Whole vs Term Life Insurance

[mustacheme]

Looking for help deciding:
Typically I would shy away from whole life insurance because I'd think I'd be better to invest the money myself. However, we have a complication that makes me less sure.
We bought a 1yr term policy from one of the major insurance companies last year mostly just to help out a friend. A couple weeks ago my husband was diagnosed with chronic kidney disease. We have a few insurance options since he already has a policy prior to this diagnosis. However, after the current policy expires, it is unlikely he'll qualify for life insurance in the future. This is what brings me to the debate on a whole life policy.

Our stats: Married, early 30's otherwise healthy, no children but possible in the future. Husband is currently a student. We live fairly mustachian off of my income and were saving about 50% rate. We have benefits through my work, but the work life insurance requires spouses to be underwritten so he most likely won't qualify in the future.

Option 1: Keep current 100k policy already paid through 12/31 and continue it for up to 10yrs ($10/mo)
Option 2: Upgrade current policy within the next 10 days to up to 250k and continue it for up to 10 yrs ($16/mo)
Option 3: Transfer current policy to whole life $100k (if we pay for 10yrs $209/mo, 20yrs $143/mo or 40yrs $109/mo with no payments after those dates and the typical increases to cash surrender value and total death benefit that come with whole life policies.
Option 4: Transfer current policy to whole life before 5 years, rates would then be set on his age at that time so would increase somewhat from what is listed above for the 10, 20, 40 yr options.

We expect dialysis and transplant within the next 1-2yrs so my leaning is to keep the current policy for the 10 years, maybe bump it up to 250k and invest the difference of what we would pay for whole term.

Thoughts/advice on these options?

[ooeei]

I'm not super familiar with whole life, but a few numbers to consider:

Term Limit 100k over 10 years: 10*120=$1,200
Term Limit 250k over 10 years: 16*120=$1,920
Whole at 40 year rate over 10 years: 109*120 = $13,080

My inclination is to go with the 250k term for 5 years, then re-assess whether transferring it to whole makes sense.  Is that an option?  Or would you have to keep the 100k limit for the 5 years before transferring to whole?

Also, it depends on the rest of your financial picture.  If you currently have $500k in investments and spend $30k a year while each of you makes $60k, the answer is going to be different than for someone with $20k left on their student loans who spends 90% of their salary.

[catccc]

If you have no children, and you can support yourself, why do you need life insurance at all?  I know you said kids were a possibility in the future, but I would make today's decision based on today's situation.

Sorry about the diagnosis.  I hope treatment goes well.

[FINate]

I agree with catccc. Also, sorry for the diagnosis :(

By my calculations if you invested the $16 every month for the next 10 years you would end up with just over $3000, assuming a 10% return.

However, if you decide you still want life insurance then go for the term life, which is actual insurance. Whole life is a poor investment product masquerading as insurance - there's a reason insurance agents love to push whole life and it isn't because it's beneficial for you.

[ooeei]

If you have no children, and you can support yourself, why do you need life insurance at all?  I know you said kids were a possibility in the future, but I would make today's decision based on today's situation.

Sorry about the diagnosis.  I hope treatment goes well.

The advantage to getting insurance now in this circumstance is that he will have guaranteed insurance for up to 40 years, even though he has this condition which would otherwise likely make him ineligible.  Him being ineligible means the actuaries think giving him insurance is a bad deal for the insurance company, which implies it's a good deal for him.  Waiting and getting insurance later may not be an option for them.  It depends greatly on the rest of their financial picture.

Whole life is still probably not worth it, but running a cost/benefit analysis would be worthwhile.  It basically allows them to guarantee insurance for extended periods longer than term would give them.

[Another Reader]

In your shoes, I would go for Option 2.  It's the best compromise.  With chronic kidney disease, it is difficult to predict the progression.  Dialysis and transplant projected in the near term is not good news. 

In 10 years you should be in a much stronger financial position than today and not need the insurance.  However, if your husband should pass on in the interim, especially if he is not capable of working for part of that time before he passes, you will have a large amount of money to make the transition easier financially.

[bearkat]

Sorry for the bad news :-(

I like the $250k option for 10-years if you would depend the payout. I hesitate for the whole life for many reasons, but a big one would be all that money you spend on premiums there is not "really"  available to you should you need it for medical bills or if one or both of you need to spend some time off work.

This is not meant to be rude as i have no experience with chronic kidney disease, but what is the life expectancy after diagnosis? Also does this diagnosis change your decision about maybe having kids in the future?

Wish you all the best in this difficult time.

[mustacheme]

Thank you all for the input. It's a big help to get some objective opinions.
I think we'll bump up to the $250k term life and then we'll re-evaluate our life situation in 5 yrs, but will most likely pass up the whole life.

[Jim2001]

Thank you all for the input. It's a big help to get some objective opinions.
I think we'll bump up to the $250k term life and then we'll re-evaluate our life situation in 5 yrs, but will most likely pass up the whole life.

+1 for "this sounds like the best option".

Also, you said you you don't have kids, but imagine the loss of a loved one and having the OPTION not go back to work immediately because you've got a large cash cushion.  You should also check the policy options, many come with an "Accelerated Death Benefit" rider which means if the covered person is diagnosed with a terminal illness they can claim a portion of the benefits.  It's often between 50% and 75% of the policy face value.  Imagine getting a terrible "terminal illness" diagnosis but having the OPTION to take a portion of the money to use for what ever you want.  You can spend it on expensive experimental treatments or a cruise around the world (either of which might crater your best laid 'stache plans).  Having insurance coverage creates options you won't have otherwise.  Of course, needing to file a claim for any type insurance means something bad has happened, so I don't wish it on anyone.