Life Insurance? Keep or Toss?

[oldtoyota]

Many moons ago, we purchased life insurance. I was worried I'd be destitute if DH died.

Flash forward. A kid came onto the scene. It still seems like a good idea to me until she's a bit older.

Any thoughts?

[Dee18]

Think through what your finances will be if DH dies and then decide.  I have life ins through my employer, but will drop it when I retire in a couple years.  My daughter is 16 and I have more than enough in my stash for her if someything should happen to me.

[MorningCoffee]

I think it depends on many factors.
What kind of policy? Term is usually a good choice when you have young children or dependents.
If something happened to you or your husband, would the surviving spouse be in a reasonable financial situation?
What if something happened to both of you? Would your savings support your child?

[oldtoyota]

Dee18 and MorningCoffee--Thank you. I will keep those thoughts in mind. I've been leaning toward keeping it. We probably need it for now.

[Reepekg]

So life insurance is to cover your funeral expenses and to replace your income for any dependents who rely on you. The question is: might you need help in those areas?

For example, my wife and I have approximately equally paying jobs, either of which could support a family. We also have enough savings to cover a funeral. We therefore don't have life insurance now and probably won't get any even after kids.

It sounds like you would have little/no income if DH dies. Could you meet all expenses solely off your 'stache if he dies? Would you require and be able to cover childcare if you have to get a new job? If those are a 'no', keeping the insurance until it is no longer a concern sounds reasonable.

[Johnny Aloha]

I also think it depends on insurance type.  If it's term, it's probably worth keeping.  Rates have dropped to such low levels that it makes sense for most people, unless you are so close to FI that it doesn't matter.

If it's some type of whole insurance (whole, universal, variable, etc), the fees are probably very high.

Some people think it's a waste since the probability of you dying is statistically very low.

We were in the same position as you - new baby, recent house purchases, some assets but not FI.  We went with term life insurance after doing lots of research on all the different types.  Our conclusion (as many others have concluded) was that whole life was a terrible waste of money.

[oldtoyota]

Yep. We went with term for the same reason, Johnny Aloha.

Reepekg--I think I will keep it. I could live off of my income, but I would probably need to hire someone to do more childcare. That would increase my expenses.

We have enough to cover a funeral (egads, what a thing to say!). I would not get life ins to cover just that. Coffins and burials are a real rip off.

[LDoon]

I will add that you should spend some time shopping insurance rates.  There's another thread on the forum about it, and I used that this weekend to look up rates on term4sale.com. 

I cancelled my more expensive policy (my work policy is sufficient) but got peace of mind that I can inexpensively add more coverage based on the esimates I received.

[oldtoyota]

I think I have a work policy too. My policy about work policies has been to ignore them since layoffs are so common these days. If I am going to have my own policy at all, I'd prefer my own so that my security is not so much at risk should I be laid off.

[nktokyo]

I have a friend who's quite high up at one of the big insurance firms and he says it's a ripoff.
That was good enough for me.

[Nords]

When I retired from the military we had two choices (well, my spouse had the choices, not me).

The first choice was to sign up for the military's Survivor Benefit Plan, with monthly premiums (before tax) of up to 6.5% of my pension (for up to 30 years) to fund an inflation-adjusted benefit of 55% of my pension for my survivor's life.  Today that means I'd be paying $225/month for a survivor's inflation-adjusted annuity of $1900/month.  About half of the cost of the policy is already subsidized by the federal govt, so it's hard to find cheaper insurance. 

The "problem" with SBP is that you get one chance to sign up (before you retire), one chance to cancel (after two years of premiums), and then you're locked into 30 years of premiums until it's paid up.  Of course if you're divorced or your beneficiary dies or you remarry then you get to change the terms.  When you're retiring from the military at age 41, having a paid-up policy by age 71 for the rest of your spouse's life seems like a good deal.  About 75% of military retiree's spouses (or other beneficiaries) take SBP.
http://the-military-guide.com/2011/04/11/survivor-benefit-plan/

The other choice was to buy cheaper term insurance for some period.  I never priced any of those policies but there are a number of military-friendly companies (like USAA) who are happy to underbid the rest.

We were already financially independent when I retired from the military, and spouse has her own Reserve pension coming at age 60.  Worst case was that she could decline SBP, I'd get run over by a bus the next day, and our her savings would have to last until her Reserve pension (and later Social Security) kicked in. 

She decided that she'd rather enjoy 6.5% more fun while I'm alive than 45% less when I'm dead.

When she retired from the Reserves and it was my turn to accept or decline SBP, I declined too.  She assures me that I will not survive her, although I'm afraid to inquire exactly how she can be so confident of that.

Our other choice would have been to buy term insurance for some period, like until we were eligible for Social Security.  But we already had "enough" and insurance didn't seem necessary.

[GuitarStv]

I've always thought that it was a waste.  If you're in decent financial shape, your family will have all of the money that you've accumulated already.

That said, I have a basic policy through my workplace that I can't opt out of which provides some coverage.

[earlyFI]

May be worth having a term policy at a good rate for some peace of mind.

[rocketman48097]

Stop paying immediately, even if term.  I have thought about this a lot, you should read MMM's post about insurance being a tax on those bad with math.  With over 600k in investments, plus home equity (real home equity, money I put down, etc) I have a huge life insurance policy that I pay nothing for (self insured) and have 2x my salary at work but only because my employer does not charge me for this, it's their basic coverage at my level. 

Two things to consider:

1.  With a dependent, you already have government insurance, it's called Social Security and you will get paid until child turns 18, this is a lot of money, check the website.  It's also tax free or lightly taxed depending on other taxable income you have.
2.  When one spouse dies, you can make that IRA or 401k into an "inherited IRA."  These inherited IRA's and 401k's occur no 10% penalty, you only pay ordinary income tax on this when you withdraw, and you need not be 59/1/2.  Thus, spousal 401k's and IRA's are insurance policies in themselves. 

I told my wife if I died she would never have to work again (work term policy, plus social security insurance for two young kids, plus my Roth IRA and 401k along with other investments).  I am not sure she believed me, but the math works.

[oldtoyota]

Stop paying immediately, even if term.  I have thought about this a lot, you should read MMM's post about insurance being a tax on those bad with math.  With over 600k in investments, plus home equity (real home equity, money I put down, etc) I have a huge life insurance policy that I pay nothing for (self insured) and have 2x my salary at work but only because my employer does not charge me for this, it's their basic coverage at my level. 

Two things to consider:

1.  With a dependent, you already have government insurance, it's called Social Security and you will get paid until child turns 18, this is a lot of money, check the website.  It's also tax free or lightly taxed depending on other taxable income you have.
2.  When one spouse dies, you can make that IRA or 401k into an "inherited IRA."  These inherited IRA's and 401k's occur no 10% penalty, you only pay ordinary income tax on this when you withdraw, and you need not be 59/1/2.  Thus, spousal 401k's and IRA's are insurance policies in themselves. 

I told my wife if I died she would never have to work again (work term policy, plus social security insurance for two young kids, plus my Roth IRA and 401k along with other investments).  I am not sure she believed me, but the math works.

Wow. I did not know about #1 and #2 above. Good to know!

Thank you, everyone!

[StarswirlTheMustached]

Some people think it's a waste since the probability of you dying is statistically very low.

Just to be a dick, I'm going to point out that the probability of you dying is 100%.

That doesn't make life insurance a good idea, though.

[cdub]

I think if you don't have many assets yet it is a very good idea. We have a 500k plan for each parent for around $80/month total.

We have 3 kids (well the third is due next month) and until I have a lot more assets built up we're going to keep it... you know... as insurance.

[willn]

I have a friend who's quite high up at one of the big insurance firms and he says it's a ripoff.
That was good enough for me.

Sure, if you're talking about whole or universal.  But term life isn't a "ripoff", its a way to transfer risk, just like auto insurance.  If you die and leave your spouse and 2 kids with little equity in a house she can't pay for, it sure isn't going to seem like a ripoff, its going to seem like a no brainer!

Now if you pay for 20 years on a 20 year term policy, and at the end of the term, you have paid off your house, and your kids are out of the house, and you have a 20 year record of saving diligently into retirement, emergency fund, and investments, you probably don't need to transfer the risk. That doesn't make it a ripoff though.