Author Topic: Life insurance - Yes or No  (Read 9623 times)

Stasher

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Life insurance - Yes or No
« on: September 25, 2013, 06:38:15 PM »
Living in Canada
Wife and I are 39, two children age 12 and 14.
I currently have a $300k policy on myself and my wife for 260/month and $50k policy on each of the kids for 50/month.
What does everyone else do for life insurance ? If a person has their stash wouldn't that be the policy enough and that 400/month would be best suited invested in my index funds?

Thanks in advance

scottydog

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Re: Life insurance - Yes or No
« Reply #1 on: September 25, 2013, 07:32:38 PM »
We follow the Wealthy Barber's advice for life insurance: which if IIRC is to have enough to cover funeral-related expenses + major debts (e.g. mortgage) and potentially set up an annuity if your spouse's income can't cover living expenses.  We don't have any life insurance for our kids because they don't generate any income.  Once the mortgage is paid off, we'll only need enough insurance to cover the delta between one income and living expenses, and now that we're on the road to mustachianism, it's getting easier to cover those expenses with one income.  Once our assets have grown enough to cover these costs directly, I plan to carry zero life insurance.

The other Wealthy Barber advice is to only buy term life insurance.  I prefer to keep my insurance products separate from my investments.

Stasher

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Re: Life insurance - Yes or No
« Reply #2 on: September 25, 2013, 07:47:08 PM »
Thanks Scotty, that is kind of what I followed when picking a plan. I have no coverage on my home or car loan as my life policy was intended to cover that. But it almost seems silly when I have life ins in my employee benefit package from my employer but this won't be around when I quit my job.

bogart

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Re: Life insurance - Yes or No
« Reply #3 on: September 25, 2013, 08:03:44 PM »
We have in the range of a half mil on me and a tenth that on the hubby (and one elementary school aged kid).  We don't really need it for DH -- he's FIRE and I have 100% survivorship in his pension -- but I figure if he gets run over by a bus, having a small extra and immediately available cushion would be a relief/reassurance in a difficult time, and he also wants to leave something to his adult kids (a goal I agree with!).

It's pretty cheap, total cost of about $900 for the year for what we carry (DH is pricey because he's oldish, I'm pretty cheap).  I may let ours go down over time (get less coverage for myself), but honestly would like to see it put DS through college and perhaps provide a cushion beyond that, were he to lose me early (he gets the life insurance, DH gets my retirement accounts).  And were he, heaven forbid, to be orphaned, I want him well provided for so that the people we have identified as prospective guardians can focus on him and his needs in those circumstances and not perceive a need to cut corners.

Daleth

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Re: Life insurance - Yes or No
« Reply #4 on: September 25, 2013, 08:19:55 PM »
My answer is "Yes, but." :)

I would move the $50k per kid over to you guys for exactly the reason Scottydog said: they don't need life insurance because they don't generate any income. Life insurance is for spouses/parents, to do the following:

- Replace income if an income-earner dies, allowing surviving spouse and kids to make it without that income.
- Replace unpaid work if a household worker dies (I know someone whose wife died, leaving him with two young kids; the cost of hiring someone to do all the childcare, cleaning and cooking that she did is ASTRONOMICAL).

Paying for funeral expenses can be done with life insurance, obviously, but Mustachians probably don't overspend on funerals any more than they overspend on weddings, so especially given the extremely low chance that a child would die, I think it makes more sense to stash $50/mo extra into your emergency fund if you really want to make sure you have enough for the minuscule possibility of funeral expenses. At least that way you still have the money at the end, when your kids (like 99.999999% of kids in this country) survive to adulthood.

And I also agree with Scottydog/Wealthy Barber on the topic of what kind of insurance to buy. Get term life long enough to see the kids through college (20 years?), by which point you will hopefully be completely FI anyway and no longer in need of life insurance.

Stasher

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Re: Life insurance - Yes or No
« Reply #5 on: September 25, 2013, 09:00:31 PM »
Thanks for the replies thus far everyone, along the lines of what I thought. I appreciate the conversation from different points of view.

gooki

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Re: Life insurance - Yes or No
« Reply #6 on: September 25, 2013, 10:33:24 PM »
Thanks Scotty, that is kind of what I followed when picking a plan. I have no coverage on my home or car loan as my life policy was intended to cover that. But it almost seems silly when I have life ins in my employee benefit package from my employer but this won't be around when I quit my job.

Wait wait wait, hold it right there. You have life insurance through your employer? If that's the case, this is what i'd do.

Drop the kids life insurance as already mentioned.
Drop your life insurance.
Does your wife work? If not drop her life insurance as well.

I assume you intend to quit work once you are financially independent? At which point you have no need for life insurance, as you investments are your income source.

travelbug

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Re: Life insurance - Yes or No
« Reply #7 on: September 26, 2013, 03:02:14 PM »
We have life insurance, enough to pay out the home loan and for DH to have a full time carer so he can work for afew years. It costs around $2000pa.

Alot, but it was for peace of mind and paid each year in the hope we would never cash it in to "get out money's worth".

But when we hit FI next year we will cancel it all as it wont matter financially as neither of us will need to work to gain income enough to support our lifestyle.

Spork

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Re: Life insurance - Yes or No
« Reply #8 on: September 26, 2013, 03:07:05 PM »
Yeah, drop the kids insurance.  There's really no reason I can think of for it. 

I only have life insurance through work... and it's fairly minimal.  At the point I reach FIRE: I won't need it.  We'll have enough for both of us to live on... and if one of us dies early that means one person living on the amount budgeted for the two of us.

seattlecyclone

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Re: Life insurance - Yes or No
« Reply #9 on: September 26, 2013, 03:29:54 PM »
It really depends on your situation.

My wife and I don't have kids yet. We're frugal and both have relatively high salaries. This combination means that either one of us could stop working (or die) and the other's salary would be more than enough to cover our typical expenses. We have good start on a retirement stash too. We also each have roughly $100k in coverage provided free from our employers. Why would we need any more life insurance at this point? The free coverage would easily pay for a funeral and some time off work for the surviving spouse to grieve if one of us were to pass away. Even that coverage is not really necessary since we could pay for those things out of savings if we had to. We'd rather build our stash quicker than pay insurance premiums for an unlikely event that wouldn't break the bank even if it did happen.

After we have kids, the calculus changes a bit. Our expenses will probably go up some. If my wife stays home to spend more time raising the kids, then we'll be relying on my salary alone. However, even then I don't think life insurance will be necessary for us. I looked up my online Social Security info. The exact benefit amount depends on your earnings history. For me, the site estimates that if I died right now with kids living at home, each child would each receive about $1,500/month until finishing high school (or turning 18 if that happens later), and my wife would receive the same amount until the youngest child turned 16 (all subject to a family maximum of about $3,500/month). The bottom line is that if I died, my wife decided to stay at home, and she was left taking care of one kid, they would receive about $36k/year from the government until the kids are grown. Being frugal people, that's a little more than the two of us spend in a year right now. With two or more kids in the house, the amount would go up to $42k/year. This should be enough to pay the bills until the kids are grown. The only remaining financial concern would then be whether my wife would have enough money saved to retire once the kids turn 16/18 and the survivor's benefits end. If we don't have enough saved by the time we have kids to support one person's retirement (assuming 18 years of investment gains before the first withdrawal), we will probably decide to buy some life insurance then. Otherwise, we won't.

If we both survive to retire early, we'll already have saved enough to support both of us indefinitely. A death would then be mostly a net gain for the finances, since we would have one fewer mouth to feed and no fewer workers bringing in money. No insurance needed there.

I see you live in Canada. Does the government there have a similar program to US Social Security to pay for surviving spouses and children? If not, you'll be more likely to need to buy your own life insurance.

I'll agree with those who recommend not buying life insurance for your kids, especially at the rate you're paying. They have no income to replace. Do you think your kids have more than a 1 in 1000 chance of dying this month? No? Then why would you want to pay $50 each month for a $50k payout on death?

Stasher

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Re: Life insurance - Yes or No
« Reply #10 on: September 26, 2013, 03:39:35 PM »
Thanks for the replies.

Looking into it more it appears I have a "whole life" policy of sorts.
Spoke with a friend who does insurance and he stated for the wife and I at $300K would only be $40/month for a 10 year Term policy. This saves me $210 a month that I can put into my RRSP , RESP or TFSA and then also cancel the kids policies and put that into an RESP instead. The kids will both be adults and graduated from high school, heck even university before the T10 policy would expire....I be better well into my FI by then also.

MrsPete

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Re: Life insurance - Yes or No
« Reply #11 on: September 26, 2013, 05:40:35 PM »
In my mind, these are the questions that matter:

1.  If you died today, how much would your wife need to 1) bury you, 2) continue living in your current home in your current lifestyle -- your children will be upset enough; don't make them move, 3) educate the children, 4) retire comfortably.  Assume she'd take off a little time from work (we've just had a death in the family, and settling an estate does require some time and effort, even if you ignore the emotional aspects), but then would continue to bring in her current salary. 
2.  If your spouse died today, how much would you need to accomplish these goals?  Since you likely don't earn the same salary, the answer will probably be different. 

When our children were younger and we had fewer assets, we carried rather large policies.  We operated on the assumption that if either of us died, the other would be able to put food on the table . . . but would appreciate help with the big-ticket items like the mortgage and college.  We also assumed that if one of us were to die, the other would be forced to "hire help" for chores that we were currently able to complete between the two of us.  We operated on the assumption that the surviving spouse would never remarry /would never have a second income in the household.  Now that our kids are teens and we have a paid-off house and college expenses in the bank, we've decreased our life insurance -- twice, in fact -- but we still have term policies. 

We have insurance through my husband's work, and I can't remember what we pay for it, but it isn't significant.  We're at the point we could drop it, but I don't know if we will -- his health isn't the greatest, so I might want to keep his insurance. 

We do have a $5000 policy (which would cover a funeral) on each of our children through my work.  It costs $1/month.  It's super cheap 'cause we're so unlikely to use it.   

Changing the subject slightly, don't neglect disability insurance.  In terms of money only, death of a spouse /parent isn't the nightmare scenario -- that'd be awful, but most of us have some insurance money that'd arrive to help.  Disability is the thing that really oughta scare us all.  The worst-case situation is that one spouse is sick or injured and has high medical bills, needs medication or a stay in a rehab facility . . . but also can't work around the house.  This leaves the healthy parent working AND raising the children alone AND taking care of a sick spouse.  None of us could manage that well, especially if the kids were still small.

suntailedshadow

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Re: Life insurance - Yes or No
« Reply #12 on: September 26, 2013, 05:48:11 PM »
The wife and I each have a 1Mil 20 year term policy. At 20 years we won't need it any more as we will be FIRE. She is a STAHM. We decided not to put anything on the kid. We did this because If I die, that will give her enough to live off of indefinitely with a 4% WR. We have her covered because if she were to die I would want to stay home with the kid in the same situation. My work has a minor policy on me they provide for free. Enough to cover funeral expenses. We are both young so for the 20 year the policy is quite cheap, only ~70$ a month combined.

dodojojo

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Re: Life insurance - Yes or No
« Reply #13 on: September 26, 2013, 06:55:12 PM »
Tagging on this, any recommendations for companies?  Or a place to do some comparison shopping.  I received a mail offer from TIAA Cref and I'm interested.  The cost seems pretty good and TIAA is a solid organization...

Having just finished the Boglehead book which advocated long term insurance as even more important than life, I'm also looking for this type of insurance.  Again, recs?

happy

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Re: Life insurance - Yes or No
« Reply #14 on: September 27, 2013, 06:43:57 AM »
As others have said it depends on your situation and what you believe you are insuring for.

As sole parent and breadwinner I carried sufficient life insurance to cover living expenses and some sort of "carer" for my kids for many years. I didn't give it too much thought. When I became Mustachian 2 years ago I re-examined this and realised that with the passing of time and accumulation of assets, my kids would be  possibly better off if I died prematurely, since my retirement years would no longer need to be paid for.  My kids I think were about 16 and 14....if I died I think they could have sold my house, bought an apartment close to school, finished school and still had money to pay for university.  Legally the 16 year old could live independently and I'm pretty sure they could have stayed together.

Cancelling the life insurance was about the easiest Mustachian decision I made.

Your kids don't need life insurance. Whether your spouse or you do depends on your assets, and who is earning what. Just run some scenarios if one or other  or both of you died;   what the survivors would need financially: you need to insure for any shortfall with regard to remaining income or assets.

lackofstache

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Re: Life insurance - Yes or No
« Reply #15 on: September 27, 2013, 07:55:32 AM »
I think it depends a lot on age, situation & assets. If your spouse & children couldn't continue their current lifestyle if you were to pass, I'd carry at least some term insurance until the kids are through school or you feel comfortable that they could continue on.

Even if you FIRE, but eventually make more money & then wanna pass that on to your children, life insurance can be a great way to do that so that they won't be hit with a ton of taxes.

I carry enough term so that if I were to die, my wife could be FIRE & continue on in our current lifestyle. I no longer carry permanent. Though I may if I build enough assets and run out of good places to keep money.

I have permanent on my wife (she is no longer eligible for life insurance, at least for 5 more years) & my kids. If I had it to do again, I wouldn't have converted the term policy my wife had into permanent, but that can't be undone now. All the permanent policies are 20 pay, whole life policies, which are paid in full in 20 years, but stay in force permanently, building some cash value. My idea, after my wife was diagnosed w/ cancer at 25, was that if you get children covered while they're young & healthy, they'll always have the option of getting more insurance IF THEY SEE A NEED for it. I'm trying to give them long term options, even at the cost of delaying my own retirement a bit. At $20/mo per policy, it's not a bad way to go for us. Because of the guranteed insurability option on the plan, they'll be able to increase their coverage as they want after the age of 24. Or if they listen and avoid debt and have no health issues, they can cash the policies out at 25 for the same amount I put into them. Not much, but an extra $5K should help at that point.

Spork

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Re: Life insurance - Yes or No
« Reply #16 on: September 27, 2013, 08:01:14 AM »
Thanks for the replies.

Looking into it more it appears I have a "whole life" policy of sorts.
Spoke with a friend who does insurance and he stated for the wife and I at $300K would only be $40/month for a 10 year Term policy. This saves me $210 a month that I can put into my RRSP , RESP or TFSA and then also cancel the kids policies and put that into an RESP instead. The kids will both be adults and graduated from high school, heck even university before the T10 policy would expire....I be better well into my FI by then also.

Yeah, whole life is a bad deal for pretty much everyone but the insurance agent that sells it.  Most agents have drunk the kool-aide and really think "it's a great investment."  But...  not so much.  Sink that $210/month into your retirement plan.  It won't take long until you are "self insured" for life insurance.

lackofstache

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Re: Life insurance - Yes or No
« Reply #17 on: September 27, 2013, 08:09:41 AM »
Whole life insurance isn't a great investment, but there are plenty of people who, unlike most of the people on this forum, cannot manage their own money; if they have it, they spend it. In certain situations, permanent life insurance (viewed as a bill) is the only way they'll be able to cover funeral expenses. Ideally, as an agent, I'd never sell permanent life insurance except to those that have huge amounts of assets in their later years in life that actually want to pass them down to children & grandchildren. As a human, though, I realize not everyone thinks about money & investments the way most of us here do.

"Buy term, invest the rest" works if you invest it. It doesn't work if you spend it...

huadpe

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Re: Life insurance - Yes or No
« Reply #18 on: September 27, 2013, 08:41:24 AM »
Whole life insurance isn't a great investment, but there are plenty of people who, unlike most of the people on this forum, cannot manage their own money; if they have it, they spend it. In certain situations, permanent life insurance (viewed as a bill) is the only way they'll be able to cover funeral expenses. Ideally, as an agent, I'd never sell permanent life insurance except to those that have huge amounts of assets in their later years in life that actually want to pass them down to children & grandchildren. As a human, though, I realize not everyone thinks about money & investments the way most of us here do.

"Buy term, invest the rest" works if you invest it. It doesn't work if you spend it...

Best thing for people like that is to set up an automatic monthly withdrawal into investments.  I actually have them set up weekly to correspond to my paychecks.  (Also, I may be the last person on earth to still be paid weekly).

Stasher

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Re: Life insurance - Yes or No
« Reply #19 on: September 27, 2013, 09:46:52 AM »
"Buy term, invest the rest" works if you invest it. It doesn't work if you spend it...

I think that sums it up pretty much right there.

Stasher

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Re: Life insurance - Yes or No
« Reply #20 on: October 02, 2013, 09:53:59 AM »
So here is the information I received from my advisor.

To recap, a joint policy for Wife and Me - whole life policy $258/month for $300,000
Children (2 of them) - $50,000 for $96/month

First thing, I will discontinue the children's coverage and put those funds in their RESP instead or my RRSP/TFSA
Second, I have looked into term policies as suggested here
Joint Coverage for wife and I, here are the different scenarios. I plan to be completely FI by the time I am 49 but if I step it up I can do it 5yrs. (we are both 39)
$300,000 Term10 $46 Term20 $61
$500,000 Term10 $61 Term20 $90
$750,000 Term10 $87 Term20 $130

Thoughts or comments would be appreciated.
Cheers

lackofstache

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Re: Life insurance - Yes or No
« Reply #21 on: October 02, 2013, 10:24:49 AM »
I'm not sure how much you need to reach FI, but I'd use that amount as the death benefit so your wife or you can reach it w/o the other and then a 10 yr term if you'll reach FI in 10 years anyway... Then invest the rest.

willn

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Re: Life insurance - Yes or No
« Reply #22 on: October 02, 2013, 10:51:22 AM »
So here is the information I received from my advisor.

To recap, a joint policy for Wife and Me - whole life policy $258/month for $300,000
Children (2 of them) - $50,000 for $96/month

First thing, I will discontinue the children's coverage and put those funds in their RESP instead or my RRSP/TFSA
Second, I have looked into term policies as suggested here
Joint Coverage for wife and I, here are the different scenarios. I plan to be completely FI by the time I am 49 but if I step it up I can do it 5yrs. (we are both 39)
$300,000 Term10 $46 Term20 $61
$500,000 Term10 $61 Term20 $90
$750,000 Term10 $87 Term20 $130

Thoughts or comments would be appreciated.
Cheers

Any of those would be good options--which one depends on your current net worth and income.  I'd think you'd want to at least pay off the house, fund college, and replace your income for a few years.  If your house is paid off, college is funded, and you have a strong jump on retirement savings, then you have at least a start on being self insured.

jrhampt

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Re: Life insurance - Yes or No
« Reply #23 on: October 02, 2013, 11:48:03 AM »
My spouse and I both work, we have a mortgage which is our only debt, and no kids.  If one of us were to die, the other could afford to pay all expenses from the remaining income.  We also have enough assets in accessible taxable accounts to come pretty close to paying off the mortgage if we needed/wanted to do so immediately.  On top of that, we both have life insurance (and STD/LTD) through our jobs - I think mine covers me to $300k+, and provides a smaller amount for my spouse (<$100k).  I'm not sure what my spouse's job provides exactly.  We don't feel we need to purchase any extra at this point.

Daleth

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Re: Life insurance - Yes or No
« Reply #24 on: October 02, 2013, 12:47:02 PM »
Not to be morbid, but what if you both died? Do you have enough life insurance for whoever would be your children's guardians to pay their everyday expenses (food, clothes, health insurance) as well as their school, etc.? Obviously you'd want to set up a trust, with money to be used for the kids' benefit, rather than just giving the guardians cash in hand. But do you have enough money for that, and do you have a trust that says (for instance) "if we both die life insurance goes to this trust and the proceeds of the sale of our house also go in this trust, for the benefit of the kids"?

hybrid

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Re: Life insurance - Yes or No
« Reply #25 on: October 02, 2013, 02:20:03 PM »
Not to be morbid, but what if you both died? Do you have enough life insurance for whoever would be your children's guardians to pay their everyday expenses (food, clothes, health insurance) as well as their school, etc.? Obviously you'd want to set up a trust, with money to be used for the kids' benefit, rather than just giving the guardians cash in hand. But do you have enough money for that, and do you have a trust that says (for instance) "if we both die life insurance goes to this trust and the proceeds of the sale of our house also go in this trust, for the benefit of the kids"?

Oh, I think you are obligated to be morbid in that you should have all the possibilities thought out.  First, not sure what OP assets are, but I will assume getting the kids through university is the goal for them, meaning you need term coverage for ten years minimum.

$258 a month seems awfully high, but there may be cross-border and health differences I am aware of.  I got $250K of coverage for myself for $40 a month at age 41 on a 20 year term plan.  Which I hope to drop in another 6-7 years as the wife will no longer need it and our kids are grown. 

Like everyone else said, drop the coverage on the kids (assuming they are healthy and you don't plan a $25K funeral should the unthinkable occur).  $96 is making some insurance company very happy you are their customer.

Stasher

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Re: Life insurance - Yes or No
« Reply #26 on: October 03, 2013, 06:09:33 AM »
Thanks for the replies everyone.
We have a will completed to control all assets if the need arose.
We have a significant stash already created that would see the kids well taken care of.
We own a successful business that if they choose to sell would set them up for a long time, we also own a rental property and in a partnership in a second business. Our only liability is our current mortgage with $250,000 owing , market value of about $430,000.
I guess I will do a term 20 as suggested here, gives me more flexibility and can be cancelled after 10yrs if I see fit. Just don't know if I will do the 300 or 500, I would hate to say that in case I I cure greater liability as that means a face punch but you never know what may come up.