Author Topic: Does Having Low Monthly Expenses/COL Act As Its Own Life Insurance Policy?  (Read 3177 times)

ReadySetMillionaire

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My fiance and I are both 28.  We don't have any kids yet but plan to do so in the next couple years. With kids come dependents, and with dependents comes life insurance. Or does it?

I ask because my fiance and I have pretty low monthly expenses. I could do a breakdown of the budget, but in short, our monthly expenses are about $2,800 per month. That includes a pretty big car payment for her that will be done in a year or two.

We basically can take care of all expenses without the other's income, and quite easily so. In other words, if something happened to either one of us, both of us make enough money that we could handle all costs and not really have to worry about anything financially.

If this is the case, why do we need life insurance? To me it's just another monthly expense, and as an attorney that (in part) defends insurance companies (forgive me father, for I have sinned), insurance can go wrong in a billion ways and end up being a complete waste.

So does having low monthly expenses act as its own life insurance policy? What says the MMM community?

patchyfacialhair

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Yes and no.

Depends on the subject's goals with the insurance...
Sure, the surviving spouse can make ends meet without the other half, but how does that change their savings rate? Are they then doomed to work for the rest of their life?
Do you want your spouse to be immediately FI so they have options to stay home with the kids despite being a widow/er?

Low monthly expenses help with getting to FIRE more quickly, which makes self-insuring more attractive. I see life insurance as a cheap way to take some of they anguish off of your surviving spouse if a death happens before FI. Yeah, there's a "billion ways" for an insurance company to mess up but that's where you educate yourself and read your contract.

Spork

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I'm in the yes and no category, too.

More importantly: It reduces the need.  It makes you see that "worst case need" is for term life, which is really cheap.  You can clearly see the end for the need for it as your stash grows.  In my own case, I had insurance through work that was enough without purchasing anything additional.  When I FIRE'd, I saw zero need for further life insurance.

slappy

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I actually wonder about this too.  I recently looked at the social security number website and it shows that my husband would get about $1400 per child until they are 18 (we have one and one on the way).  For some, that amount may cover most of the monthly expenses, giving the widow/er some financial flexibility.  However, I am also realizing that I have way to much life insurance currently.  Maybe someone else can chime in on the SS thing.

Gin1984

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You also need to plan if you BOTH die.  How will your kids do then?  Would you have enough assets that combined with SS they would be fine?

I'm a red panda

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We basically can take care of all expenses without the other's income, and quite easily so. In other words, if something happened to either one of us, both of us make enough money that we could handle all costs and not really have to worry about anything financially.

If this is the case, why do we need life insurance?

If something happens to one of you, are you sure the other person will be emotionally/mentally capable of continuing life in the manner they had.  (ie., continue working for same income; continue doing all tasks at home without needing to hire help).  I'm not convinced I could if I lost my partner. My work does not provide bereavement time, and I never have more than a week of vacation time sitting around in my vacation account. If work was being nice and let me take unpaid leave, I'd have to deal with the loss of income, but it's possible my job would disappear.

Most of the things my partner does around the house I'm not physically capable of doing; I would have to pay to replace his work, whereas the work I do he is capable of doing, he just doesn't like to- he wouldn't have to pay to replace my work.

If he died, my expenses would go up, and likely my income would go down. He has a supplemental life insurance policy, I just have the one work provides me.


Not to mention the both die thing... we don't have kids yet, so we aren't too concerned about that.

lthenderson

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So does having low monthly expenses act as its own life insurance policy? What says the MMM community?

It can absolutely. My wife and I are are self insured for the most part. She has a policy that is provided by her employer as part of her benefits package as long as she works for that employer. However if she were to leave or lose that benefit, we certainly wouldn't buy any life insurance. We have more than enough in our savings and retirement accounts for either of us to live out the rest of our lives in comfort. We got that way by minimizing our expenses and maximizing our saving. Whether you are at that point is probably only something you can answer.

On a related side note, I just watched a show on the life insurance industry that was pretty damning. Around 25 of the largest company recently settled to pay billions of dollars for bilking people out of their life insurance. The short story was that if you or your surviving beneficiary didn't file a claim, they didn't pay out and would cancel the policy after one month for non-payment. They did this even with knowledge that the insured was deceased and had never missed a payment up until their death. The moral of the story is to make sure beneficiaries know there is a policy and that they need to submit a claim pronto after you are deceased.

Spork

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On a related side note, I just watched a show on the life insurance industry that was pretty damning. Around 25 of the largest company recently settled to pay billions of dollars for bilking people out of their life insurance. The short story was that if you or your surviving beneficiary didn't file a claim, they didn't pay out and would cancel the policy after one month for non-payment. They did this even with knowledge that the insured was deceased and had never missed a payment up until their death. The moral of the story is to make sure beneficiaries know there is a policy and that they need to submit a claim pronto after you are deceased.

On the plus side: It seems like all of my dad's life insurance companies contacted us before we had a chance to call them.  They haven't actually paid out yet, but they contacted us to get us moving on the beneficiary forms.  It didn't hurt that some of the agents had personal relationships with him and knew he passed.

Cassie

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Term insurance is so cheap that it is silly not to have it when you have kids at home. We had enough that the person left would not need to work and could focus on the kids, etc. Also if we both died they were covered for college, etc.  Term is definitely the way to go and will buy you peace of mind. 

Fishindude

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Sounds like you do not need life insurance.  Would make sense to have if one was a full time worker and the other was a stay at home parent, so that if the worker died, income would continue at least until children were raised.

I'm not a fan of purchasing stuff you never intend to use.

lizzzi

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I'm not a big fan of insurance, but some cheap term insurance would probably be a good idea to pay off the house mortgage if one of you dies, and as others have said, to give the survivor more flexibility if there are children--to stay home with them, to be able to pay for their college--whatever.  My niece's husband was killed in a car crash at age 39, leaving her with a five-year-old and a two-year-old. With insurance money, she was able to take care of the major work their house needed, and to have college money ready for the boys later. I think that in building her new relationship and marrying again three years after the accident, it must have been a relief to the new husband (who has his own two kids) that he would not have to shoulder college costs for his two new little step-sons.

lizzzi

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Forgot to say that while my niece got some money from the other driver's estate (no question he was at fault), she did get insurance money from her husband's term policy.

Metric Mouse

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You also need to plan if you BOTH die.  How will your kids do then?  Would you have enough assets that combined with SS they would be fine?

This. Once you have enough assets to cover their life until adulthood, then you can drop the insurance.

Dezrah

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My husband and I are nearly equal earners. There is enough in savings and complimentary life insurance through work that neither of us would suffer a hit to our standard of living if the other passed. We don't carry additional insurance.

If we ever became pregnant, we would get two policies in an instant, regardless of how the work/home/daycare arrangements shake out.

If we're both working, we're also paying for child care and the survivor will need financial help with that.

If the worker dies, the stay-at-home parent will need an income.

If the stay-at-home parent dies, the worker will need to pay for child care.

If we both go, the guardians will need similar levels of support and flexibility.

WerKater

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Term insurance is so cheap that it is silly not to have it when you have kids at home. We had enough that the person left would not need to work and could focus on the kids, etc. Also if we both died they were covered for college, etc.  Term is definitely the way to go and will buy you peace of mind.
Seconded. We currently have no life insurance even though we are not FIRE yet. Our reasoning mirrors yours, ReadySetMillionaire (and we are in a very similar phase of life). However, as soon as we have children, we will get suitable term life insurance (how much and for how long will depend on the size of the stash).

CanuckExpat

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We've never paid extra for life insurance, I think we've always something basic available for "free" through our employers.

Once not working, low expenses and a healthy stash are reasonable enough forms of self-insurance (depending on your situation).

I'm a red panda

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If we ever became pregnant, we would get two policies in an instant, regardless of how the work/home/daycare arrangements shake out.


I'd have the baby first. But I'm a bit pessimistic about how that whole pregnancy thing worked out.

AZDude

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Right now, with zero kids, you do not need it. Once the LO is around, things change. One of you might want to stay home. One of you might scale back work hours/income, to spend more time with the baby. Plenty of stuff could happen. Your thinking and lives change so drastically once you pop out a kid that I would wait until junior is here before deciding this.