Am I being ripped on life insurance?

[billyripken]

40yo male.  Wife and newborn.    She does not work.   Income is 170k in a high cost of living area not NYC/SF.   We dont own a home.  300k in retirement.  500k taxable in index funds.

Have a term policy for $60/month for 500k.  At 60 the cost of that policy will begin to climb and I believe it terminates at 70yo, at something like $1,300/mo by that time.

Also have a universal life plan for $240/mo, also for 500k.  It runs until I am 99yo and cost is fixed.   It accrues some kind of value based on what I pay into it.  I probably should understand that aspect better.

Why so much life insurance?  Simply my mom came down with cancer and passed rather rapidly at 70.   She did not have many assets that came to me, but she had a whole or universal life policy which paid out 500k.  At the time I only had the term policy, but I could imagine myself not wanting to pay on it past age 60.  I found the money from mom's policy very beneficial.   Also roughly half of my family has died from difficult cancer around the age of 70, so I view my chances there as 50/50.

So should I keep one, both, or none of these plans?

[LightStache]

You should buy coverage based on your family's income needs if you die, so if your wife and kid need $75K/year then using the 4% rule you'd need $1.875M. You have $800K in other assets, so $1M in life insurance is appropriate.

I doubt the universal policy will give you a good return on investment compared to an equivalent term policy with the difference in premiums invested in equities. I'd price out switching to a term policy.

As your NW increases, you can decrease your life insurance coverage -- when you're FI you need zero. Insurance is statistically a losing game for policyholders, so even with your family history of cancer you're probably better off not over-insuring.

[Frankies Girl]

You need a term policy on your wife too. If something happened to her, you'd need to either quit your job or severely reduce your hours or else hire a full time nanny.

Universal life is almost always a ripoff. Get appropriate coverage (agree with FatFI2025 of ~1mill each) term policies for yourself/spouse and continue to save/invest so you'll have a large enough nut once the kids are gone to not need life insurance at all once the term runs out.

[Catbert]

Whole life insurance can be appropriate for some people.  Only people who meet all these conditions should even consider it:

-need life insurance permanently (or at least a long time 30+ years);
-already maxed out all other tax advantaged accounts (401k, IRA, 457, TSP, etc.) and will continue to do so;
-will over fund policy (not just pay the minimum required every year);
-will (over) fund and not touch the built up account balance for the long-run (20+ years)

People usually get "sold" rather than search out to "buy" whole life insurance.  The fact that you don't really understand your policy benefits isn't a good sign that it's appropriate in your circumstances.

I agree with others that you need to back into how much life insurance you need and for how long

[Fi(re) on the Farm]

I work for a regulatory agency and the one product that everyone hates is Universal Life. I don't really understand the specifics of it (not my field of expertise) BUT it's usually a money loosing proposition. You're much better off increasing the value of your term policy. How much you need depends on your family, finances and lifestyle. I agree that you need some kind of term life for your wife.

[dandarc]

Probably the thing to do is increase your term coverage and eliminate the universal life. Might also look at a shorter term if you are rapidly investing as many on this board do.

I was looking to reduce insurance cost a few years back, after realizing a 30 year term was ridiculous if we push warp speed on increasing our investments. In 2014 at age 32, I got quotes for 10 year term policies, and as it turned out, the lowest cost one was actually universal life under the hood. $29 / month for a $1M coverage for 10 years. No cash value - although the website says there is a $20 surrender value right now.

The thing I like most about this policy was that at the end of the 10 years, instead of the premium going up, the coverage goes down. The illustration shows:

Age	Year of Policy	Premium	Death Benefit
37	5	320.65	1000000
38	6	349.8	1000000
39	7	349.8	1000000
40	8	349.8	1000000
41	9	349.8	1000000
42	10	349.8	1000000
43	11	349.8	673040
44	12	349.8	598846
45	13	349.8	528149
46	14	349.8	466586
47	15	349.8	417876
48	16	349.8	384108
49	17	349.8	353737
50	18	349.8	329235
51	19	349.8	306667

Then the benefit just keeps getting lower until it hits $10,000 at age 84, and only then does the premium start increasing. I figure, even if we aren't FI by 2024, my wife would be with our investments + another several hundred thousand dollars.

[StacheDash]

I think you probably need to ask yourself a few more questions in order to more accurately identify your life insurance needs. You make $170k a year, but how much are you spending a year? How long until you are self insured at your current savings rate? How much do you think your wife would need to spend per year if you die? Would she work/move cities/buy a house if you died? Don’t forget to include SS benefits in your calculations.  Answering those questions will help you crank out good numbers.

[calimom]

Term life seems fine. Whole life is a complete ripoff. Also, check both your and your wife's SSA account for estimated Survivors' Benefits. You may be surprised.

Your savings and savings rate is impressive.