Life Insurance?

[Lski'stash]

While switching over my 403B and starting a 457, my new 'adviser' asked if I had considered life insurance. I'm still pretty new to this financial stuff so I let her do her shpeal about how it would help if I died for some reason in the next 20 years or what not, all the while thinking that I would probably just ask on the forum about this later. I got a quote of $319 a year for 30 years for $500,000. I have no idea if this is good or bad, or if its even needed, so I just would like some opinions on the matter. Together, my husband and I make about $120,000 per year pre-tax, and have $80,000 right now in investments. The only large debts left are my student loans ($68,000- on PSLF for six more years on it- will actually pay under $20,000), and our house. I do already have $40,000 in life insurance through my union, and my husband also has a smaller policy from his work. Any thoughts on whether or not this would be a good move would be appreciated!

[dandarc]

On the plus side term insurance is a pretty good deal.  you might want to check another insurance company to see if the rate is good.

You've got to decide whether you need insurance at all and whether a 30 year term is appropriate.  The rate will be cheaper yet for a 10 or 20 year term, so if your need for life insurance doesn't go beyond 30 years, then paying more to keep the term level for that long probably isn't worth it.

Life insurance is for replacing your income if you die.  Being on this forum, you and your husband may not need either of your incomes in 20 years - that's kind of the point of the site.

So think long and hard, buy no more than about 10X your earnings if you do buy, and consider carefully how long you want your term to be.  You've already avoided the biggest problems by looking at a term rather than a whole-life policy.

[mxt0133]

The only reason for getting insurance for either you or your husband is if someone depends on your income.  If either you or your spouse passed would the other be in serious financial hardship?  If not then you are treating the insurance policy as a lottery ticket where if the other spouse passed you could retire and not have to work.

The adviser is trying to sell policies that's how the make money.  Something like the first two years premium goes directly to the agent for term policies.  That's because most policies lapse in a few years and the probability of dying before you are 60 is so low that it is one of the most profitable policies for insurance companies.

The adviser might want to present you with the scenario of what if you have kids and you get sick and can't get insured you better do it now, ect.  That is something you will have to decide on your own, but again the probability of those situations are statiscally very rare.  Also take into account that if you do have children and a working spouse passes there is Social Security payments to the child and to the care taker of the child which is not a trivial amount.

[robartsd]

I didn't know about the SS benefits to surviving child and caretaker. I'll have to remember this when planning life insurance when I have kids (not hoping to wait until retirement).

[MoonShadow]

I didn't know about the SS benefits to surviving child and caretaker. I'll have to remember this when planning life insurance when I have kids (not hoping to wait until retirement).

And MTX is correct, survivor benefits for any minor child of a parent who worked enough qualify for SS (10 years) is almost as much as SS would have been for that late parent, and that is for each minor child.  I have 5 kids, and if I died before they turn 18, they would hit the legal maximum for a monthly payout between my wife & kids' survivorship benefits, which is north of $4K per month right now.  The vast majority of middle class adults, unless they have a poor family history (like I do), do not need nearly as much in life insurance as they think.

Also, you didn't mention what type of insurance your agent was trying to sell you.

[nereo]

... I got a quote of $319 a year for 30 years for $500,000.
Together [dual income], my husband and I make about $120,000 per year pre-tax, and have $80,000 right now in investments.
Debts =  $68,000 (SL)  and our house.
I do already have $40,000 in life insurance through my union.

(note: lightly edited to highly important portions)

You do not need 30 years of term life insurance. 
Right now I would say you are right on the cusp between not needing life insurance and knowing it's a good security blanket.  Both you and your SO work, so that's good right there, plus you both have small insurance policies through your unions which would cover many months of spending.  Your savings are just slightly more than your SL balance, so the only debt one of you would be left with would be the mortgage.  Could your spouse continue to pay the mortgage on just his income?  How much remains on the mortgage?

As you pay off your debts and increase your 'stach a life insurance policy makes less and less sense.  If you are on this blog you are presumably committed to saving a large percentage of your income each month.  In just a few years your SLs will be gone, your savings will be greater and you will have more equity in your home.

I would advise looking for 5 or 10 year term life insurance policies that pay out no more than $250,000 (maybe even $100,000). It is possible that the insurance policy your new "advisor" offered you will still be the cheapest.  For comparison, I got a $500k, 10yr policy when I turned 30 for $21/month. Keep your policy for a few years and then cancel it once you have a bit more savings - if you are saving >20% of your income that may be in as little as two years depending on the mortgage.

[robartsd]

Also, you didn't mention what type of insurance your agent was trying to sell you.

That's because I don't have an agent trying to sell me life insurance.

I recently found out that my retirement plan includes a life insurance benefit that pays $5000 + 1/2 of previous years earnings in addition to the return of contributions (plus interest). I'd already concluded that this is sufficent for our current situation (wife's work is optional - she would be stay at home mom if we had kids today). With the SS benefit for dependent children, I may already have sufficent insurance (wife can be stay at home mom) when I do have kids. Our life insurance needs when we have kids might be more geared towards insurance coverage on her than on me.

[Davids]

Whatever you do do not buy whole life insurance or any other universal name like that. Just get term for whatever many years you desire at however much you feel is needed.

[MoonShadow]

Also, you didn't mention what type of insurance your agent was trying to sell you.

That's because I don't have an agent trying to sell me life insurance.

I was asking the OP.

[robartsd]

I was asking the OP.

I had assumed that the OP's offer was 30 year term life insurance, but now I see that it could be a 30 year rate lock on some other form.

[MoonShadow]

I was asking the OP.

I had assumed that the OP's offer was 30 year term life insurance,

That's what it sounded like, but 30 year level term is unusual, I think.  I was wondering if this is some kind of 30 year paid up whole policy.  In which case, it would be counterproductive in almost every case; unless she has a long family history of medically unexplained early deaths.

[Lski'stash]

I was asking the OP.

I had assumed that the OP's offer was 30 year term life insurance,

That's what it sounded like, but 30 year level term is unusual, I think.  I was wondering if this is some kind of 30 year paid up whole policy.  In which case, it would be counterproductive in almost every case; unless she has a long family history of medically unexplained early deaths.

I'm pretty sure it's a 30year term policy. From my understanding of all of this, it sounds like I might want a policy for maybe 10 years at most, assuming we continue to save as we do now. I will ask her about that and maybe do some more shopping around. Right now, my husband would have a hard time covering the mortgage every month, but we are planning on moving into a smaller space in the next year or so, so he might be able to then.

[nereo]

I'm pretty sure it's a 30year term policy. From my understanding of all of this, it sounds like I might want a policy for maybe 10 years at most, assuming we continue to save as we do now. I will ask her about that and maybe do some more shopping around. Right now, my husband would have a hard time covering the mortgage every month, but we are planning on moving into a smaller space in the next year or so, so he might be able to then.

In that case, get enough of a insurance policy to cover your SL and to supplement your husband's income enough where he would have no difficulties paying the mortgage each month.  That doesn't mean it has to be large enough to pay off the mortgage entirely - for example $120k would be enough to supplement his mortgage payments by $1000/month for 10 years, leaving ample time to make living adjustments.  If your life-situation changes (e.g. children) you can revisit the amount of life insurance you need.

I agree with the earlier poster who said most people who have life insurance policies are incredibly over-insured.  Your best insurance will be your own savings.

[Rural]

I'm pretty sure it's a 30year term policy. From my understanding of all of this, it sounds like I might want a policy for maybe 10 years at most, assuming we continue to save as we do now. I will ask her about that and maybe do some more shopping around. Right now, my husband would have a hard time covering the mortgage every month, but we are planning on moving into a smaller space in the next year or so, so he might be able to then.

In that case, get enough of a insurance policy to cover your SL and to supplement your husband's income enough where he would have no difficulties paying the mortgage each month.  That doesn't mean it has to be large enough to pay off the mortgage entirely - for example $120k would be enough to supplement his mortgage payments by $1000/month for 10 years, leaving ample time to make living adjustments.  If your life-situation changes (e.g. children) you can revisit the amount of life insurance you need.

I agree with the earlier poster who said most people who have life insurance policies are incredibly over-insured.  Your best insurance will be your own savings.

No need to cover the SL if you're in the US; it dies with the borrower. But consider the cost of a funeral, and frankly, I've decided I'm not planning on a super frugal one if I or my husband dies suddenly, much as I'd like to. What are the odds of having the clarity and determination to buck family and a well-oiled industry under those circumstances? So $20k or so coming from a poilcy means not worrying about a funeral.

[Lski'stash]

I'm pretty sure it's a 30year term policy. From my understanding of all of this, it sounds like I might want a policy for maybe 10 years at most, assuming we continue to save as we do now. I will ask her about that and maybe do some more shopping around. Right now, my husband would have a hard time covering the mortgage every month, but we are planning on moving into a smaller space in the next year or so, so he might be able to then.

In that case, get enough of a insurance policy to cover your SL and to supplement your husband's income enough where he would have no difficulties paying the mortgage each month.  That doesn't mean it has to be large enough to pay off the mortgage entirely - for example $120k would be enough to supplement his mortgage payments by $1000/month for 10 years, leaving ample time to make living adjustments.  If your life-situation changes (e.g. children) you can revisit the amount of life insurance you need.

I agree with the earlier poster who said most people who have life insurance policies are incredibly over-insured.  Your best insurance will be your own savings.

No need to cover the SL if you're in the US; it dies with the borrower. But consider the cost of a funeral, and frankly, I've decided I'm not planning on a super frugal one if I or my husband dies suddenly, much as I'd like to. What are the odds of having the clarity and determination to buck family and a well-oiled industry under those circumstances? So $20k or so coming from a poilcy means not worrying about a funeral.

This is really good to know! So really I just have to worry about my share of the mortgage currently. I already have funeral expenses covered from my Union.

[nereo]

No need to cover the SL if you're in the US; it dies with the borrower. But consider the cost of a funeral, and frankly, I've decided I'm not planning on a super frugal one if I or my husband dies suddenly, much as I'd like to. What are the odds of having the clarity and determination to buck family and a well-oiled industry under those circumstances? So $20k or so coming from a poilcy means not worrying about a funeral.

Be careful with this... My understanding of my stafford SLs (and someone please correct me if i am wrong) is that the loan itself cannot become someone else's debt once I die.  However, my assets will first be used to pay off my SL debt and then whatever is left will be transfered to my spouse (or whomever I name in my will).  So if I have $10k in student loans, and $3k in my personal checking account and $8k in my IRA that money will first pay off my SL and the remaining $1k will go to my spouse. 
Joint accounts shouldn't be affected.

Again - someone correct me if I"m wrong, because this is how I understand my SL debt.

[Sibley]

I believe you're correct.

However, life insurance money by-passes that process. If the beneficiary is SO, then SO gets whatever the payout is. It doesn't go through probate, etc.

OP - you might want to double check your benefits at work. Many companies provide life insurance at no cost to the employee with the option to get additional (where you pay).

[Rural]

I believe you're correct.

However, life insurance money by-passes that process. If the beneficiary is SO, then SO gets whatever the payout is. It doesn't go through probate, etc.

OP - you might want to double check your benefits at work. Many companies provide life insurance at no cost to the employee with the option to get additional (where you pay).

You guys are right about this, I think. But also bank accounts with a pay on death stipulation don't go through probate, nor retirement accounts with a beneficiary- maybe IRAs are different?

[MoonShadow]

I believe you're correct.

However, life insurance money by-passes that process. If the beneficiary is SO, then SO gets whatever the payout is. It doesn't go through probate, etc.

OP - you might want to double check your benefits at work. Many companies provide life insurance at no cost to the employee with the option to get additional (where you pay).

You guys are right about this, I think. But also bank accounts with a pay on death stipulation don't go through probate, nor retirement accounts with a beneficiary- maybe IRAs are different?

IRA's are not different, so long as the beneficiary is identified by name in the IRA documents, or the beneficiary is the surviving spouse.  If the owner dies without a living spouse or named beneficiary, the children of the owner are the heirs, but it generally ends up in probate at that point.

[Lski'stash]

I believe you're correct.

However, life insurance money by-passes that process. If the beneficiary is SO, then SO gets whatever the payout is. It doesn't go through probate, etc.

OP - you might want to double check your benefits at work. Many companies provide life insurance at no cost to the employee with the option to get additional (where you pay).

Turns out- HO gets life insurance for both of us at his work- $500,000 for him and $250,000 for me- more than enough. At least for now, we are covered. If he ever leaves though, we will have to revisit.

Thanks everyone! This has been really helpful.