Life Insurance

[surpasspro]

My wife just gave birth to a baby.  Through my employer I get $115k of Basic Group Life for free, but that's the only life insurance I have.  Our mortgage is paid off and we have not debt.  I have a good nest egg so far.  Do I need additional life insurance considering a new born and spouse?  Thanks

[YttriumNitrate]

Maybe. More details would be needed, like your annual expenses vs the size of your nest egg and eligibility for social security.

[kanga1622]

You probably need to contemplate several things in making this decision. Many of them depend on what you would like to see happen if you were to pass. These were the questions we thought through as we evaluated options.

• Do you expect your wife to be bringing in income? If so, will that go down if you were to pass?
• What expenses would increase if you were to pass? Would your wife need to go back to work so childcare would be needed? Would she want/need to hire someone to handle lawn/snow care? Are you the handy one and she'd likely need to pay for plumber/electrical/mechanic support more often?
• Is your current nest egg enough to support your family through funeral expenses and replace your income at least to the level that they wouldn't be forced to sell your home or move to a cheaper living location in the midst of their grief?
• Would you want life insurance to be able to support paying for college for your child/children?

We are more of the FI than RE path and have pretty hefty life insurance policies (with respect to our incomes) while our kids are young. We went with 20 year term policies because we don't have so many expense concerns that can't be handled by a single income when the kids are college aged. And we spend around $425 a year total to have a decent amount of coverage in the case that we are faced with the loss of a spouse and need to focus on our family without being required to work right away. Term policies were just too cheap to pass up when we were young/healthy and wanted that extra security.

[Duke03]

Sounds like you are on the younger side if you just had a baby.  My advice is see if you can buy extra life insurance through the same company your employer has you covered with.  I pay for an additional 500k of life and accidental insurance and it cost me like $38 a month it's cheap.  A lot of places will claim you need 10x your income for coverage, but I don't buy into that...especially if you are mustachian...  Another thing to think about is god forbid something does happen your children will be entitled to social security monthly benefits until they turn 18.  This will offset your lost of income somewhat and will cover you needing less insurance.

[terran]

You and your spouse should each consider how you would reach your goals without the other spouse's labor. Goals presumably include FIREing at least on the same schedule as you currently plan to and maybe paying for college. Although I'd say it would also be reasonable to want to be able to FIRE immediately so you can spend your time grieving and helping your child get through the loss of the other parent. Remember to account for the added childcare costs and responsibilities of a single parent. Also look into what social security will pay until your child is 18. The amount by which you each miss your goals is the amount of term life insurance the other spouse should buy. You should also jointly consider what resources you'd like to leave to whoever agrees to take your child if you both die and make sure that the the sum of both of your policies covers that when added to what you've already saved.

https://www.term4sale.com/ is a good resource for price estimates and for finding an agent.

[JJ-]

Consider also in your calculations any social security benefit.

Sounds like you are on the younger side if you just had a baby.  My advice is see if you can buy extra life insurance through the same company your employer has you covered with.  I pay for an additional 500k of life and accidental insurance and it cost me like $38 a month it's cheap.

Both DW and I have separate term life policies for $500k and we pay combined what you pay through your employer. It might be easier through your employer but it's not the cheapest avenue. Granted, this is just term life and not accident.

[Metalcat]

Have a serious conversation with your spouse and each of you think long and hard about what you would each need if you ended up a solo parent of a young child while in the depths of mourning the very young death of your partner.

It's not just about basic financial planning like "well can your spouse keep working and still reach their savings goal?"

The question more is "are my spouse or I going to be okay if we're widowed young and still have to go to work every day? While in deep mourning despair? While raising our young child alone?"

[ixtap]

The issue with depending on employer plans is that you lose coverage when you lose that job. If you have aged or developed health issues in the interim, you may end up paying much more for a new policy.

[rmorris50]

Buying term life insurance should be one of the most brainless, easiest financial decisions you should be making. If you’re young and healthy, 20 year term policies are extremely dirt cheap. And if God forbid if one of you should be widowed at such a young age, it’ll be one of, if not the most, traumatic experiences of the surviving spouse’s and children’s lives. Just get the term policies on both you and your spouse in place, and then get on with living.


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[surpasspro]

Sounds like you are on the younger side if you just had a baby. 

I'm actually close to 50, so I'd consider that on the older side for being a parent.  So by the time my child is 20, I'll be close to collecting social security if I wait until 70.  I've started a 529 plan and will be contributing about $250 a month towards it.  IDK if the kid will even go to college... plus I want them to have some skin in the game by paying some of it themselves.  So I'm not as concerned about supporting the child on higher education.  I'll be looking speaking with my wife and doing more research on life insurance.

[Metalcat]

Sounds like you are on the younger side if you just had a baby. 

I'm actually close to 50, so I'd consider that on the older side for being a parent.  So by the time my child is 20, I'll be close to collecting social security if I wait until 70.  I've started a 529 plan and will be contributing about $250 a month towards it.  IDK if the kid will even go to college... plus I want them to have some skin in the game by paying some of it themselves.  So I'm not as concerned about supporting the child on higher education.  I'll be looking speaking with my wife and doing more research on life insurance.

Is your spouse also almost 50? Because for your life insurance policy, their age matters more than yours.

[surpasspro]

No my spouse is closer to 40.  I also checked my social security benefits as well and I've earned enough now that if I were to pass, the child/spouse would get my SS benefits.

[Metalcat]

No my spouse is closer to 40.  I also checked my social security benefits as well and I've earned enough now that if I were to pass, the child/spouse would get my SS benefits.

So keep looking into things like that and talk thoroughly with your spouse about what their needs would be if you were to die young, or vice versa.

It's not complicated, but it is deeply personal and emotional, so don't take the task lightly.

[dadbod]

When I was shopping for life insurance after the birth of our child, my husband was really pushing for a larger amount.  He lost a parent at a young age and he said that all of the calculators for lost wage replacement etc. don't capture the full scope of how life insurance is utilized after a death.  His deceased parent's life insurance preserved a little bit of stability in his tragic and unstable situation.  As a result, I purchased more life insurance than I expected or than replacement calculators said I needed.  It is a small price to pay for a bit of peace of mind should I die.

Agree that going through employer is an easy route but my employer would only allow me to get 3x my salary.  I shopped through a broker and was able to get a larger amount for a reasonable cost.  I first did the no exam route and was frustrated because seemingly inconsequential factors resulted in me receiving a poor health diagnosis (i.e., a hospitalization for a random infection knocked me down multiple tiers in the health category).  I insisted on a medical eval and ended up in the highest health category as a result, which kind of surprised me but I certainly didn't expect to be in the lowest. 

Good luck!

[volleyballer]

Anyone have advice for shopping for term life? Is there a broker type service similar to mortgage brokers?

I have 5x my salary through work, which I feel is sufficient (approx 550k insurance at the moment).

DW has zero right now due to maternity leave (for another year or two). I may want to get a 500k policy for her and call it a day. She may have 1x or 2x salary through work when she goes back, I can't remember.

We are both late 30's, I would think we will be FI by our late 50's, so I'm leaning towards a 20 year policy. Any thoughts?

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[Michael in ABQ]

Anyone have advice for shopping for term life? Is there a broker type service similar to mortgage brokers?

I have 5x my salary through work, which I feel is sufficient (approx 550k insurance at the moment).

DW has zero right now due to maternity leave (for another year or two). I may want to get a 500k policy for her and call it a day. She may have 1x or 2x salary through work when she goes back, I can't remember.

We are both late 30's, I would think we will be FI by our late 50's, so I'm leaning towards a 20 year policy. Any thoughts?

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I used an insurance broker that Dave Ramsey recommends - Zander Insurance. As a healthy male in my early 30s my $500k policy was about $250/year through American General. I can't recall if it was level term for 15 or 20 years. I think just 15 because I figured by then most of our kids will be out of the house and we'd be FI or close to it. Plus I have $400k coverage through the National Guard and there's also Social Security.

My experience was good. It was a couple of phone calls, filling out some forms and a medical examination that was pretty much just a blood draw and basic physical exam to confirm I was not really an obese diabetic smoker despite claiming to be in excellent health. The whole process took a few weeks start to finish.

In a lot of cases a $500k policy is cheaper than a $400-450k policy just because it's a very common amount and there's more competition among life insurance companies. Going from 10-year, to 15-year, to 20-year level term will mean price increases. A 10-year level term might be $30/month and a 20-year level term might be $50-60/month as your risk of dying 20 years from now is much higher than 10 years from now (even if it's going from 0.1% to 0.2%). A broker should be able to help choose a company that will be the best fit. Some may care much more about specific things in their underwriting than others. My wife had a couple of health issues and her $250k policy we purchased a few years before was more per month than my $500k policy even though she was around 30 at the time.

[terran]

Anyone have advice for shopping for term life? Is there a broker type service similar to mortgage brokers?

We used a local agent we found through https://www.term4sale.com/. The price we ended up with was almost exactly what the website estimated.

[JJ-]

Anyone have advice for shopping for term life? Is there a broker type service similar to mortgage brokers?

I have 5x my salary through work, which I feel is sufficient (approx 550k insurance at the moment).

DW has zero right now due to maternity leave (for another year or two). I may want to get a 500k policy for her and call it a day. She may have 1x or 2x salary through work when she goes back, I can't remember.

We are both late 30's, I would think we will be FI by our late 50's, so I'm leaning towards a 20 year policy. Any thoughts?

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I think ours popped up for SBLI through a Priceline esque mega broker called life quotes.

Do you pay for your employer provided insurance? It might be cheaper outside the job. If it's free well that's great.

If I were the sole earner I'd insure myself to get DW to the FI number. If $550k gets you there great. We're farther along than you with 6-7 years to go and $500k gets DW there with my pension (and healthcare) + social security.

For a while I had a $500k 20 yr and also a $500k 10 year when we decided to have kids. I dropped the 10 year policy because our stache grew to cover it. These things are pretty cheap, like $200/yr for the 20 yr. I went with two because I didn't want a $1m policy for 20 years.

[ericrugiero]

I've gotten quotes through both Zander and SelectQuote.  If you are healthy it's pretty cheap and painless.  I bought enough insurance that the surviving spouse would be FI.  The amount you need is reduced as your stache increases until you no longer need insurance and can "self insure".  You didn't give financial details so you will have to make that call yourself. 

You can plan to have the remaining spouse work but we chose to allow the survivor to focus on the kids since they would be a single parent. 

As pointed out above an employer sponsored plan could go away when you really need it.  What if you get sick and have to leave the employer before you pass away. Your insurance could disappear at the worst time. 

[Radagast]

I've seen a number of people use $500k for 20 years, which is also what we did for each of us. It think that is a sweet spot in terms of cost and value. Inflation adjusted $500k then (2015) might be $600k now.

At first we were newly married with few assets, so $500k would have made one person leanFI in our duplex whose rent nearly paid the mortgage. Now we have a lot more assets but a kid, and $500k would still bring the other up to a middling-FI value. The stash will continue to grow, and we will likely have one or two more kids, so it will continue to be about the right amount for a few more years. After about 15 total years it will be superfluous, but will only have a few years left on the policy so I will probably ride it out. Neither the payout nor the premium are inflation adjusted, so it won't be very significant by the end of the term anyhow.

We have all our insurance through state farm. They offer a strong volume discount for having so many different policies through them (home, auto, life, disability), so that I have not been able to find better rates the few times I tried.

Long term disability might be at least as useful. Economically it is at least as devastating, and is also more likely for young people. Use a 6-month or so exclusion period, then maximum allowable amount (60% salary or something) after that.

[DeniseNJ]

My method for figuring out what life insurance I need may be wrong, but here it is.  I considered my take home salary, which we use all of either for expenses or savings.  Then multiply by 20.  I figure at 4% withdrawal rate, it will be like I was still bringing home the same salary, even while dead.  May not be right but it was easy and a close guess.

I did subtract out of my take home pay the benefits dh would get if I die, like part of my pension, etc, and the took the difference to multiply by 20, so it is actually way less than 20 times my take home.

[secondcor521]

Then multiply by 20.  I figure at 4% withdrawal rate

A 4% withdrawal rate would be multiply by 25, not 20.  Multiply by 20 would be a 5% withdrawal rate, not 4%.

[sonofsven]

My twenty year term policy with USAA will be up in a year and a half.
I've paid $246.44 per year for a $250k policy. Unless I die pretty soon it will be nearly $5k "wasted" :-)
After my divorce I made my daughter the beneficiary.
Anyone re-up their term policy? I never planned on doing it, but I am a little curious what they would charge me now.

[ender]

My wife and I have 750k/500k respectively that expires in our late 40s.

I expect by that point we'll be FI enough to not need it.

Make sure you check what survivors benefits are for you and your spouse like others are saying. If I die, because we have two young kids, my wife wife not only will get the life insurance + work life insurance payouts, but also around $55k a year from social security until the kids start turning 18.

[Much Fishing to Do]

My twenty year term policy with USAA will be up in a year and a half.
I've paid $246.44 per year for a $250k policy. Unless I die pretty soon it will be nearly $5k "wasted" :-)
After my divorce I made my daughter the beneficiary.
Anyone re-up their term policy? I never planned on doing it, but I am a little curious what they would charge me now.

I got a 30 year term policy at age 32.  I looked into getting more at age 47 (a 10 or 20 year), but holy cow it was a whole lot more expensive (cant remember how much). And like other are saying, once I realized how nice the SS payments are for a spouse with kids still at home realized it wasnt really needed anyway.

[DeniseNJ]

Then multiply by 20.  I figure at 4% withdrawal rate

A 4% withdrawal rate would be multiply by 25, not 20.  Multiply by 20 would be a 5% withdrawal rate, not 4%.

You're right, of course. Forgot how to math.

[magus]

Think it will depend on a lot of things, including the cost. What's current and expected nest egg? Lifestyle expense at 3-4% SWR today? Can S/O earn a great income alone? Do you have existing health issues?

I was able to get a 15 year term $1M life insurance policy through SOFI for $27.95/month a few years ago, which at that point I estimated my NW would be $4M at the end of that policy and not needed anymore. I also have $500k insurance thru work (was $350k at the time of enrollment). For $27.95 I thought that much was a very good deal - $5k over 15 years for $1M, or 0.5% of the payout. I would not pay that much for half that amount or worse a quarter of that. My DW cannot make anything close to what I make.

[Arbitrage]

I had a $750k, 25-year policy that I cancelled earlier this year.  Had it for about 10 years, coinciding with the birth of my first child.  Ditched it once it was apparent that we were nearly FIRE, and the Social Security survivor benefits would more than cover any gap, even if my wife never worked another day and hired a nanny + housekeeper because she was too depressed to do anything. 

I actually would've dropped it a year earlier, but my payment was due right around the time COVID was overtaking the world.  With our net worth dropping by 30% or so in a month plus my probability of death spiking to a level we had very little understanding of at that time, I just let it stick around for another year.

[ericrugiero]

I had a $750k, 25-year policy that I cancelled earlier this year.  Had it for about 10 years, coinciding with the birth of my first child.  Ditched it once it was apparent that we were nearly FIRE, and the Social Security survivor benefits would more than cover any gap, even if my wife never worked another day and hired a nanny + housekeeper because she was too depressed to do anything. 

I actually would've dropped it a year earlier, but my payment was due right around the time COVID was overtaking the world.  With our net worth dropping by 30% or so in a month plus my probability of death spiking to a level we had very little understanding of at that time, I just let it stick around for another year.

This is the reason that most mustachians don't need term life insurance that long.  Before 25 years is up, you should be able to self insure.  I'd recommend something like 10-20 year which is typically cheaper (especially for the OP who is a little older).  That's different than the "normal" American living paycheck to paycheck and barely saving anything. 

The SS survivor benefits definitely affect how much insurance you need.  I'm probably over insured at this point because of the survivor benefits and our growing nest egg.  If my wife was to pass away, I wouldn't get the survivor benefits and her policy is smaller.  But, it's enough that I could stay home with the kids and just make a little side gig income to "coast FIRE". 

[YttriumNitrate]

The SS survivor benefits definitely affect how much insurance you need.  I'm probably over insured at this point because of the survivor benefits and our growing nest egg.

Indeed, I was rather shocked the first time I ran the numbers and realized that SS survivor benefits would basically cover my family's day-to-day expenses if I were to die. Having a good income and low expenses causes the SS survivor benefits to be particularly generous.

[TomTX]

No my spouse is closer to 40.  I also checked my social security benefits as well and I've earned enough now that if I were to pass, the child/spouse would get my SS benefits.

That was my reason for dropping my life insurance. Likely Social Security survivor benefits + current nestegg is enough for the family if I die.

[Johnny]

If you do decide to get life insurance after doing your due diligence, just remember to buy Term and invest the rest.

Other life insurance products are not necessarily bad, they're just bad for people with our mindset.

[SavinMaven]

Imagine you get into a car wreck tomorrow and are gone. What does life look like for your wife and baby financially? Are they fine, or is there a gap to fine? How big is that gap? Buy that much life insurance.

If in doubt, just buy it. You can always cancel it later, but you never know when you will have something happen that makes you uninsurable.