Life Insurance: Do I need it?

[CheapScholar]

As my net worth increases, I’m hoping to further use my position of strength. One issue that’s come up is life insurance. My gut tells me I don’t need life insurance (I need to do more research) and my wife seems pretty adamant that we keep our policies. A little about us:

I’m 40, wife is 38. Our son is 12. We will not have more children.

Paid off house in LCOLA valued at $265,000. Property taxes are $1,500 per year.

I make about $80,000.

Wife makes about $75,000.

Assets:
Home - $265,000
My retirement accounts - $280,000
Wife’s retirement accounts - $ 250,000
Cash/brokerage - $35,000
529 account - $32,000
My dad’s 529 account for my son (technically not OUR asset) - $12,000

No debt other than about 20k on a car my wife recently purchased.

Do not have a precise annual budget, but we are not big spenders. My wife did buy a new car and sometimes buys nice clothing for work, but I wouldn’t describe her as a big spender.

My plan is to work 6-10 more years, making sure my son can get through college debt free. My wife will probably work another 15 years at least. We have life insurance bundled with State Farm home and auto. My wife worries way too much, and is too conservative with financial decisions. Specifically, she refuses to let me enroll us in my work’s HSA plan option and insists we keep the PPO even though all of us are in great health.  I’m not saying I want to cancel my life insurance today, but I recently mentioned we are probably getting to the point net worth wise where we won’t need the life insurance (especially since we recently paid off the mortgage and money is piling up). Naturally, she shot this down. One reason I’m not fighting back much is that she agreed we won’t need life insurance once our son is 18 and our net worth will be much higher.

Any ideas as to if someone in my position needs life insurance? Again, I’m not saying I’m at the point where I don’t need it, but I’d be interested to hear opinions. Also, open to insurance company recommendations.

*added: I do have a free $25,000 life insurance policy through work in addition to my State Farm policy.

[gooki]

At the minimum i'd drop it down to one parent. If your wife is the one concerned, the keep your policy and eliminate her's.

[cool7hand]

I'm reading what I would call positions, but I'm not seeing the underlying reasons behind the positions or any calculations to support the positions. For example, you seem to agree that more money is needed to put your child through college. If either of you gets hit by a bus tomorrow, how short would the remaining spouse be in the money necessary for this goal? Same question if there is an unexpected health event? You might consider the books Getting Past No and Getting To Yes to help improve communication.

[ender]

Check out ssa.gov to see what your survivors benefits are too.

Your son is getting closer to aging out of that, but for anyone with a younger kid, that can provide a ton of income - close to $57k/year for my wife if something happens to me.

When we have kiddo #2 this year it'll go up to 67k (the max based on my income) until kiddos start turning 18.

Between that, our existing investments, and work life insurance it's close to enough to trivially cover my wife if something happens to me. We do have life insurance on both me/my wife because it's pretty cheap but we're getting close to not even needing those policies.

[darknight]

Licensed life/health insurance agent here.. Not currently in the business but still licensed- For the marginal cost of a "term-life" insurance policy I consider it an easy buy. I look at it like a win-(more)win. If I do die before the kids are out or house is paid off, they get school paid for, a house paid off to live in and my wife won't be in any financial stress.. If I don't die, then I win (more) and can complain about paying 20 yrs on a term policy that "Wasn't worth it" lol.

Figure out a price you're ok with per month (I put mine around $50) and shop from there.

[DeniseNJ]

You need to post what your annual expenses are in order to know whether you have enough money not to need insurance.  I calculated how much money we spend annually minus how much dh would get annually if I die tomorrow. The difference (times 25) is what my policy needs to cover.  So if he would spend 60K per year but would get 20K from my pension if I die tomorrow, he needs 40K per year to make up the difference.  Do we have a million dollars to generate 40K at 4%?  If we only have 500K then I need a policy for another 500K.

That's super rough math but you see what I mean.  But if he will have a pension of his own in 5 yrs, then I have to recalculate then.  Even if he has a pension coming in 6 months, I'd wait the 6 months and recalculate then. Don't cancel until you're sure your assets will generate enough income combined with other income to cover expenses.

[CheapScholar]

You need to post what your annual expenses are in order to know whether you have enough money not to need insurance.  I calculated how much money we spend annually minus how much dh would get annually if I die tomorrow. The difference (times 25) is what my policy needs to cover.  So if he would spend 60K per year but would get 20K from my pension if I die tomorrow, he needs 40K per year to make up the difference.  Do we have a million dollars to generate 40K at 4%?  If we only have 500K then I need a policy for another 500K.

That's super rough math but you see what I mean.  But if he will have a pension of his own in 5 yrs, then I have to recalculate then.  Even if he has a pension coming in 6 months, I'd wait the 6 months and recalculate then. Don't cancel until you're sure your assets will generate enough income combined with other income to cover expenses.

With our house paid now off our annual expenses are between $30,000- $40,000 depending on how much we spend on travel per year. We rarely eat out, I keep all of our bills low. With the exception of the new Toyota my wife purchased we are very frugal people.

I get what you’re saying, but it’s really not an issue of math for my wife since she loves her work and plans to work well into her 50s.  If I died then she’d inherit my retirement accounts, receive the $25,000 work life insurance payout, and get the SSA survivor benefits for my son (I’m working on figuring out what this would be). With our paid off home, those payments, and her income, her and my son would be totally secure.

Another thing I did not mention in my original post is our inter-generational wealth. My father is 68, worth about 1.5m, in great health, and still working and earning 6 figures. I am an only child, as is my son. If I died then my son would be my dad’s sole heir. And, my dad wouldn’t let his only grandchild want for anything. Of course, my dad’s health and future is not guaranteed either.

When I mentioned to my wife the possibility of canceling the life insurance policies her initial rebuttals were things like “what if you died and I wanted to take a year off work?” Or, what if our son got into Harvard or wanted a car?  The time off work to care for our son argument I can understand. But the rest of her points were standard bullshit worry and I’m sure she just wants life insurance because it’s “one of those things responsible people do.” 

[Tester]

I don't see the cost of life insurance to be able to say anything.
Would removing life insurance cost boost your saving a lot?
Would removing it generate long discussions in your family?

I am relying on life insurance through work, at around 500k I think.
I added my wife there too, as it was "worth it" for me.
In our case I am the only earner, we are at 550k net worth, out of which 270k in investments, the rest in Zillow estimated equity.
Our expenses are much bigger unfortunately.
43 years old for me, 41 for my wife, 9 and 3 year old kids.

[srad]

When I mentioned to my wife the possibility of canceling the life insurance policies her initial rebuttals were things like “what if you died and I wanted to take a year off work?” Or, what if our son got into Harvard or wanted a car?  The time off work to care for our son argument I can understand. But the rest of her points were standard bullshit worry and I’m sure she just wants life insurance because it’s “one of those things responsible people do.”
[/quote]

Maybe I've been another sucker who's been sold by a slick suited insurance agent into believing, if i die unexpectedly, I will know my family will be taken care of.  Term life insurance is cheap.  Don't be cheap.  You should look into what a 250k to 500k policy would cost.  It won't be more than 50 a month for the 500k.

And with your dad's money, no guarantee at all you'll be getting it or when,,  Insurance is for the now. My FIL was 10k a month (average area), and my grandma is currently at 26k a month (she is in a very HCOLA).  That will put a quick hit in his 1.5mm.  Not to mention, if the estate laws get changed,  Who knows what percentage the government will be taking on any amount over 1mm.

[CheapScholar]

I don't see the cost of life insurance to be able to say anything.
Would removing life insurance cost boost your saving a lot?
Would removing it generate long discussions in your family?

I am relying on life insurance through work, at around 500k I think.
I added my wife there too, as it was "worth it" for me.
In our case I am the only earner, we are at 550k net worth, out of which 270k in investments, the rest in Zillow estimated equity.
Our expenses are much bigger unfortunately.
43 years old for me, 41 for my wife, 9 and 3 year old kids.

I don't see the cost of life insurance to be able to say anything.

My current $250,000 term policy has an annual premium of $295. A similar plan for my wife with slightly less premiums. But, still an annual cost of nearly $600.

Would removing life insurance cost boost your saving a lot?

No, but I like saving every dollar I can and don’t like paying for things I don’t need. I’d rather put that $600 in a 529.

Would removing it generate long discussions in your family?

I don’t think it would generate long discussions once the decision was made. I’ve been in the FI community for about 8 years and was super frugal before that. My wife is generally on the same page (with the exception of her fancy new Toyota) and is supportive of me retiring early. But, to your point, it’s probably better for me to just drop it and pay the life insurance for 6 more years until my son is 18.

[FLBiker]

I'm in a similar boat.  I stopped carrying life insurance on my wife several years ago (once our daughter was 2 and in pre-school).  I currently have a 2x my salary plan (so around $160K) for $20 a month.  It makes her feel better.  The reality is, we're basically at our FIRE number, so I don't need life insurance.  I'm changing employers in a couple of months, and I'm not planning to get any life insurance (of course, I'll talk to her about that first).  She understands, though, that we are very close to financial independence, so I think she'll be fine.  Our investments are a little over $1.2 million.  I'm not sure about our expenses (we moved last year from the US to Canada) but I think they're around $50K.

I think the big thing in her mind is being able to pay off the house.  If that's still important to her, I'll get another 2x my salary plan.

[katsiki]

My current $250,000 term policy has an annual premium of $295. A similar plan for my wife with slightly less premiums. But, still an annual cost of nearly $600.

But, to your point, it’s probably better for me to just drop it and pay the life insurance for 6 more years until my son is 18.

I would keep it at that price point.  Also, I would second what ender mentioned above knowing the SSA benefits for your family / situation.

[ericrugiero]

You could shop around and probably save a little on your premiums.  I pay about $200/yr for $400K coverage with a company I found through select quote.  That, plus $200K through work, SSA and our savings would put my wife in a very solid position.  I would be in a weaker financial position if something happened to her but I could still quit work and take care of the kids while doing some side hustles. 

In your shoes, I would keep the term insurance.  It's not that much money to give each other some peace of mind.  You are still a little ways away from being FI.  Once you hit your FIRE number, it would make sense to cancel the term insurance and be "self insured". 

[ericrugiero]

... My wife worries way too much, and is too conservative with financial decisions. Specifically, she refuses to let me enroll us in my work’s HSA plan option and insists we keep the PPO even though all of us are in great health....

You might want to run the numbers on the HSA vs PPO and show to your wife. I did this when my company offered both options.  I did three cases (numbers are from memory so they may not be exact.  You should run your own numbers):
-  Best case:  We have zero medical expenses.  We saved money on insurance cost and put the difference into the HSA account.  Savings ~$1800/yr insurance cost.
-  Medium case:  We have moderate medical expenses.  We saved money on insurance cost but pay more for the medical expenses because of the larger deductible.  PPO was a few hundred dollars cheaper. 
-  Worst case:  We have major medical expenses and hit max out of pocket.  This turned out to roughly break even.  The out of pocket max was higher with the HSA plan but the insurance cost offset a lot of this.  Also, paying for the expenses from the HSA meant we paid with TAX FREE dollars so there was a savings there (at a 20% marginal tax rate you can save ~$1000 on a $5000 bill by eliminating taxes). 
My calculations for my specific situation showed that the HSA was cheaper in lots of cases and at worst was a few hundred dollars more.  Switching to a high deductible plan has saved us thousands over the years.  There has been one year that we might have lost a few hundred dollars.  Every other year we have saved $1-2K/year.  One benefit I didn't calculate is that I could use HSA money for braces which means they are tax free.  That was a considerable benefit I didn't calculate initially. 

The big down side of a high deductible plan is you have to pay larger chunks out of pocket.  By investing in an HSA you have enough saved to pay those larger chunks.  I started by just investing the difference between the monthly insurance cost.  After reading about HSA's I have been maxing it every year.  We now have enough in our HSA to pay our max out of pocket for 2-3 years.  If you can't tell, I'm a big fan of HSA's.  There is a reason they are listed so early in the investment order thread.
 https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Seeing the numbers might ease your wife's mind.  Maybe you can compromise and keep the term insurance while switching to a high deductible plan with HSA. 

[DeniseNJ]

We have $900K in liquidy assets. That will only generate 36K annually.  That's not even close to what dh would need, in addition to his salary, to live on currently with college expenses and whatnot. So I have life insurance. For me it's really that simple. When the kids are out of college, the math will be different.  When dh is eligible for a pension, the math will be different.  But today, with our current expenses, 36K plus his salary is not enough for him and our two college age kids.  And if he got ill and couldn't work and had to live on disability, they'd all be screwed. (They'd all be screwed without me anyway though. :) )

[yachi]

I didn't see mention of social security survivor benefits.  If you would die, your spouse caring for your children under age 16 gets a monthly benefit, as do your children under age 18.  The benefits are based on your earnings history.  When I first looked into it, the amount was much more than I expected.

[iris lily]

OP, $295 annual cost to give your wife peace of mind is reasonable. Dont quibble.

It may be true that when she sees your calculations of SSA benefits in the event of your death, she will relax. If you to have a talk about that then she may not be aware of it.

Her concerns seem reasonable to me especially when you illustrated her concern with her agreement that when your child reaches 18 you can drop the insurance.

Dude, it’s $295 a year. It buys your conservative wife Sleep at night. Give her that.

[DeniseNJ]

Don't let your kid turning 18 be a deciding factor.  The SS benefit will end when your kids turn 18 both for kids and spouse. And kids don't magically become cheaper (or grow up) when they turn 18. Every year look at how much dw would need if you died tomorrow and add up your funds. If they don't come out to more than 25x the needed amount, you need insurance.

[ender]

OP one thing you might do is look up a few quotes.

$250k and $295/year is pretty high. That's almost what I pay a month for $750k life insurance.

If your term you want it is pretty short (say 10 years or 15 years) I'd just do some quotes. You can probably decrease your cost of life insurance while adding coverage, unless you have health issues.

Of course if you do this, make sure you wait until you have the new coverage before cancelling :)

Don't let your kid turning 18 be a deciding factor.  The SS benefit will end when your kids turn 18 both for kids and spouse. And kids don't magically become cheaper (or grow up) when they turn 18. Every year look at how much dw would need if you died tomorrow and add up your funds. If they don't come out to more than 25x the needed amount, you need insurance.

Even OP's super financially conservative wife doesn't think they need life insurance post kids turning 18.

We likely won't have life insurance once our kids start turning 18 either, because at that point I hope to be happily FIRE'd.

[CheapScholar]

Update on my life insurance question from 6 months ago.

First, I should mention I just started a new job with a 25% salary increase. My wife did finally agree to enroll in the HSA plan with my new job after a pleasant discussion, running some numbers, and watching some YouTube videos on the subject.

And, we canceled the life insurance policies in the fall. Again, this was after good discussions and me doing some very heavy research on the social security survivors benefits. I would encourage people to look into their SS benefits and consider their life insurance needs, especially for people like me who don’t have large families, have a paid off home, and haven’t seen lifestyle creep as you get close to your FIRE number. I did agree to pay for a $50,000 life insurance policy through work for a couple dollars per paycheck as a compromise. But, I plan on quitting that next year since with my new salary I will probably bank $70,000 in 2022.

[gooki]

Smart move.

[elaine amj]

Sounds like it worked out well. It totally makes sense to consider social security survivor benefits in your calculations. We do often forget about that.

Before that I insisted DH be covered with enough insurance that if I didn’t work another day, we’d be fine. Grief hits people differently and I did not want to be in a position of being forced to work if I wasn’t ready. And then it was only pennies more to upgrade the coverage so we did.

DH decided he felt comfortable supporting the children with his paycheck (I did point out housekeeping and childcare) and did not feel he would need any extra. So we did not buy life insurance for me.

We ended up cancelling the life insurance after we had enough that the other person could be FIREd.

Of course, a couple of years later he got diagnosed with cancer. It would have been nice to have the life insurance lol. Oh well - we didn’t need it by then and don’t need it now.


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[terran]

When you say you cancelled your life insurance, did you do anything active or did you just stop paying? That time is approaching for us.