situation for myself. Since I started my first post-college job I've done the max term life insurance I could for every employer possible, and kept it after I left the job. Your ten year term insurance may be renewable without a health cert, but if not, you'll have to drop it because the rate will be too high.

Tips for maximizing insurance with serious health conditions: change jobs often and sign up for new plans, and look for organizations that offer group rates without a health exam. I believe Elks Foundation does this, for example. Beyond that, you're better off funding your 401k and self-insuring with a nice stache on retirement than paying those rates.

I had the same thought... keep switching jobs and sign up for new plans.  Not realistic, but it could work, ha!

Does she need life insurance?

Insurance is a 'bet against' yourself and only to be considered if there is concrete need to hedge against a risk.

For instance I am sole provider for wife/kids. I took out $1M policy 10yrs ago on myself  to provide coverage for them in case I died; until I had assets built up. We now have decent assets and SS benefits, so will not renew the policy when it runs out this year.

Suggest pump the $$ into 401k instead.

The want or need for life insurance is more a product of deciding to start a family this year.  Once we have kids it would be nice to have coverage in order to safeguard them and provide for their future, as well as supplement lost income (~55k/yr).  Our assets at present would be unable to do so.  As some others have mentioned, I would expect in the next 10-15 years we would be in a position that life insurance would no longer be necessary as a safety net for our children.

It sounds like maxing out her 401k contributions might be the best option.

Glad to hear your wife's treatment was successful and that she's doing well years later. Have you looked at whether your family needs for her to have life insurance coverage? We had a term policy when we were a single-earner family with young children. Now that we're two-earner, kids are older, and assets have accumulated, we've cancelled.

Thank you!  It was a hell of a ride but she's a fighter and we're looking towards a bright future.  Do we need coverage... that can be debated.  I'm of the position that I think we do for the short term.  We have yet to accumulate enough assets and are going to be starting a family in the near future.  If she were to pass away, not only do I take on her debt, but now I'm supporting a child on my income alone, it would be tough.  Truly, the coverage would be used if necessary to pay off her debt obligations and help to take care of our children.

What are your life insurance needs?  For what expenses or duties do you rely on her or her income?  I would start with needs.  You are already looking at solutions, but defining true needs first is really helpful when problem solving.
 

Just talking this through has helped tremendously.  Our initial motives in obtaining life insurance were to have a source of funds to pay off her student loan debt (~47k) and supplement her income to help provide for a child if we end up having one.  Of course this is all based on the assumption that something unfortunate happens with her health in the next 5 years. 

We are currently on an aggressive debt pay-down plan and are projected to have all debts (aside from our mortgage) paid off in a little under 4 years.  Assuming nothing happens with her health in the next 4 years and income remains stable, that $47k of student loan debt becomes a non-issue.  It also frees up a lot more cash in which realistically, we could live off my income alone.  The only problem I haven't yet decided on is a concrete solution to make sure our child is taken care of in the event something happens in the short term.  There's definitely a lot of "ifs" and variables in play.

As mentioned earlier, maybe maxing out her 401k is the best option.  I'm open to other ideas as well.  Thanks for all your responses thus far!

onlykelsey

  • Handlebar Stache
  • *****
  • Posts: 2172
Re: Dilemma on life insurance for my spouse
« Reply #6 on: March 17, 2016, 12:16:43 PM »
I am looking to insure myself and husband right now, too.  Have you looked at a short term life policy?  Maybe even 5 years?  Not that it wouldn't be a hardship to lose her with a 1 and 3 year old, but that gives you fives years to max 401Ks, etc. He and I are thinking 20 year policies, although at the rate I'm accumulating it might make sense for it to be a 10 year policy on me.

dycker1978

  • Pencil Stache
  • ****
  • Posts: 768
  • Age: 40
  • Location: Regina, Saskatchewan, Canada
Re: Dilemma on life insurance for my spouse
« Reply #7 on: March 17, 2016, 12:18:31 PM »
Had a similar situation for myself. Since I started my first post-college job I've done the max term life insurance I could for every employer possible, and kept it after I left the job. Your ten year term insurance may be renewable without a health cert, but if not, you'll have to drop it because the rate will be too high.

Tips for maximizing insurance with serious health conditions: change jobs often and sign up for new plans, and look for organizations that offer group rates without a health exam. I believe Elks Foundation does this, for example. Beyond that, you're better off funding your 401k and self-insuring with a nice stache on retirement than paying those rates.

I had the same thought... keep switching jobs and sign up for new plans.  Not realistic, but it could work, ha!

Does she need life insurance?

Insurance is a 'bet against' yourself and only to be considered if there is concrete need to hedge against a risk.

For instance I am sole provider for wife/kids. I took out $1M policy 10yrs ago on myself  to provide coverage for them in case I died; until I had assets built up. We now have decent assets and SS benefits, so will not renew the policy when it runs out this year.

Suggest pump the $$ into 401k instead.

The want or need for life insurance is more a product of deciding to start a family this year.  Once we have kids it would be nice to have coverage in order to safeguard them and provide for their future, as well as supplement lost income (~55k/yr).  Our assets at present would be unable to do so.  As some others have mentioned, I would expect in the next 10-15 years we would be in a position that life insurance would no longer be necessary as a safety net for our children.

It sounds like maxing out her 401k contributions might be the best option.

Glad to hear your wife's treatment was successful and that she's doing well years later. Have you looked at whether your family needs for her to have life insurance coverage? We had a term policy when we were a single-earner family with young children. Now that we're two-earner, kids are older, and assets have accumulated, we've cancelled.

Thank you!  It was a hell of a ride but she's a fighter and we're looking towards a bright future.  Do we need coverage... that can be debated.  I'm of the position that I think we do for the short term.  We have yet to accumulate enough assets and are going to be starting a family in the near future.  If she were to pass away, not only do I take on her debt, but now I'm supporting a child on my income alone, it would be tough.  Truly, the coverage would be used if necessary to pay off her debt obligations and help to take care of our children.

What are your life insurance needs?  For what expenses or duties do you rely on her or her income?  I would start with needs.  You are already looking at solutions, but defining true needs first is really helpful when problem solving.
 

Just talking this through has helped tremendously.  Our initial motives in obtaining life insurance were to have a source of funds to pay off her student loan debt (~47k) and supplement her income to help provide for a child if we end up having one.  Of course this is all based on the assumption that something unfortunate happens with her health in the next 5 years. 

We are currently on an aggressive debt pay-down plan and are projected to have all debts (aside from our mortgage) paid off in a little under 4 years.  Assuming nothing happens with her health in the next 4 years and income remains stable, that $47k of student loan debt becomes a non-issue.  It also frees up a lot more cash in which realistically, we could live off my income alone.  The only problem I haven't yet decided on is a concrete solution to make sure our child is taken care of in the event something happens in the short term.  There's definitely a lot of "ifs" and variables in play.

As mentioned earlier, maybe maxing out her 401k is the best option.  I'm open to other ideas as well.  Thanks for all your responses thus far!
This may be a stupid question, but as you said, and others have mentioned, if you feel that you will be set finically without the need for insurance in 10-15 years, why are you pricing 30 year term, instead of 10 year term or 15 year term.  The do exist, but the agent may not want to tell you, as his commission is less.

Fuzz

  • Bristles
  • ***
  • Posts: 330
Re: Dilemma on life insurance for my spouse
« Reply #8 on: March 17, 2016, 03:52:58 PM »
Read some of the other threads on Northwestern Mutual and their life insurance products. Be suspicious of those guys.  Also, it's not clear, why you feel you need this insurance. What are you trying to hedge against?


Dee18

  • Handlebar Stache
  • *****
  • Posts: 1605
Re: Dilemma on life insurance for my spouse
« Reply #9 on: March 17, 2016, 04:10:07 PM »
The student loans I had would have been paid off upon my death...have you checked the loan terms?  Also, if a parent dies the children usually get money from Social Security until they are 18. It can be quite a bit.  Factor that into your planning.  Can your wife work for an employer with automatic life insurance?  Mine provides 2.5 times annual salary for each employee, no physical required.

La Bibliotecaria Feroz

  • Magnum Stache
  • ******
  • Posts: 4369
Re: Dilemma on life insurance for my spouse
« Reply #10 on: March 17, 2016, 04:13:23 PM »
Yep, just save up tons of money.

Don't most employers often small plans to everyone? And I think I had the option to add to mine at group rates without an exam.

You might not need as much as you think. When we started looking through our finances to make a will, we found out that we were worth more dead than we thought--there's a Social Security benefit, for instance, and Mr. FP has a pension that would pay out to the kids in the unfortunate event. (Half his salary until they're 21

Jim2001

  • Stubble
  • **
  • Posts: 203
  • Location: Los Angeles, CA
Re: Dilemma on life insurance for my spouse
« Reply #11 on: March 17, 2016, 07:56:32 PM »
I'm going to assume you've thought through the reasons you need life insurance and it's a good decision.  So, she's had cancer and it's gone now.  Fantastic!  Contact a broker (not a captive agent) and walk through the personal details.  The longer it's been, the cheaper it gets.  So, if you want coverage now, it will be more expensive.  If you wait until the current policy lapses, you can work with a broker to replace it with the coverage you need at the time.  Each company may have different cutoff's on the time since last treatment for the breakpoints, but you should be able to find something much more reasonable than you've quoted.  In short, you have options.  Whether you are looking now or later, use a broker who can shop for your specific needs.

mlr2016

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Dilemma on life insurance for my spouse
« Reply #12 on: March 17, 2016, 07:59:40 PM »
This may be a stupid question, but as you said, and others have mentioned, if you feel that you will be set finically without the need for insurance in 10-15 years, why are you pricing 30 year term, instead of 10 year term or 15 year term.  The do exist, but the agent may not want to tell you, as his commission is less.

I actually asked that question and was told those were the only plans that were offered.  Nobody was willing to do anything shorter.  I'm sure it has to do with the fact that there's not a whole lot of data of someone my wife's age who has stage 3 melanoma (more-so in relation to life expectancy).  However, treatments are getting better (just look at Jimmy Carter's recent bout with melanoma) and life expectancy is increasing.

Read some of the other threads on Northwestern Mutual and their life insurance products. Be suspicious of those guys.  Also, it's not clear, why you feel you need this insurance. What are you trying to hedge against?

I'll make sure to do a search later tonight on NW.  The initial reason for a life insurance policy was to cover her debts and have something extra to help with (hopefully) our kids.  We'll be trying this year.  The more I talk myself through this with everyone, the more I talk myself out of it.  In the short term (if something were to happen within the next 4 years) it would be nice to have something to help out so I can payoff her loans and supplement her income.  However, I anticipate having all of our debts paid off in the next 4 years so this could become a non-issue.

The student loans I had would have been paid off upon my death...have you checked the loan terms?  Also, if a parent dies the children usually get money from Social Security until they are 18. It can be quite a bit.  Factor that into your planning.  Can your wife work for an employer with automatic life insurance?  Mine provides 2.5 times annual salary for each employee, no physical required.

Her loans are are mostly Federal and from recollection, those aren't typically forgiven.  I'll have to look into Social Security (great thought btw!).  As for work, unfortunately she works in one of the least friendly professions in terms of benefits.  The only benefits she receives are free dental care and employer profit sharing.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9547
  • Location: Seattle
Re: Dilemma on life insurance for my spouse
« Reply #13 on: March 17, 2016, 08:18:34 PM »
The student loans I had would have been paid off upon my death...have you checked the loan terms?  Also, if a parent dies the children usually get money from Social Security until they are 18. It can be quite a bit.  Factor that into your planning.  Can your wife work for an employer with automatic life insurance?  Mine provides 2.5 times annual salary for each employee, no physical required.

This.  Suggested next steps:

1)  Go to https://www.ssa.gov/myaccount/ and sign up for an account for both you and your wife.  It will allow you to generate the estimate of what the benefits would be for a surviving spouse/child(ren).  Note that you only have to have a limited recent work record to qualify for these benefits BUT, if your wife plans to spend any time out of the workforce then her benefits might lapse at some point -- the website says you need to have at least 6 credits of work within the last 3 years for children to be eligible for benefits (see https://www.ssa.gov/planners/survivors/onyourown.html).  If you have detailed questions the people at the social security office can probably help.

2)  Confirm what kinds of loans she has and what the terms are. This blog post gives an excellent overview of what types of loans are dis-chargeable on death, and what kinds pass to the estate:  http://thestudentloanlawyer.com/670/what-happens-to-a-student-loan-when-you-die/

3)  Once you know roughly what any social security survivor benefits will be and what the likely non-dischargeable loan amounts would be, you can figure out what you would likely need to cover the difference.  As suggested above, I probably wouldn't go for more than a 10 year policy, especially if you are good savers -- load up her retirement accounts and then if you end up as the sole income you can roll her accounts over into yours and cut back on your own retirement savings for a few years to cover much of the loss of income.  You really only need large amounts of money for the early childhood years, when you would need full time care for the kids while you work.  After the kids get to school age, the financial burden on a single parent is much lower.

Good luck figuring this all out and don't expect the NW Mutual people to give you unbiased information -- they are trying to sell you the most expensive product possible, as they get the highest commission that way.  They certainly aren't going to educate you about social security survivor benefits, etc.  Which is why I always try to mention it on threads like this.  I received the benefits when my father died when I was 15, and used them to pay for much of my college expenses.  It is a really wonderful part of the social security system that too few people know about.

Dee18

  • Handlebar Stache
  • *****
  • Posts: 1605
Re: Dilemma on life insurance for my spouse
« Reply #14 on: March 17, 2016, 08:23:24 PM »
Here's a government site confirming the loans are discharged if the borrower, or student for whom the loans were borrowed, dies:
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/death

lhamo

  • Walrus Stache
  • *******
  • Posts: 9547
  • Location: Seattle
Re: Dilemma on life insurance for my spouse
« Reply #15 on: March 17, 2016, 08:54:48 PM »
Here's a government site confirming the loans are discharged if the borrower, or student for whom the loans were borrowed, dies:
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/death

That's true for federal loans.  Some private loans have different terms.  The blog post I linked to spells out the different types.

mlr2016

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Dilemma on life insurance for my spouse
« Reply #16 on: March 18, 2016, 08:26:51 AM »
The student loans I had would have been paid off upon my death...have you checked the loan terms?  Also, if a parent dies the children usually get money from Social Security until they are 18. It can be quite a bit.  Factor that into your planning.  Can your wife work for an employer with automatic life insurance?  Mine provides 2.5 times annual salary for each employee, no physical required.

This.  Suggested next steps:

1)  Go to https://www.ssa.gov/myaccount/ and sign up for an account for both you and your wife.  It will allow you to generate the estimate of what the benefits would be for a surviving spouse/child(ren).  Note that you only have to have a limited recent work record to qualify for these benefits BUT, if your wife plans to spend any time out of the workforce then her benefits might lapse at some point -- the website says you need to have at least 6 credits of work within the last 3 years for children to be eligible for benefits (see https://www.ssa.gov/planners/survivors/onyourown.html).  If you have detailed questions the people at the social security office can probably help.

2)  Confirm what kinds of loans she has and what the terms are. This blog post gives an excellent overview of what types of loans are dis-chargeable on death, and what kinds pass to the estate:  http://thestudentloanlawyer.com/670/what-happens-to-a-student-loan-when-you-die/

3)  Once you know roughly what any social security survivor benefits will be and what the likely non-dischargeable loan amounts would be, you can figure out what you would likely need to cover the difference.  As suggested above, I probably wouldn't go for more than a 10 year policy, especially if you are good savers -- load up her retirement accounts and then if you end up as the sole income you can roll her accounts over into yours and cut back on your own retirement savings for a few years to cover much of the loss of income.  You really only need large amounts of money for the early childhood years, when you would need full time care for the kids while you work.  After the kids get to school age, the financial burden on a single parent is much lower.

Good luck figuring this all out and don't expect the NW Mutual people to give you unbiased information -- they are trying to sell you the most expensive product possible, as they get the highest commission that way.  They certainly aren't going to educate you about social security survivor benefits, etc.  Which is why I always try to mention it on threads like this.  I received the benefits when my father died when I was 15, and used them to pay for much of my college expenses.  It is a really wonderful part of the social security system that too few people know about.

That's a great point about NW Mutual.  I consider myself fairly savvy when it comes to my financial picture and as such have avoided many of the products my financial advisor has mentioned in the past.  I still laugh when I think about my first meeting with him.  I was 23, just secured a good paying job, and he's trying to sell me on whole life insurance... Some might ask, why the heck didn't you run far away from him back then?!  To be honest, he's good guy, we had mutual friends at the time and our families have become good friends over the years.

In response to a few of your suggestions.  I'm already signed up on the SSA website, but have never really cared to look at it (the last time I signed on was probably 2 years ago).  Now seeing that this will be a valuable tool for us going forward, my wife and I will be getting her signed up this weekend!  I actually looked at my statement last night and the monthly benefit to my surviving spouse/child(ren) would be roughly $1,400.  If her statement denotes something remotely close to that, that's a sizable amount to help support our child(ren) going forward.

As far as student loans go, I was always under the assumption that Federal loans weren't forgiven for any reason.  After reading the information on the links you and Dee18 provided, it appears I was way off base and my assumption generally relates to bankruptcy (most of the time).  Knowing her Federal loans would be discharged is a relief and would significantly free up cash for other purposes (i.e. supporting our child(ren)).  Regarding private loans, my wife has two through a provider and I'm unsure of the terms regarding a borrower's death.  It looks like I have some additional homework to tackle this weekend. 

Everyone's suggestions have been tremendous in helping us think through our situation in a logical fashion.  It truly helped to discuss our problem with other like-minded individuals, step back and look at the big picture!  After discussing it some more with my wife last night, we feel that if we can extend her current $100k policy for another 10 years, that's all we should really need in the short term.  We're also going to start contributing more to her retirement account through her employer as a few of you have suggested.

Thanks everyone for your advice and wisdom, it's appreciated!