Author Topic: First baby: is term life insurance worth it?  (Read 1830 times)

Off the Wheel

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First baby: is term life insurance worth it?
« on: July 13, 2019, 06:01:30 PM »
Hello world!

With all the other decisions about our first kid basically sorted (7 weeks left!) I'm now wondering about term life insurance. I would love a measured recommendation, as it seems very dependent on the individual financial situation and risk appetite.

My husband and I are both in our mid-30s, in good health, with no family risks beyond the usual. We both have healthy incomes and could support our lifestyle on either one.

We have two properties, and about $600K in equity in them. We also have investments of around $300K.

The only way I could see it making sense after reading through some previous forum posts is if we were both to die (lovely) and leave our child, but then we do have family who could take the baby in without unreasonable financial pressure.

So... term life insurance? If we were to do it, I imagine we would pick one of the two of us (perhaps the one with the lower premium), and get a $250K policy for 10 or 20 years.

ender

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Re: First baby: is term life insurance worth it?
« Reply #1 on: July 13, 2019, 06:04:59 PM »
We have policies on both spouses. I figure that if either dies unexpectedly, there will be additional costs that need covering.

You can support your current lifestyle but what about a lifestyle if one spouse wasn't around? That's what you need to consider. Will you have extra daycare costs? Etc.

ReadySetMillionaire

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Re: First baby: is term life insurance worth it?
« Reply #2 on: July 13, 2019, 06:30:56 PM »
My wife and I have term life insurance in the amount of our mortgage, sonís anticipated college costs, and about 20 years of expenses. We will let it expire once we are self-insured.

Moral of the story is to base this on expenses, not income. Insurance agents will coax you into trying to replace Income, which will probably leave you significantly over-insured.

lhamo

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Re: First baby: is term life insurance worth it?
« Reply #3 on: July 13, 2019, 08:06:08 PM »
Check and see what your social security survivor benefits for surviving spouse + kids and/or just surviving kids would be (their guardians would get the payments on their behalf).  You might still want to get a bit of term insurance if the rates are low, but for many people in the US with a large stash the SS benefits make it unnecessary.

terran

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Re: First baby: is term life insurance worth it?
« Reply #4 on: July 13, 2019, 08:56:58 PM »
Can each of you independently support yourself and your child without the income or child care the other will provide? If not then you need to buy term life insurance in an amount that will replace the necessary portion of the lost income and pay for the help you'll need at home to continue earning that income. You might add some cushion in there to help pay for final expenses and/or give some breathing room while you're grieving. Also add in what you'd need with more kids if you plan to have them so you don't have to go back for new policies. Term insurance should be pretty cheap.

Also look into what you'll get from social security as that should reduce how much life insurance you'll need. A surviving spouse with children should get a monthly payment until the children are 18. You can create an account at https://ssa.gov to see what that would be for each of you.


Abe

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Re: First baby: is term life insurance worth it?
« Reply #5 on: July 13, 2019, 09:14:54 PM »
We have a term life insurance for me (I'm the higher earner) that would cover daycare + college + mortgage on house. That way my wife would only need living expenses, which are a small fraction of her current salary alone. We could probably cover everything except the mortgage without life insurance, but the cost is negligible to us now compared to the emotional cost of her being alone and having to worry about the above expenses. Life insurance to some extent is a combined financial + emotional decision rather than a purely financial one.

Freedomin5

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Re: First baby: is term life insurance worth it?
« Reply #6 on: July 14, 2019, 04:39:11 AM »
We have insurance on both. While we can live on either of our salaries, if one of us were to die, we may incur additional costs in childcare (as the surviving spouse would need to continue working) and funeral costs. We also wouldnít have the second income to continue investing in our retirement fund and our childís education fund, so the insurance is designed to provide for that as well. Basically, the last thing we want the surviving spouse to have to worry about in the midst of their grief is finances....just to save a few dollars a month.

ericrugiero

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Re: First baby: is term life insurance worth it?
« Reply #7 on: July 14, 2019, 07:42:45 AM »
We have term insurance on me that would make my wife (who stays home with the kids) FI. We donít have any term ins on her but Iím thinking we should add it.

In your shoes I would consider a 10 year term policy that would make the survivor FI. Should only take a few hundred thousand since you are in pretty good shape already.

Imma

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Re: First baby: is term life insurance worth it?
« Reply #8 on: July 14, 2019, 11:18:40 AM »
We have term insurance on me that would make my wife (who stays home with the kids) FI. We donít have any term ins on her but Iím thinking we should add it.

In your shoes I would consider a 10 year term policy that would make the survivor FI. Should only take a few hundred thousand since you are in pretty good shape already.

I think the SAH parent's life insurance might be even more important than the working spouse's insurance. If the working spouse would pass away, usually there is some sort of survivor benefit or pension available. The SAH spouse could potentially supplement this income with a parttime job during school hours.

When the SAH spouse dies, in many cases the working spouse would not qualify for any kind of benefit or pension (this obviously depends on local legislation) and they now have a big additional expense in the form of childcare, or they need to go parttime at work and their income will be much lower. I talked about this with friends recently and they casually said something like "oh but the grandparents will surely help out with childcare in that situation" but you can't plan your future around that.

We both have life insurance for the amount of our mortgage and I will soon quality for a pension at work that would make my s/o FI even without the life insurance. Our insurance was pretty cheap - I worked out that over the course of 30 years we'll pay about Ä2500 in total. That is 100% worth the peace of mind.

AMandM

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Re: First baby: is term life insurance worth it?
« Reply #9 on: July 14, 2019, 12:04:55 PM »
I think the SAH parent's life insurance might be even more important than the working spouse's insurance. If the working spouse would pass away, usually there is some sort of survivor benefit or pension available. The SAH spouse could potentially supplement this income with a parttime job during school hours.

When the SAH spouse dies, in many cases the working spouse would not qualify for any kind of benefit or pension (this obviously depends on local legislation) and they now have a big additional expense in the form of childcare, or they need to go parttime at work and their income will be much lower. I talked about this with friends recently and they casually said something like "oh but the grandparents will surely help out with childcare in that situation" but you can't plan your future around that.

Totally agree with this. Plus, the SAHP is usually the one doing most of the frugal tricks that make a single-income life feasible. The working parent might not be able to get as much bang for the bucks he/she makes.

seattlecyclone

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Re: First baby: is term life insurance worth it?
« Reply #10 on: July 14, 2019, 12:39:15 PM »
Do you have disability insurance? This is often overlooked. Depending on the nature of the disability, this can be worse financially than death. Dead people don't need food or medical care or assistance performing basic life tasks. People with severe disabilities do. Even if your spouse might be okay without life insurance in the event that you died in a car crash, you might have a much harder time without disability insurance if the car crash instead paralyzes you from the neck down.

Freedomin5

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Re: First baby: is term life insurance worth it?
« Reply #11 on: July 14, 2019, 03:03:39 PM »
Do you have disability insurance? This is often overlooked. Depending on the nature of the disability, this can be worse financially than death. Dead people don't need food or medical care or assistance performing basic life tasks. People with severe disabilities do. Even if your spouse might be okay without life insurance in the event that you died in a car crash, you might have a much harder time without disability insurance if the car crash instead paralyzes you from the neck down.

Yes, disability insurance and critical illness insurance. What if one of you gets cancer? Health insurance will cover treatments, but critical illness insurance replaces income. The only time this may not be necessary is if you are already FI since income would no longer depend on working/salary.

calimom

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Re: First baby: is term life insurance worth it?
« Reply #12 on: July 14, 2019, 06:55:53 PM »
Widowed mom of 3 chiming in here to say some term life insurance is not a bad idea. You guys sound in great shape financially, but adding an extra layer of security can be a set it and forget it type of expense. An investment you make that you hopefully will never need to take advantage of, if you know what I mean.

I was a SAHP at the time of my husband's death a dozen years ago in a car accident. There was a policy in the amount of a year's salary from his job and an additional payout from an uninsured motorist claim - he was killed by an indigent drunk driver. We had no debt and decent savings, but staying afloat required a massive life change. Men and women I've met IRL and online have detailed experiences of being wiped out by a long illness, most particularly cancer where a spouse needs extensive care beyond what medical insurance pays, and the grieving spouse may have left a job, or needs their own therapy and respite after the fact. It's rare the surviving spouse is jumping up to return to work the day after the funeral.

As @lhamo mentioned upthread, check your SSA report. Survivor's benefits are surprisingly generous, and long term disability payments for high earners are not bad. But kids are expensive, yo! Daycare, orthodontia, college costs money. I always recommend erring on the side of caution on this one.

Catbert

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Re: First baby: is term life insurance worth it?
« Reply #13 on: July 15, 2019, 11:11:24 AM »
In deciding much/on whom remember to consider added costs with only one spouse.  Would more home maintenance be paid labor rather than do-it-yourself?  Eat out more because only one parent?  More child care costs?


Term life insurance is pretty cheap for young healthy people.  Checking out SS is a great tip.  Your children would be entitled but the remaining spouse is unlikely to collect if still working.  If you earn over 15K or so (adjusted yearly) you start losing SS payments.

MsPeacock

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Re: First baby: is term life insurance worth it?
« Reply #14 on: July 15, 2019, 01:58:24 PM »
When the littles were little we figured cost of one years salary, cost of paying off the house (so that a death wouldn't also mean loss of the family home), cost of full-time nanny for 5 years, and cost of college as being the amount we were comfortable with. Now with increased net worth I recently cancelled the life insurance because my kids are old enough that most of those issues wouldn't apply (e.g. college savings is set, enough money is set aside to pay off house, and they wouldn't need a nanny).


ETA - my policy was 500K and more than double the cost of my husbands 1,000,000 policy because my father had died prior to age 65. My health status was fine (and continues to be fine). I found this to be a fairly frustrating issue when we shopped for policies and my insurance cost was, IMO, very high, so there was great incentive for me to cancel once I had 500K in my stash.
« Last Edit: July 18, 2019, 02:08:49 PM by MsPeacock »

socaso

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Re: First baby: is term life insurance worth it?
« Reply #15 on: July 15, 2019, 04:27:12 PM »
We got 20 year term policies when we were expecting our child. We used the old 10x your annual salary math to come up with our policy amounts. We chose 20 year term because by then our child will be a legal adult. We have already discussed it and when these policies run out we will get new term policies but likely for a smaller amount.

Laura33

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Re: First baby: is term life insurance worth it?
« Reply #16 on: July 16, 2019, 09:21:22 AM »
I strongly recommend some to cover the unknown-unknowns.

First, you guys are in good shape.  If you could survive forever on one salary, then you don't *need* anything.  But wouldn't you want the survivor to be able to FIRE on schedule instead of now living paycheck-to-paycheck, or having to cut back a ton to get back on track? 

To my mind, though, the bigger issue is flexibility and lack of worry.  The reality is that you can't possibly know how the survivor will feel, what s/he will want to do, or how the financial landscape will change.  Maybe the survivor will want to continue working full-time, which might push your expenses up if you now need the flexibility of a nanny.  Or maybe the survivor will want to take 6 months off, or drop down to part-time for years, to manage the grief and kids and probate and all of that, so now you need income replacement.  Or maybe the survivor wants to move back to family for the extra support, which requires moving expenses and maybe a salary cut or higher living costs or whatever.

The point is, you cannot know what the survivor is going to want to do -- but you want the survivor to be able to make all of those kinds of decisions over time, without any worry about paying the bills or feeling like they have to jump into major lifestyle changes.  Dealing with the death of a spouse/parent is almost inconceivably hard, and it totally fucks with your ability to make logical, rational decisions.  And it's hard to describe that until it happens; believe me, I've seen my extremely competent, frugal, FI mother go into a complete tailspin and become incapable of even managing a decision tree when her husband died.  I am not exaggerating.  This woman runs her own business, is worth several million dollars, has been FI for several decades, makes a ton of money, has very low expenses, always handled the finances, etc.; I swear, she is the poster child for financial competence.  And yet a month after he died, she was sobbing at my table that she didn't know how she was going to get by without his income, had to ask me to call the pension company to figure out what she needed to do to get the payments started, needed me to go to SS with her to set that up, etc.  It was shocking.  Really and truly, the rational part of your brain is just overwhelmed with all those panic hormones, and logic goes out the window.  And that's when bad decisions get made.  Heck, the woman who my mom bought her house from back in the '70s had just lost her husband and thought she couldn't afford to keep the house, and then when she came to her senses regretted that choice for decades.

So.  If you want to minimize the risk that the survivor does something life-alteringly stupid, do whatever you can to minimize any immediate financial pressures so they feel like they can at least afford to wait a year or two before making any big changes.

formerlydivorcedmom

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Re: First baby: is term life insurance worth it?
« Reply #17 on: July 17, 2019, 10:07:09 AM »
We live on about 70% of my salary and save the rest of mine and my husband's.

I estimated how long it would take me to retire if my husband died and his income went away (because then I will be saving less).  The answer was several years longer.  I promptly got a 15-year term life policy for him.   

There is a much larger policy on me, because my husband's salary doesn't cover our lifestyle.

Given that we're both still healthy and have continued saving at a good rate, in a few years we will be overinsured.  I'm not going to change things, though.  One of my good friends was diagnosed with stage-4 cancer in his mid-30s.  By the time his fight ends, they will have drained a lot of their savings.  He had to quit his job a year ago because he isn't healthy enough to work consistently.  His wife is about to quit hers because she is too emotionally and physically exhausted to handle that plus raising their kids plus taking care of him - and she wants to spend his last year together.  He had no concerning family history, and he was young and healthy, and then one day he wasn't.




DadJokes

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Re: First baby: is term life insurance worth it?
« Reply #18 on: July 17, 2019, 10:33:48 AM »
My wife and I both have term insurance, in the amount of $500k, which is about 10x each of our incomes. Our thought process is that we wanted to be able to invest that payout and live off of the growth as a means of replacing that income for as long as necessary. If one of us dies, things are going to be hard enough. I certainly wouldn't want to have to worry about finances too.

My wife's insurance is there for as long as she works for the same school, and mine is a 20 year term, so it should expire about 10 years after we hit financial independence. I think the combined price of $50/month is well worth the peace of mind provided.

A Fella from Stella

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Re: First baby: is term life insurance worth it?
« Reply #19 on: July 18, 2019, 03:32:29 PM »
Term is great. 10x your income for 20 years is a good way to go. If you're the at home parent, then at least enough to pay off the house and hire someone for a couple years, because at home parents mitigate a lot of costs, so replacing them costs a lot.

A $250,000 policy is a fine place to start, but you'll get more for your money at higher amounts. I was quoted something like $350 for $250,000, $540 for $500,000, and $800 for $1,000,000.

Fuzz

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Re: First baby: is term life insurance worth it?
« Reply #20 on: July 18, 2019, 04:40:26 PM »
Hopefully, it's not worth it and just a waste of money. But if you do use it, you'll be glad to have it. The cost should be negligible relative to benefit--like $30/month for $500K or something. Isn't a terrible addition to the monthly expense.

TomTX

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Re: First baby: is term life insurance worth it?
« Reply #21 on: July 20, 2019, 10:25:02 AM »
Check and see what your social security survivor benefits for surviving spouse + kids and/or just surviving kids would be (their guardians would get the payments on their behalf).  You might still want to get a bit of term insurance if the rates are low, but for many people in the US with a large stash the SS benefits make it unnecessary.

Yep, I did the calculation earlier this year and I'm dropping my life insurance.

Social security survivor benefits + early access to (partial) pension would cover it.

La Bibliotecaria Feroz

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Re: First baby: is term life insurance worth it?
« Reply #22 on: July 20, 2019, 11:11:39 AM »
Check and see what your social security survivor benefits for surviving spouse + kids and/or just surviving kids would be (their guardians would get the payments on their behalf).  You might still want to get a bit of term insurance if the rates are low, but for many people in the US with a large stash the SS benefits make it unnecessary.

Yep, I did the calculation earlier this year and I'm dropping my life insurance.

Social security survivor benefits + early access to (partial) pension would cover it.

Pension survivor benefits can be huge, especially if you are a state or local government employee with kids.

This is a good reminder that I need to consider whether the insurance my husband has through work is adequate or whether we should have term life on him--I'm thinking the latter. We live in an HCOL and I'd want to keep the house (God forbid). We might need more on me, too. I have an old $100K policy but half of it is earmarked for my ex under our divorce decree (he has one for me, too).

IMO an extra layer of security is worth a few dollars if you aren't completely FI.

Agree that term life insurance on a SAHP or non-breadwinning spouse is super important! (Geez, that's the other reason I need life insurance on my husband... he's the after school parent.)

I remember being curious about this when I was maybe 8--I must have overheard my parents talking about their life insurance. I asked my dad why my mom needed life insurance. I knew she made about 1/3 as much as he did, maybe less. She was a teacher, so she did almost all the parenting. Dad replied very seriously that if my mom died, the first thing we would need to do is hire a housekeeper.

I will say this for my dad, he never bullshitted us!

TomTX

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Re: First baby: is term life insurance worth it?
« Reply #23 on: July 20, 2019, 11:48:36 AM »
Yes, we're keeping the (term) life on my wife - about 4 more years on the policy. No pension benefit if something happens to her.

ToTheMoon

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Re: First baby: is term life insurance worth it?
« Reply #24 on: August 01, 2019, 01:18:39 PM »
@Off the Wheel  What did you guys end up deciding on?

When we were quite pregnant we finally wisened up and got ourselves some term insurance - I got denied initially for being considered obese (the nurse had forgotten to tick off the box that I was pregnant!)  Once that was sorted it was easy business.  Fast forward a few years and I got a cancer diagnosis (I am fine now) but was I ever glad that we had signed up for that insurance - at least I knew my family would be okay financially if the worst were to happen.