Term Life Insurance Dilemma -- I need your input!

[Goldielocks]

I have a MPP (Mustachian People Problem).  Last year I calculated that we did not need very much life insurance anymore. 

Background --
The kids are almost out of high school and money is already set aside for their post secondary education.  DH still works, but I am FIRED with a minor income stream.   We have retirement saved up now -- if I don't touch it for another 15 years... meaning that we just need to earn what we spend each year.  If one of us died, the other would have all the retirement money to spend.  The only catch is a very high mortgage that DH covers with his work.

Context - with limited income, I am looking at cutting costs all over, including dropping to one car for a while and biking, which will save $2500 per year... $1000 is a trigger point that makes a huge difference in our lifestyle right now.  $200 in a month just means dropping a restaurant meal on a couple of date nights.


So.   I calculated that I would like to keep $200k on me, and keep $250k on DH.... maybe dropping mine entirely in another year when my rates go up due to age.

Problem:
Then the insurance statement came, and the rates have gone down this year.
For one more year, until my age puts me into the next bracket, the rates are very low. 

Dropping to $200k will cost $131/yr
Keeping $400k costs $262/yr
Increasing to $500k will cost $295 /yr

DH's coverage (male, next age bracket) is 4x the cost of mine, so his lower coverage costs nearly $500/yr.  Dropping his would make more sense, dollarwise, but he is the income earner right now, so that is what I am trying to protect, yet I am more frugal and I am certain I could figure it all out even with zero coverage on him.


WHAT WOULD YOU DO? **
Drop mine and save $131/yr?
Drop his, keep my cheap one, and risk not having the main income earner covered and save $500/yr?
Drop both of ours to a minimum $100k each saving $500/yr?
Drop all, save $765/yr?
Increase mine to $500k for a very small increase in total costs to $795/yr?

(** LOL, when I read this, I am reminded of that saying "What would Jesus do?" and have a bit of an ironic laugh, because he would have no insurance despite knowing he was going to die quite young... the question doesn't apply, does it?.)

[Catbert]

I think my bottom line answer would be keep all "as is" for the moment.  These costs are pretty low in the overall scheme of things.  I would keep the life insurance at the level that the remaining spouse and family would be okay financially with the other one gone.   Alternatively keep enough life insurance to pay off the house if that would make the remaining spouse FIRE.

[Sibley]

Agreed with Catbert. Reconsider when rates increase due to age.

[uwp]

Voted for increase, because the was the closest to no change.
If you can't completely self-insure right now (which it seems like you can't), the costs for the insurance seem minimal in the larger scheme.

[Awesomeness]

Am I missing something?  You say it’s term life insurance.  But your amounts are changing based on age.  I have a 30 year term I bought when I was 36.  300k, 29.90 a month but that never changes, it ends when I’m 66.

I’m single now and don’t need it at all but I keep it for my kids. It’s so cheap.

Don’t lower them or get rid of them.  More money is always better.

[sokoloff]

If DH died, would you be willing to sell the house and move to a cheaper place (before the kids graduate high school)?

If not, then you need a way to at least cover the gap to that time.
If you wouldn't sell and move even after they were off to college, then you need to cover the mortgage gap until that later time.

It's not so much a spreadsheet question as it is a "what are you willing to wager or put up with in terms of sacrifice in the event of an untimely death?" That's what you're insuring against.

[Goldielocks]

Am I missing something?  You say it’s term life insurance.  But your amounts are changing based on age.  I have a 30 year term I bought when I was 36.  300k, 29.90 a month but that never changes, it ends when I’m 66.

I’m single now and don’t need it at all but I keep it for my kids. It’s so cheap.

Don’t lower them or get rid of them.  More money is always better.

It's continuously renewing term life insurance.  e.g., the "term" is 1 year at a time, with annual renewals that do not require a medical if you don't add coverage.   Rates may increase at any year, such as with operating costs, but in general, are grouped in 5 year intervals for simplicity.

[Goldielocks]

Hmm..  good replies all...

My dilemma is that we could be technically self-insured already.   If one of us dies, the remaining one would need less retirement monies. 
If I died, DH would be fine without extra coverage, as long as he learns to make his own food and not take out and frozen meals.  (He can cook basics, but doesn't).  He would be able to keep the home and expenses almost where they are now.... and he is able to earn more $$'s as he is underpaid currently but happy.

If DH died, then I might need to add part time income for 10 years, or sell the home, both of which I would be totally fine with, but I would prefer to put that off for a few years so a bit extra insurance to help out would be nice, but not mandatory to a good life.

If both died, the taxes take a chunk of the retirement fund, the youngest goes to live with the guardian (who has plenty of $$, lots more than us), and the oldest would go to grandparents or to the same guardian or on her own for a while, and both kids would be able to wait for probate to clear the funds and sell the home.

So -- the challenge I have is that I would like to
1) Keep some insurance on DH's modest income,
2) But not spend the $765 or $500 to do that.
3) Meanwhile The insurance coverage (on me especially) is incredibly cheap, when you think about what you get for that price.  Would I be crazy to Not pay such a modest amount?

[robartsd]

You calculated how much coverage you need based on your financial situation - buy that much. Don't by more just because it is cheaper than you expected it to be.

That said, are you sure you've calculated what your DH would actually need if something should happen to you as accurately as possible? As he is less frugal than you and coverage on you is pretty inexpensive, it would probably be wise to have a decent cushion for him.

If you want to reduce coverage on DH, you can do that. I'd be sure to have enough coverage that you wouldn't have to change anything about your lifestyle until the last kid graduates HS. If you personally don't feel like you need coverage for your lifestyle after the last kid graduates HS that's OK. Also remember SS death benefits in calculating what you need (especially benefits for surviving spouse caring for his minor children).

Put your house and other assets into a revocable living trust to save time and money going through probate. After you both pass the guardian or one of your kids could serve as trustee and control assets immediately instead of waiting for the probate process. This could be especially helpful if you both die at approximately the same time.

[terran]

I think it's pretty simple: if you would be willing to live like you could on your savings at a withdrawal rate you're comfortable with, drop the insurance. If you would "require" a higher standard of living than your current savings could support, figure how much extra you would need, then decide if you're willing to work enough to provide that, if not divide that amount by your comfortable withdrawal rate and that's how much insurance you should have on your husband. He should make the same calculations to see how much insurance to have on you. If you had large lump sum goals that you would cash flow out of his income (like paying for college, but you've already got that figured out) then you would want to add those to the insurance amount.

Basically, insurance should cover the gap between what you have and an acceptable lifestyle when taking into account an acceptable amount of work, an acceptable withdrawal rate, and an acceptable change in your standard of living.

[Prairie Stash]

1) Keep some insurance on DH's modest income,
2) But not spend the $765 or $500 to do that.
3) Meanwhile The insurance coverage (on me especially) is incredibly cheap, when you think about what you get for that price.  Would I be crazy to Not pay such a modest amount?

Its life insurance so you get nothing, never look at insurance for what you get, its not the right mindset.  Low rates mean low risk, its all factored in so the odds of payout are also low. Does your family require the money is the only question that matters.

At what point will you have enough that you no longer require insurance at any price? Determine a number and then compare it to what you have. I assume you will cancel it one day, tell your DH exactly the right time to cancel it. By telling your partner it becomes a plan that you can stick to.

I have $200K in a work policy (free perk), my spouse has $100k private ($50/year, no increase for 10 years). We have 2 young kids, similiar to you. I think we need a small amount to transition in the event of a death, so we have a small amount.

Cost is irrelevant, you either need it or you don't. Buying insurance because its cheap is the same as buying any useless consumer good because it was cheap. As a logical person, you only buy what you need. That said, I'll be buying cheap easter chocolate on monday, sometimes its hard to resist cheap stuff (my stomach can often beat my logic).

[Goldielocks]

Thanks everyone for your input.  You definitely helped me clarify my thinking.   Today I decreased both insurance coverages to $150k on each of us (plus another $25k for accidental death).   

We probably don't need it and may reduce further in future years, but this will buy us 3 years before liquidating any assets, (in equities) --  I felt the value of this benefit for the cost of insurance was worth it. 

I was torn up because the cost for it was so much lower this year, compared to prior years. (rates decreased)  But it is not saving if you buy something that is cheap that you don't need... is it..

Saving almost $500 this year.  Yay!

[Acastus]

The standard question for deciding on life insurance is: If you die tomorrow, will your family be hurt financially. Think through the effects of losing 1 parent. Think about future costs, like college.

It sounds like your finances are currently on track for achieving financial independence as a couple/family, but you are not there yet. So the answer is, yes my family would suffer financially. Your premium costs are small. I would look at other parts of  the budget 1st.

[Goldielocks]

The standard question for deciding on life insurance is: If you die tomorrow, will your family be hurt financially. Think through the effects of losing 1 parent. Think about future costs, like college.

It sounds like your finances are currently on track for achieving financial independence as a couple/family, but you are not there yet. So the answer is, yes my family would suffer financially. Your premium costs are small. I would look at other parts of  the budget 1st.

Yeah,  If I die tomorrow, the family wouldn't be hurt financially...  my FIRE income covers my own costs, maybe fun things like a vacation, which would go away, but the kids are less expense after high school, too.

If my DH died, it would be more interesting, because his income covers the house, but then based on the feedback from you all, I realized I would much rather sell this place and move elsewhere or just get an exchange student to tide us over until my youngest is 18 (or sell some of the retirement that I won't need).  The rest of us would rather live closer to the kid's colleges at that point, anyway.