Do we need life insurance?

[MrsCtank]

Quick background - 28 F, married, DH 28
Hoping for a pregnancy next year. I work part time, him full. Salary before taxes 140-150k total.
Liabilities - mortgage, 240k left of 325k (an extravagance, but viewing it as an investment, 12 years left of 15 years at 3.125&), 90k student loans at 0% from my mother, paying 10-15k/yr.

Not taking into account possible children, do we need life insurance? We currently have 500k term policies on each of us we bought when we got the house because we thought it something happened to either of us the other couldn't afford the house on one salary. We pay 950-1000/year total for the two policies.

[Ricksun]

Would you be able to pay mortgage with only 1 income?  If you died, would you want your mother paid back for student loans?  What kind of funeral and mourning time would you anticipate?

Absent the future kid factor, those are the only questions you likely need to answer.

[Monkey Uncle]

You left out the assets side of the equation.  That is important for determining whether you need insurance and, if so, how much.  You need to consider what your future plans are for those assets and whether you'd be willing/able to tap into them to service your debt and cover other expenses.

Also, consider how much your overall expenses would change should one of you meet an untimely demise.  Would you be willing to cut back?  Downsize the house?  How much would your spending on food, clothing, transportation, utilities, etc. change?

If you can't service your debt and meet your other expected expenses on one salary or a combination of that salary and liquidating assets, my opinion is that you probably need life insurance.  How much money would you need, when invested conservatively, to produce enough income to fill the gap?  That would give you an idea of how much insurance you need.

Also consider how long your expenses will remain at the estimated level.  For example, once your house is paid off, your monthly expenses are likely to drop substantially.  That might give you an idea of how long the term of the insurance should be.  (Personally, I would go with term insurance.  I think whole life and universal life policies are unnecessarily complex, expensive, and designed primarily to enrich the insurance company at your expense.  But that's my opinion - you should research it and decide for yourself).

[MrsCtank]

I appreciate the input! Our assets are limited at the moment other than emergency fund and 55k in retirement.

[ltt]

Currently, $1,000 a year for $500,000 of term life insurance....I think it's definitely worth it.   You can reevaluate how much you need if you have children in the future. 

[MayDay]

It sounds like you might need it on your H, but he wouldn't need it on you (assuming you make 1/3 the income working PT).

Like others said, it depends if you'd want to keep the house.

[MrsPete]

Short answer, yes. 

Long answer, if you were left alone with the house, you wouldn't be able to keep it on a part-time salary.  However, look at the big picture:  Your chances of dying young are fairly remote.  You are more likely to be disabled than to be killed -- are you insured against that? 

The real nightmare situation:  You have a family, and you're doing fine with two parents and two salaries ... then one parent is disabled /unable to work.  The healthy spouse is now providing 100% of the children's needs, caring for a spouse with medical needs, AND working ... but that life insurance isn't helping because the disabled spouse is still very much alive.  Yeah, unemployment'll help for a while ... but this situation could devastate a family financially.  And this is more likely than death.  Ask my 26-year old friend who's been in the hospital for 100+ days; realistically, he and his wife are going to end up declaring bankruptcy -- not the path they were on a year ago. 

[lthenderson]

Some studies have shown less than 2% of term insurance holders ever get paid out. Most never use it and many lapse in paying the premiums.

[rpr]

Some studies have shown less than 2% of term insurance holders ever get paid out. Most never use it and many lapse in paying the premiums.

Not to digress but wanted to respond: In fact, that is precisely the reason why term policies have low costs. It is an insurance against a catastrophic event, similar to Homeowner and Auto insurances. In fact, once you have built up enough of a savings and a big cushion in assets, it is probably the correct thing to do to let the term life insurance policy lapse.

Back to the OP: At $1000 a year for $500K in coverage for each of you, I'd keep it assuming that this is a level term. Plus how long is the term. I would keep it on both spouses including the non-working one.

[soccerluvof4]

In your situation I would keep it and maybe even see about raising it a bit. You guys are young enough you can get it cheap. We had it till we were 40 and in a position to not need it but had something happened whomever was the survivor was taken care of. But once you get to that point, ya get rid of it.

[Rocketman]

I think you do need term insurance, but your policies look expensive to me.  We are paying $265 & $345 for 500k (15 year term started when we were 39 and 35).

This is an area I think you could save money by getting a better policy.  If there were any medical issues that you can change on your last medical exam - change them ( lose weight, exercise more,etc).

Also make sure the term matches your life. 20 year gets your kids to college your home paid (assuming 15 or 20 year mortgage with no refi's) and you should be self insured by then - and if you apply the lessons from this blog you should be retired (or at least able to retire)

Good luck!

[TomTX]

I think you do need term insurance, but your policies look expensive to me.  We are paying $265 & $345 for 500k (15 year term started when we were 39 and 35).

This is an area I think you could save money by getting a better policy.  If there were any medical issues that you can change on your last medical exam - change them ( lose weight, exercise more,etc).

Also make sure the term matches your life. 20 year gets your kids to college your home paid (assuming 15 or 20 year mortgage with no refi's) and you should be self insured by then - and if you apply the lessons from this blog you should be retired (or at least able to retire)

Good luck!

++ Those policies seem really expensive. My wife's 500k policy is like $340/year, and we got it when she was already quite pregnant, at 39 years old.

[calimom]

LIfe insurance is something you buy and hope you never need, and if you need it and don't have it, you wish you had it.
It's certainly not for everyone at every stage of life, and wouldn't really be necessary for a young family who has a paid for house and are FI. Most older people don't need it. You really don't need it on your children.

I was fortunate to have what life insurance we did have when my husband died at age 37 and I had 3 young kids to take care of - I still have young kids so I have a $500K policy on myself now.

OP, you might look at your premium costs and shop around a bit, you can likely do better. And you probably need life insurance.

[seattlecyclone]

I don't know, I think life insurance isn't all that essential for a childless couple. You both presumably were doing all right before you got married. Would it be the end of the world if you had to go back to whatever lifestyle you were living as a single person in the very unlikely event that your spouse died before the age of 35?

Children change everything. If and when you have kids, absolutely buy enough insurance to ensure the surviving partner (or guardian if both of you die) are able to raise the kids to adulthood.

I also agree with the poster who mentioned disability insurance. If you die, your partner just has to take care of one person on one salary. If you become seriously disabled, your partner now has to take care of two people on one salary, likely with extra medical and related expenses on top of your current budget. Also from a statistical perspective, disability at your age is much more likely than death.

[Grogounet]

Yes, you need it, as you need trauma and disability insurance as expressed already.
The premium paid are little compared to what it covers.

I know we're talking about money here but when someone we love dies or becomes disable, we want money to be the latest of our concern.
That's exactly the reason why you need it as soon as you start to become in debt.

[Sibley]

Elephant in the room. You make 150k a year total and still have 90k in SLs plus only 55k in retirement. I sure hope you're new to MMM and are working on cutting your expenses down to reasonable levels.

[MrsCtank]

Thanks for all the advice! Pretty sure its a 20year term (we didn't plan on keeping it that long) and the added possible cost is likely due to a clause that combines a disability feature where you can draw it if you meet certain criteria (I know, probably worthless as they are unlikely to pay out, but hey, I need to look into it more). DH got excellent pricing, I could stand to lose some weight and some long standing illnesses are an issue.

Elephant in the room. You make 150k a year total and still have 90k in SLs plus only 55k in retirement. I sure hope you're new to MMM and are working on cutting your expenses down to reasonable levels.

Yes and yes. DH isn't fully on board but relatively frugal, I handle most of the expenses and squirrel away whenever possible. Our expenses in college and the few years post were higher than they should have been, granted we were in college 7 years and then moved to DC. The student loans come from professional school and total cost was closer to 160k. I just paid off DHs car he refuses to get rid of too, a 2013 escape. I'm hoping it lasts a looong time. We also bought too much house... 80k equity but still, too much house, and I don't have access to a 401k. I'm acutely aware of our position but struggle with having invested so much in a career I don't care for. We just started making over 100k a couple years ago.

[Sibley]

Elephant in the room. You make 150k a year total and still have 90k in SLs plus only 55k in retirement. I sure hope you're new to MMM and are working on cutting your expenses down to reasonable levels.

Yes and yes. DH isn't fully on board but relatively frugal, I handle most of the expenses and squirrel away whenever possible. Our expenses in college and the few years post were higher than they should have been, granted we were in college 7 years and then moved to DC. The student loans come from professional school and total cost was closer to 160k. I just paid off DHs car he refuses to get rid of too, a 2013 escape. I'm hoping it lasts a looong time. We also bought too much house... 80k equity but still, too much house, and I don't have access to a 401k. I'm acutely aware of our position but struggle with having invested so much in a career I don't care for. We just started making over 100k a couple years ago.

You're aware and working on it. That's good.

[No Name Guy]

Google Social Security Risk of Dying table, or something similar.  I did that a few years ago.  It's interesting to look at hard numbers.

So, in your case OP:
You and spouse are both 28 years old.  Consulting the copy of the table from a couple years back show this:

Of each 100k born, at 28 years old:
There are 97,642 men and 98,673 women still alive.

Over the next 10, 20 and 30 years, the odds of a 28 year old man dying are 1.52%, 4.29% and 10.47% respectively.  (96,154, 93,457 and 87,419 still alive at 38, 48 and 58 years old, out of the 100k)

Over the next 10, 20 and 30 years, the odds of a 28 year old woman dying are 0.78%, 2.51% and 6.30% respectively. (97,907, 96,193, and 92,461 still alive at 38, 48 and 58 years old, out of the 100k)

So, OP, I believe you indicated you're the gal - you have an excellent chance of surviving 20 years as only 1 in 40 women who are 28 will die before reaching 48.  Your hubs, he has a 1 in 23 chance of dying.  Those are the odds, per Social Security.

You'll probably want to adjust those policy amounts (yours and his) to take into account your expected relative income levels, since that's what you're out to replace in the event one of you is to die.  The one you anticipate to be the bigger earner over the term should have the bigger policy in proportion, since there is more to lose should their number get called versus the lower income earner.

You'll probably ALSO want to take the face policy amount and discount that by your estimate of inflation at the critical year during the term (e.g. what would be the worst year that one could die, taking into account expected asset accumulation to begin self insuring, etc).  So, should someone die 12 years from now, when your soon to be had child is about 10-11 years old, that 500k (in today's value) policy will have substantially less purchasing power due to 2-3% / year inflation.  Of course, hopefully you've accumulated assets by then to compensate (say in Jr's college fund), but, take those two effects into account in deciding what enough means.

It sucks to contemplate mortality.  Even worse is to ignore it, and have your other half be the one 1 in 23 or 1 in 40 leaving you stuck holding the bag.

[acroy]

I say no while childless. If one of you dies/incapacitated the other will be fine.

Possibly Yes when children are involved if your NW is still low.

I carried a $1M 10yr policy on myself, $225/yr, until this year. If I died or was incapacitated, DW and kids would have been fine. Now, our NW is good enough, and SS survivor bennies (take this into account!) that they will be fine if I'm gone.

Good luck to you!