Life Insurance?? Term?

[TheAnonOne]

I know MMM passed up on life insurance (Essentially by self insuring)

We are 8-10 years from FIRE and cruising along at a good clip. Term life insurance seems unnecessary unless we wanted to guarantee the other person was FI upon the others death.

We have a few hundred grand in Vanguard along with some more assets so we would both be fine but she would have a hard time with FIRE due to our income being mostly mine.

Thanks!

[Mississippi Mudstache]

Is there a question in there somewhere? My wife has not worked in several years as she is a SAHM, so I have enough term life insurance ($650,000 on a 20-year term) to make her FI if I were to pass. The policy costs $280/year. Pretty reasonable if you ask me.

I also have a smaller policy on her ($325,000) to cover the cost of child care, should she meet an early demise. Her policy is around $220/year. So, $500/year for a guarantee that neither of us will have to worry about money if the other passes is a reasonable expense, IMO. But we have three children to take care of. If we were childless and both working, we would have less coverage or no coverage.

[HPstache]

I don't want my wife and son to have anything to worry about money-wise if I should pass.  I pay $21.50/mo for $500,000 ... that is cheap insurance if you ask me.  I am only 20 year term, started at 30 years old.

[TheAnonOne]

Is there a question in there somewhere? My wife has not worked in several years as she is a SAHM, so I have enough term life insurance ($650,000 on a 20-year term) to make her FI if I were to pass. The policy costs $280/year. Pretty reasonable if you ask me.

I also have a smaller policy on her ($325,000) to cover the cost of child care, should she meet an early demise. Her policy is around $220/year. So, $500/year for a guarantee that neither of us will have to worry about money if the other passes is a reasonable expense, IMO. But we have three children to take care of. If we were childless and both working, we would have less coverage or no coverage.

Sorry! It was more of a "Thoughts?" I am trying to see where this highly valued community sits on this topic!

[Jack]

But we have three children to take care of. If we were childless and both working, we would have less coverage or no coverage.

I agree: I don't see the need for life insurance for myself or my wife right now, but plan to buy it when we have kids.

[RetiredAt63]

My DD is all grown up and on her own, I have enough assets to more than cover my debts (mortgage), so I no longer carry life insurance.  But when I was working and kid was smaller, both husband and myself had enough life insurance to take care of things.  A lot of couples don't think about insuring the SAHP but if that person were to die without insurance it would be really hard financially and time-wise on the survivor.

I always went term automatic renewable, since full is a forced savings plan and I can save perfectly well on my own, thank you very much.

[Hotstreak]

For the folks who have 20 year term life, why are you insured for so long?  Did you take out the plan before you decided to retire early?  Seems to me like 10 years would be enough.  After 10 years, even if you aren't FI you should have large assets built up, effectively self-insuring.

[Slow&Steady]

A couple of years ago when we had our 1st kid, we looked into term life insurance.  When the kid came along DH went part-time, he was dx'd with MS about 4 years ago and we decided that the kid was a great reason to cut back on work (stress) for him.  So when we started looking into term life insurance after the kiddo came, he got denied due to his health.  Luckily he had small policy that he was talked into at 21 when he worked in the oil field but I did not have anything.  I was able to get a policy for 10x my annual salary for 20 years at a cost of $25/month and I signed him (it also covers any kids) up for another very small life insurance through my employer for $2/month. 

If I was to pass he would have enough to pay off the house, put some into a college fund, and live for 5-10 years without additional income (or SS survivor benefits) if they wanted to.  Our plan is for him to continue to work at least part-time but maybe ramp it up closer to full-time and save that money for his retirement, as it would be difficult for him to save for retirement without me around (especially if he ends up on disability due to his health).  In our family a large part of my contribution is financial.  Basically my life insurance is enough to fulfill the financial role in our household that I currently fill for at least a 5-10 years after I pass.

If he was to pass the 2 small policies would allow me to hire additional help at the house and move closer to work so I could be more available for the kid.  In our family a large part of his contribution is the day to day operation of our home.  Basically his life insurance is enough to allow me free up time in my day to take on some of his roles and pay somebody to help with the items I can't do, well allowing me to continue to work towards an early retirement.

We went with a 20 year term for me because we wanted to be fully covered until the kid graduated high school, if we would be FI at that point or not was not something we considered.  Although I could see why one would consider it.

[boarder42]

there is a really long thread on this already but here is why we will never carry it even prior to FI after we have kids.

1. we'll have over 500k in invested assets when we have our first child. 
2. go make an SSA.gov account for you and your wife you'll be surprised to see how much money your spouse will receive after you die if you still have a kid under 18 - for me its around 48k a year for her and our unborn child - for her its around 40k for me and our unborn child
3. we both work and are capable human beings i dont expect either of us to not be able to support our lifestyle if the other were to die.  see no. 2 above for more proof.  if one of us croaks -  we're FIREd basically. esp when you account for No. 1.
4. our places of employement give 1 - 2 years salary as life insuracne so there is another 100-200k

really though its number 2 most people dont know about or consider at all.

i didnt even know about it til the last thread like this and even then i was strongly considering not caring life insurance.

[Hotstreak]

there is a really long thread on this already but here is why we will never carry it even prior to FI after we have kids.

1. we'll have over 500k in invested assets when we have our first child. 
2. go make an SSA.gov account for you and your wife you'll be surprised to see how much money your spouse will receive after you die if you still have a kid under 18 - for me its around 48k a year for her and our unborn child - for her its around 40k for me and our unborn child
3. we both work and are capable human beings i dont expect either of us to not be able to support our lifestyle if the other were to die.  see no. 2 above for more proof.  if one of us croaks -  we're FIREd basically. esp when you account for No. 1.
4. our places of employement give 1 - 2 years salary as life insuracne so there is another 100-200k

really though its number 2 most people dont know about or consider at all.

i didnt even know about it til the last thread like this and even then i was strongly considering not caring life insurance.

Those are some big survivors benefits, are you sure the #'s are right?  I must be looking at a different SS program.  I thought the kid had to be under 16, and you would receive 75% of the dead spouses expected SSI benefits.  If that's your benefit amount you definitely don't need insurance.  Assuming you're at least a little Mustacian, and it sounds like you are, that should be enough money to pay all bills while the child is being raised, while allowing your other investments to continue to grow, without the surviving spouse needing to work.

When Term makes sense to me is when the couple has a child or is about to, and one of their major priorities is to have one parent stay home to raise the kid.  In order to do that, the 2nd parent is going to have to have an income.  If any one parent dies, the 2nd parent stays home to raise the kid, and there's no more income.  Term life insurance provides that income.  In the event of death of one spouse, the survivor could presumably go back to work or continue working, and pay for child care.  That would require a change in priorities though, and assumes that both spouses are capable of making a good salary (not always the case, even among this cohort). 

ETA:  You're also insuring against the unknown (beyond the risk of death of one spouse).  Whether you'll really be able to continue working and pay daycare, or if you will be more inclined to stay home with the child, is something you can think about and plan ahead of time but which may change if you are actually in that situation.  You may become injured or disabled in a way that makes it difficult for you to produce the income you expected to, and that could mean a financial bind w/o the help of a spouse to help out with additional income.

[HPstache]

For the folks who have 20 year term life, why are you insured for so long?  Did you take out the plan before you decided to retire early?  Seems to me like 10 years would be enough.  After 10 years, even if you aren't FI you should have large assets built up, effectively self-insuring.

20 years because that's when I figured my kids would be out of college.  I don't think I'll officially be able to FIRE until then even if I have the funds to.  I'm pretty conservative in that regard.

[Hotstreak]

For the folks who have 20 year term life, why are you insured for so long?  Did you take out the plan before you decided to retire early?  Seems to me like 10 years would be enough.  After 10 years, even if you aren't FI you should have large assets built up, effectively self-insuring.

20 years because that's when I figured my kids would be out of college.  I don't think I'll officially be able to FIRE until then even if I have the funds to.  I'm pretty conservative in that regard.

Ahh, thanks for that.  I'm single without kids so this is all hypothetical for me. 

I wonder if it would make sense to split your term, with part on a 5 year, part on a 10 year and part on a 20 year, so that your coverage decreases as your investable assets increase.  If you planned to be FI in 10 years, then the 5+10 year plans are enough to get your family to FI (or whatever target you set) if you died tomorrow, the 10 year plan is enough to reach that target if you died with expected balances 5 years from now, and the 20 year plan would just be your "oh sh*t" money for expensive college, non-covered medical disability, or to protect against portfolio failure in the event of a massive downturn.  I'd think you could save some money this way versus carrying the full amount over 20 years.

[boarder42]

hot streak

straight off the page

Survivors
You have enough credits for your family to qualify for survivor benefits. If you die this year, certain members of your family may be eligible for these benefits:
Your child:

 
$2,008 a month

Your spouse who is caring for your child:

 
$2,008 a month

unless i'm reading that incorrectly then let me know but to me thats 48k a year.  a pile of cash.

looks like the spouse gets it until 16 and the child gets it til 18 ... family max is 4800 so with a second kid i assume she would get that so in total she would get almost 60k a year til our youngest was 16 then she'd lose that and have 48k til the oldest was 18 and 24k til the youngest was 18

[DebtFreeinPhilly]

We took two term policies, mine is $500k/30 year and her's is $100k/20 year. Why 30 year? That covers me until SS benefits kick in. Hers is for child care for our two sons and is 20 years to cover until they are out of college. She is SAHM.

I pay about $50/month for my policy. I have a pre-diagnosed heart condition so I am higher than most. I understand the reasoning behind people electing to not have insurance. For me its more piece of mind knowing that no matter what happens to my assets (think 2008...a year when many of my senior workers wanted to retire but saw their 401k go to crap) my family will be taken care of no matter what happens to me.

[cchrissyy]

my term life is so cheap, I'd keep it even if I had no kids or partner to think of.

To me it is hands-down worth it to pay $30/month just to have the whole thing pass to a charity or split among my friends. I don't even feel that small cost, and it would be very good news to a nonprofit I cared about, or to my friends/neighbors/nephews.

[boarder42]

my term life is so cheap, I'd keep it even if I had no kids or partner to think of.

To me it is hand-down worth it to pay $30/month just to have the whole thing pass to a charity or split among my friends. I don't even feel that small cost, and it would be very good news to a nonprofit I cared about, or to my friends/neighbors/nephews.

I'm sure they'd also appreciate the 360 a year over the highly unlikely event of seeing the death benefit

[Mississippi Mudstache]

For the folks who have 20 year term life, why are you insured for so long?  Did you take out the plan before you decided to retire early?  Seems to me like 10 years would be enough.  After 10 years, even if you aren't FI you should have large assets built up, effectively self-insuring.

20 years because that's when I figured my kids would be out of college.  I don't think I'll officially be able to FIRE until then even if I have the funds to.  I'm pretty conservative in that regard.

Personally, I took out the policies after my first child was born, which was a couple years before I discovered early retirement. Not to mention that I have a pretty average income; retiring in 10 years is a pipe dream for me, considering that I'm also supporting a wife and three kids. I'll be happy enough to retire when the kids go to college, which is coincidentally around the time the policies will expire.

[nottoolatetostart]

We carry a good amount that we picked up about 7 years ago when we were 30- we each carry the same amount. My plan has to been to cut it when we hit FI. We have 2 small children. We pay $55/month for both policies combined (or $668/year).

With the SS benefits (which I learned about at this site) and a SWR on our current savings and a 1x salary we would get from my husband's employer, we have more than enough that we don't need life insurance. Our next annual payment is coming up in February 2017 and I am trying to convince DH to not renew and let the policy lapse. We might do one more year....it will take him time to get accustomed to this idea that we already self insured.

[MustachianAccountant]

there is a really long thread on this already but here is why we will never carry it even prior to FI after we have kids.

1. we'll have over 500k in invested assets when we have our first child. 
2. go make an SSA.gov account for you and your wife you'll be surprised to see how much money your spouse will receive after you die if you still have a kid under 18 - for me its around 48k a year for her and our unborn child - for her its around 40k for me and our unborn child
3. we both work and are capable human beings i dont expect either of us to not be able to support our lifestyle if the other were to die.  see no. 2 above for more proof.  if one of us croaks -  we're FIREd basically. esp when you account for No. 1.
4. our places of employement give 1 - 2 years salary as life insuracne so there is another 100-200k

really though its number 2 most people dont know about or consider at all.

i didnt even know about it til the last thread like this and even then i was strongly considering not caring life insurance.

Those are some big survivors benefits, are you sure the #'s are right?  I must be looking at a different SS program.  I thought the kid had to be under 16, and you would receive 75% of the dead spouses expected SSI benefits.  If that's your benefit amount you definitely don't need insurance.  Assuming you're at least a little Mustacian, and it sounds like you are, that should be enough money to pay all bills while the child is being raised, while allowing your other investments to continue to grow, without the surviving spouse needing to work.

It's true. SSA death benefits for families with children are very generous. Go make your SSA.gov account, and there is a place where you can get your specific numbers.
Doing that caused me to seriously downgrade the amount of life insurance my wife and I carry.

[Hvillian]

I wonder if it would make sense to split your term, with part on a 5 year, part on a 10 year and part on a 20 year, so that your coverage decreases as your investable assets increase.  If you planned to be FI in 10 years, then the 5+10 year plans are enough to get your family to FI (or whatever target you set) if you died tomorrow, the 10 year plan is enough to reach that target if you died with expected balances 5 years from now, and the 20 year plan would just be your "oh sh*t" money for expensive college, non-covered medical disability, or to protect against portfolio failure in the event of a massive downturn.  I'd think you could save some money this way versus carrying the full amount over 20 years.

You might save a little bit, but the premiums per dollar of coverage decrease quite a bit as the coverage amount increases.  And I haven't seen many 5 year policies.   I just played with my bank's online calculator for some examples:
(Best Health/Risk tier, aged 35)
10 years, $100k coverage is $11.40 a month
10 years, $250k coverage is $14.15 a month
20 years, $250k coverage is $15.15 a month
20 years, $500k coverage is $24.99 a month
20 years, $750k coverage is $35.40 a month

So if you paired the two $250k policies (one for 10 years and one for 20 years), you would only save a total of less than $700 over just having the $500k policy for the same 20 years.

[2buttons]

Because it's super inexpensive risk insurance, especially compared to whole life.  20 years because it's cheaper on that horizon, and I will keep it long into FIRE.  I think term life is a no brainer.

[TomTX]

For the folks who have 20 year term life, why are you insured for so long?  Did you take out the plan before you decided to retire early?  Seems to me like 10 years would be enough.  After 10 years, even if you aren't FI you should have large assets built up, effectively self-insuring.

20 years because that's when I figured my kids would be out of college.  I don't think I'll officially be able to FIRE until then even if I have the funds to.  I'm pretty conservative in that regard.

Ahh, thanks for that.  I'm single without kids so this is all hypothetical for me. 

I wonder if it would make sense to split your term, with part on a 5 year, part on a 10 year and part on a 20 year, so that your coverage decreases as your investable assets increase.  If you planned to be FI in 10 years, then the 5+10 year plans are enough to get your family to FI (or whatever target you set) if you died tomorrow, the 10 year plan is enough to reach that target if you died with expected balances 5 years from now, and the 20 year plan would just be your "oh sh*t" money for expensive college, non-covered medical disability, or to protect against portfolio failure in the event of a massive downturn.  I'd think you could save some money this way versus carrying the full amount over 20 years.

We got a 10 year on my wife when she was pregnant (we plan on only 1 child) - by the end of that term, we're long past daycare and at most would need a couple of hours of after-school care for a few years. Which would be more than covered by SSI survivor benefits.

Now that I think about it some more, we should re-run the numbers once he is in school and consider just dropping it entirely at that point.

I am the only one with full-time work, have 4x salary as life insurance cheaply through work, plus 3.5x salary for AD&D insurance (really cheaply. $4/month for me, an extra $4/month to cover the whole family) through work. If something happened to me, the life insurance + SSI survivor would be more than enough to make my wife FI.

[giggles]

SSA survivor benefits also subject to an earnings limit - currently $15,720/year, just like the retirement limit. 

[robartsd]

I wonder if it would make sense to split your term, with part on a 5 year, part on a 10 year and part on a 20 year, so that your coverage decreases as your investable assets increase.

Playing with the shopping tool my bank provides, I can't find any 5 year policies with lower monthly premiums than the lowest few 10 year estimates. For people targeting standard retirement age, there probably would be an advantage to splitting coverage they only need for the first 20 years from any additional coverage needed beyond 20 years, due to steep premium increases beyond a 20 year horizon.

When considering such a scheme, one should be sure to include the time value of money on the payment of different premium amounts at different times. In Hvillian's example, actual premiums paid over the 20 year period is about $700 less when the coverage is split into a 10 year and 20 year policy, but premiums paid in the first 10 years are about $5/month more. Assuming the difference in premiums paid is invested at 7% annual interest rate the difference at the end of 20 years is only about $200 in favor of splitting the policy. I don't think having $200 more in twenty years would be worth it.