The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: bluecheeze on April 29, 2014, 05:25:59 AM
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After reading through this site I have started thinking about where I can make cuts.
I currently pay $60/month for supplemental life insurance for myself (5x salary on top of company 3x salary), and supplementary short term disability for me AND wife.
Reason I signed up was because it just seemed so cheap. We also currently live in a more "hostile" country in the Middle East. ie- we live in a fully secured camp with armed gaurds and 4ft thick concrete walls surrounding.
Is $60 per month worth the insurance? To me its really just a gamble- if I was to be killed my wife would win the lottery. Her portion of the disability insurance was only $6/month so I figured in the off chance scenario of a rogue terrorist or road bomb and we both survived (God forbid that happens) it would take care of us.
Thoughts?
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Do you need the insurance? It's $720/ yr for $500k if you're making $100k/yr, implying a 1.4/1000 chance of you dying per year. Do you feel lucky? If I thought my odds of dying were lower than that and I didn't need the coverage, I'd ditch it. I'd probably keep the disability.
Edit: I thought it was $60 for life and $6 for disability when I wrote that. What's the actual breakout?
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I was going to tell you you're paying too much for the life insurance until you explained about your situation. It's worth shopping around if you have other options for the life insurance. You might be able to do better. But, you can probably be sure that the work plan will pay out in the event of your death; something from the States might or might not.
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I guess I don't really need the insurance. I haven't ever needed any insurance or any insurance for that matter- health, house, car. Just always assumed it was the thing. Seems like its one of those "whatever helps you sleep at night things" - no right or wrong answer?
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This really depends on your situation. For example, I am the main bread winner in the house. My husband earns about 40% less than I do. I have enough insurance for him to take some time off work if I died and pay off any debts, that might transfer to him. That's it. I don't have enough to pay off the house, because it makes enough in monthly income to cover every expense but maintenance.
Earlier in my career, I carried a lot more insurance because my parents had co-signed private student loans with me. At that time, I had a large enough policy to cover the balance for the loans. Once those got paid off, I got rid of the extra coverage.
One last thing, I recently canceled my disability insurance because I felt it wasn't worth it. My policy paid about 50% of my weekly income for (13 weeks for short term or until SS for long term). However, I already have an emergency fund to cover a short term disability. For the long term disability I decided to cancel based on the fact that I had to be disabled enough to not get ANY work. Meaning, if the company thought I was fit to work as a Walmart greeter, then it no longer paid out. I got rid of that too.
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Do you have kids? If so, and your wife is their main caregiver, you should consider life insurance for her too. A friend of mine recently lost his wife very unexpectedly, leaving him with two kids under 10, and the cost of hiring a nanny/housekeeper to do the work his wife used to do--which he can't do without giving up his very good but demanding career--is... if not astronomical, in any case very high. He's looking at about ten more years of these costs. In other words, life insurance is not there to replace salaries--it's there to replace the WORK that the late spouse did, whether the work was paid or unpaid.
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Do you have kids? If so, and your wife is their main caregiver, you should consider life insurance for her too. A friend of mine recently lost his wife very unexpectedly, leaving him with two kids under 10, and the cost of hiring a nanny/housekeeper to do the work his wife used to do--which he can't do without giving up his very good but demanding career--is... if not astronomical, in any case very high. He's looking at about ten more years of these costs. In other words, life insurance is not there to replace salaries--it's there to replace the WORK that the late spouse did, whether the work was paid or unpaid.
Good point, but no we don't have kids. Hadn't thought if it that way before though.
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Is it a regular civilian policy? AKA the kind of policy anyone can buy? The reason I ask is because most life insurance policies have a clause that basically voids the payout if you die as a result of an act of war, terrorism, riot , insurrection, etc. There's a whole paragraph of exclusions.
If so, then I'd suggest getting a different policy that will actually cover you in any of the above situations. In the US I believe USAA offers this. In Canada, it's only available through the military to members and spouses.
I have no idea if disability policies have this same exclusion.
As for us, we plan to keep our life insurance policies until we FIRE. However, we have young children so that's the main motivation. I also don't count the policy offered through my employer since I can be fired at any time. We carry separate term policies.
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I was going to tell you you're paying too much for the life insurance until you explained about your situation. It's worth shopping around if you have other options for the life insurance. You might be able to do better. But, you can probably be sure that the work plan will pay out in the event of your death; something from the States might or might not.
I was going to say the same thing. Good point, but no we don't have kids. Hadn't thought if it that way before though.
Kids are why most of us have life insurance. If my one of us had died young, the other would've been able to support himself or herself -- BUT if we'd needed to support ourselves PLUS two kids PLUS saving, it would've been difficult. That's why we have life insurance, though now that our kids are almost grown, we'll probably drop it in the coming years.
Ask yourself this question: If you died today, what would your wife need to continue to live comfortably? Would she stay where you are, or would she come home to the US? How much would it cost for her to have a house and the things she'd need? And include a cushion so she wouldn't have to work during the months she'd be in transition. That's how much life insurance you need.
Same question: If she died, what would you need to go on? How would the loss of her salary change your life?
If you have kids in the future, you'd need to include the cost of services that would've been provided by the spouse who died (day care, cleaning service, whatever you think you'd need), and the cost of college education.
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Life insurance have too many uses, not only to cover dead. It depend of the type of insurance and your goals but is something that everyone should have in one way or another.
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but is something that everyone should have in one way or another.
Disagree, especially since I'm thinking of term insurance that most people choose over whole life:
A young, single person with no dependents might not need life insurance. If this person dies unexpectedly, his parents (or siblings) would probably inherit everything . . . and even if he died "in the red", those people wouldn't be responsible for his debts -- his debts might take every penny of his estate, but no one would be worse off FINANCIALLY because of his death. Exception: If anyone co-signed for student loans for this person, then life insurance would be a good idea.
My husband and I are approaching the point that life insurance is no longer a real need for us. We live in a paid-for house, have paid-for cars and money in the bank. Our children aren't through with college yet, and that's the only reason we still hold onto the life insurance. Once they're both out of school and working, and it's just the two of us . . . either one of us could "make it" just fine without the other's income. This was not true when we were younger.
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The way we decided to opt for life and disability was that we have a child and don't have enough in savings to be a real help if one of us dies. As our savings increases we will think about dropping it. We opted for the disability because in my husband's line of work repetitive motion injuries are extremely common and he will likely need surgery that will put him out of work for a couple of months plus need physical therapy. The disability policy we bought is only $25 a month and covers the family. It was a special deal offered through his work.