Do I need life insurance?

[wageslave23]

I had always planned on getting term life insurance once we had kids.  But looking at SS survivor benefits, I don't think we need it.  We have enough in savings to pay off the house and my wife and kid would each get $1900 per month.  I'm thinking that's plenty.  Does anyone have a different perspective?

[Sibley]

College? Are you planning on paying for any of that? Weddings? Also, final expenses - medical bills, funeral, legal/estate, etc. Would the surviving spouse have sufficient resources to pay for child care if needed, therapy, etc. What about when the SS survivor benefits cease?

Really depends how much you have. But yeah, if you have enough you may not need life insurance.

[wageslave23]

Thanks Sibley.  Thats what I was looking for - any major blindspots.  And in the case of a tragedy, probably best to error on the side of extreme caution.  We'll have to evaluate further.  At fist glance it looked life insurance was overkill. I think the closer MMMers are to FIRE, the less chance they need life insurance.

[FIRE Artist]

Enough money to pay off the house is very different than enough money to pay ongoing operating costs (taxes, maintenance, utilities) until your spouse no longer wants to live in the house. 

I would suggest you look at having enough money/insurance to not force your spouse into having to reduce their lifestyle if you pass.  That is the kindest thing to do.  $1900/month/family member sounds like a lot of money, but once the kids age out, your spouse is left with only the $1900.  How does that compare to what you are contributing to the family cash flow today?

[skp]

Caveat, I am pretty much anti insurance. IMO insurance is for potential disasters.  We always carried enough life insurance to pay off our house.  When we paid off our house we dropped it.  After that I figured I didn't need it.  I  had 2x income for free from work. We both had employable skills. We had an insurance salesman who wanted us to buy more.   His reasoning that if one of us died the other spouse wouldn't have to work.  WTF. We both already worked.  Either of us without a mortgage with  our income alone could support us.  I guess it depends on your expenses. I just figured  my husbands and I's college degree and ability to work was our life insurance.  I wouldn't buy life insurance to ensure my children have paid for college educations and weddings. I don't consider that a disaster.

[Much Fishing to Do]

I would suggest you look at having enough money/insurance to not force your spouse into having to reduce their lifestyle if you pass.  That is the kindest thing to do.  $1900/month/family member sounds like a lot of money, but once the kids age out, your spouse is left with only the $1900.  How does that compare to what you are contributing to the family cash flow today?

I think there may be even a bigger hole than that.  My (perhaps incorrect) understanding is once the oldest child ages out the spouse's payment ends as well (the spouse's payment is for a spouse with a minor at home).  She can of course later collect off of his SS record, but the (admittedly impressive) survivors benefits are short term in the bigger picture, so some insurance to fill that hole may be prudent.

You're very young, a 10 year term policy would be so extremely cheap and if you think you'll be close to FIRE in 10 years good enough.

[lhamo]

By the time I got around to looking at buying supplemental life insurance (we had work-based policies that would have paid 1-2x annual salary) our stash was robust enough that it didn't seem worth it especially since SS survivor benefits would have been more than we were spending per month.   Plus we were expats at the time and I had heard it was hard to find companies that would cover us.  Really depends on how large your stash is and whether it is in buckets that the surviving spouse could draw on (or reallocate) if they were not ready/able to go back to work.

[Polaria]

Life insurance can be useful when you have dependents. What you need depends on what you want to be taken care of once you pass away.

Do not forget that there are also non-financial consequences of a spouse passing away, and I would suggest to take dispositions for your children to cover the event of both you and your wife passing away.

[vand]

What's worse than getting killed under a bus and leaving a widowed family is going under a bus and not quite getting killed, but unable to work and requiring huge cost to look after you. 

Did you financial plan cover that possibility?

Think about accident and critical illness insurance cover if not.

[Greystache]

Aside from your income, what is your contribution to the family? Do you contribute to child care, cooking cleaning, home maintenance? Would your spouse be able to do all of it in your absence or would it be necessary to hire some help? If it is the latter, where would that money come from?

[wageslave23]

I would suggest you look at having enough money/insurance to not force your spouse into having to reduce their lifestyle if you pass.  That is the kindest thing to do.  $1900/month/family member sounds like a lot of money, but once the kids age out, your spouse is left with only the $1900.  How does that compare to what you are contributing to the family cash flow today?

I think there may be even a bigger hole than that.  My (perhaps incorrect) understanding is once the oldest child ages out the spouse's payment ends as well (the spouse's payment is for a spouse with a minor at home).  She can of course later collect off of his SS record, but the (admittedly impressive) survivors benefits are short term in the bigger picture, so some insurance to fill that hole may be prudent.

You're very young, a 10 year term policy would be so extremely cheap and if you think you'll be close to FIRE in 10 years good enough.

Thats correct.  She would only receive payments until the youngest child is no longer a minor.  But at that point, she would just need to support herself, which she is perfectly capable of doing. 

I think I'm leaning more towards a 10 yr policy.  Im also thinking that I need to continue to teach her about finances because I'm realizing that the difference between enough money for a financially educated person is a lot different than an uneducated one.  She's probably only a 3 on a scale of 10 for financial literacy.  Although she good at sticking to a budget.

[Arbitrage]

Once it became clear that my stash would be supplemented by social security by more than enough to cover what we needed to bridge the gap to FIRE, I looked to cancel my term life policy.  It so happened that I couldn't cancel it quickly enough to avoid the annual premium.  This coincided with a severe drop in my stash and an increase in the probability of my untimely demise due to COVID, so I shrugged and kept the insurance for another year.  Working on canceling it now. 

I do think that many people are unaware of how generous the survivor benefit may be for families.  For a typical frugal mustachian, that might represent a very large percentage of their annual costs, and should be accounted for when looking at life insurance needs.  Yes, you and your kids age out of the benefits, but since most of us are looking to FIRE, that's less of a concern than for someone who is planning on needing W2 income all of the way up until age 65-70.

[ericrugiero]

A small term policy is pretty cheap at your age.  My wife and I each have a relatively small term policy.  As you get close to FIRE you are pretty much self-insured and it's no longer needed.  I think mine is <$200/year for a $500K 15 year policy which I got around your age.  My wife's is $300K. 

[trollwithamustache]

A small term policy is pretty cheap at your age.  My wife and I each have a relatively small term policy.  As you get close to FIRE you are pretty much self-insured and it's no longer needed.  I think mine is <$200/year for a $500K 15 year policy which I got around your age.  My wife's is $300K.

This is important. Life insurance will go up after 40.

any possibility of another kid? Life insurance money also hits at a time when the spouse can be distraught and have funeral expenses, so even once you are FIRE, while not necessary, it could be very helfpufll to the surviving spouse.

[StashingAway]

Caveat, I am pretty much anti insurance. IMO insurance is for potential disasters.  We always carried enough life insurance to pay off our house.  When we paid off our house we dropped it.  After that I figured I didn't need it.  I  had 2x income for free from work. We both had employable skills. We had an insurance salesman who wanted us to buy more.   His reasoning that if one of us died the other spouse wouldn't have to work.  WTF. We both already worked.  Either of us without a mortgage with  our income alone could support us.  I guess it depends on your expenses. I just figured  my husbands and I's college degree and ability to work was our life insurance.  I wouldn't buy life insurance to ensure my children have paid for college educations and weddings. I don't consider that a disaster.

And I say WTF to your proposition. There is no redundancy in your plan. You don't know what kind of mental condition you would be in after an unexpected death. Or dependents'. Your plan requires that the survivor being 100% capable of returning to work as normal.

In a time of darkness, not having to worry about finances is a heavy burdened removed. Big picture stuff is like what others are saying. For a very small amount of money I can ensure for the next 15 years that my family will not be thrown to the wolves if me or my spouse dies during our prime earning years. If my wife were to pass, in your scenario I would not only have to now take over all of the household chores, I would only be saving 10% of income instead of our combined 60%. Selling and moving to downsize would be a huge hurdle mentally and physically. I'd have to stay at work while grieving as well as managing the grief of the kids. While it's not a disaster like a tornado, it certainly is a mental disaster.

[CupcakeGuru]

A small term policy is pretty cheap at your age.  My wife and I each have a relatively small term policy.  As you get close to FIRE you are pretty much self-insured and it's no longer needed.  I think mine is <$200/year for a $500K 15 year policy which I got around your age.  My wife's is $300K.

This is important. Life insurance will go up after 40.

any possibility of another kid? Life insurance money also hits at a time when the spouse can be distraught and have funeral expenses, so even once you are FIRE, while not necessary, it could be very helfpufll to the surviving spouse.

Totally agree with this. The other item to get is Long Term Disability. I have seen several times how an illness or accident can derail a family's finances.

[Baldeagle721]

https://youtu.be/P0yLw2XhQJU

What do you guys think of this presentation? Does he have a point or is he a really good salesman?

[rmorris50]

People way overthink term life insurance. A spouse passing is a traumatic, dark time. Give your family peace of mind that the surviving spouse will be Financially okay. Term is dirt cheap. Get a 20 year policy on each of you and be done with it and move on.


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[Abe]

Agree that life insurance is important for anyone who has dependents (children or spouse). How much is complicated but I’ll lay out what we have for a comparison

My wife and I are both insured for 20 years for approximately the cost of our house + college expenses for our kid + 5 years of our respective salaries. That will ensure that our biggest expenses are covered and there is extra left over for funeral, time off for the surviving spouse to regroup and to hire a full-time nanny if needed. Being in a profession where I deal with death far more than the average person, I have seen the total destruction an early death leaves in its wake. It is definitely a disaster and takes a long time to recover to some functioning member of society. The cost for that much coverage is a rounding error in our income and well worth it. Our coverage is far higher than most people would need, and still only around $300/month combined.

[Paul der Krake]

We've never carried any aside from the freebies (anything from $0 to one year's salary) paid by our employers. Every passing year made it less and less useful as our net worth grew. At some points, the other passing would have meant insta-FIRE.

[LoanShark]

Been thinking about this as well - once you reach FI, what's the point of having life insurance / disability?

[StashingAway]

Been thinking about this as well - once you reach FI, what's the point of having life insurance / disability?

You almost hit on it in your question. You may not need it after FI. You get it on your way to reaching FI. I won't be FI for another 10 years. As was mentioned, life insurance is a rounding error in my bills to ensure that my family is cared for until then.

[wageslave23]

Been thinking about this as well - once you reach FI, what's the point of having life insurance / disability?

There is potentially a big difference between being FI and your spouse being FI if you die.  My frugality, DIY ability, financial knowledge,  etc is probably worth 20k a year in saved expenses.   So even though we are pretty close to FI, there is no way she could survive on our passive income.  This is not a knock on her, she has other strengths and abilities. But financially she would struggle.  So I would consider this even if you are FI

[Scandium]

Life insurance can be useful when you have dependents. What you need depends on what you want to be taken care of once you pass away.

Do not forget that there are also non-financial consequences of a spouse passing away, and I would suggest to take dispositions for your children to cover the event of both you and your wife passing away.

At least IMO $1900 a month would not a lot to cover for my passing, both in terms of pure income and unpaid work I do for my wife. First off I bring in over double that, and that's after retirement savings (which is really for both of us).

More importantly we both work, so I get kids ready for school/daycare, and sometimes pick them up. How would my wife do that if she was alone?
I get groceries, cook, clean.
In gender-typical fashion I do a lot of house maintenance, lawn care, and building furniture ($$ saved!).

So if I died my wife would have to get two kids out of the house by herself, work 8+ hours, then get them home, cook dinner, get kids to bed, clean the house herself, mow the lawn, fix the house?! Oh, and that's after loosing >50% of my paycheck. She'd have no time left in the day, and probably no ability to save for her retirement! Even with paid off house you don't get more time..

Or she'd have to hire a nanny, handyman, lawn care. But on vastly reduced income.

Terrible scenarios. And for what? saving few hundred bucks a year on life insurance. Not going to risk it. I'll carry it at least until the kids are in their teens.
(and "help from family" is not an answer. I refuse to be a burden on elderly parents just because I'm cheap and died, that's pathetic)

[calimom]

Life insurance is one of the things you pay for that you hope you never need. You don't need freakish amounts, and less and less if you have hefty savings and a paid-for house. I always think people with young children should have it.

My husband was killed in a car crash when our youngest child was 14 months old.  He had through his job a policy that was the equivalent of one year's salary and we had a small bit of coverage through another policy. Because the drunk driver who hit him was uninsured, our auto policy paid out through an additional claim, with much wrangling. We had some savings and investments, enough for me to put down payments on a house in a LCOL area and for the purchase of a small business. The three children were all eligible for SS survivors benefits, which were reasonably generous and have had COLA in some years. The older two have aged out, though the middle one is still home and attending college remotely.  I have been receiving as an eligible parent for the first time ever due to cutbacks to my business during covid.

Certainly not a terrible economic situation, but not great when you consider daycare, health insurance (husband's employer paid for several months then it was OOP. Eventually the ACA helped a lot), summer camps, orthodontia and the general non-lavish costs to raise a young family. When my younger children were very small, I outsourced things I never would have in other times like housecleaning and yard care. Two children needed expensive therapy to help process their father's death that was not covered by our health insurance. Juggling college and my own one-day retirement is a balancing act. I'm resilient and reasonably resourceful but a bigger buffer of life insurance would have been helpful.

OP, please consider all options, get competitive quotes, and stay healthy and safe.