Life insurance.

als1982 · June 2014

My apologies if this comes up regularly, but I'm interested in everyone's thoughts on life insurance.

Are we wrong to be thinking term life versus whole?

TIA!!

Mom987 · June 2014

I believe term is always the recommendation vs. whole. I'm not 100% sure why, but that's what I think. I also think about 10 times salary is definitely a suggested amount as well, so 12 times is great. The rates seem pretty good but I'm not sure what to compare to. We have $100k and $75k through work and it's about $20/paycheck, so your rates seem good for $1M each.

blondie42107 · June 2014

I rarely see anyone with whole life insurance. I'm curious how you determined your coverage amount.

Wulfgar · June 2014

Whole life is only good for small coverage that you prepay in a small period of time, say 10 years. The thing about whole life is that it is good as long as the premiums are paid and you build up a cash value that at certain period in time you can stop making payments on and the cash value will pay for the insurance premium.

That being said, I need to get a better term life insurance started so I can cancel my one whole life policy. The policy is for 60k and I pay $55 a month for that coverage. I should be able to get term life in the 300k range for a similar payment. I am 43 male. I do have other coverage through my current work including a term policy that is close to the limit I was allowed when I started.

hoffse · June 2014

Term is better. If you save well and live long enough, eventually you can cancel it. My parents just cancelled theirs because they have enough saved for the other to live on for the rest of their lives, I'm out of school with my own job, etc. Life insurance for them became pretty expensive at their age for something that ultimately would not be necessary any longer.

Whole life is typically way more expensive than term because you build it up through your life. This is an oversimplification.... but when you buy term life when you are young, the premiums are quoted with the expectation you will probably live. When you buy whole life, the premiums take into account the fact that you WILL die someday. As you age, term life does eventually become more expensive than whole life that you bought at a very young age, but as I said if you save well then you no longer need life insurance anyway.

Personally, I would want more than $1M with a little one. H and I figure that we want enough to pay off all debt - including student loans and mortgage - plus enough to pay tuition for daycare, catholic school (estimated), and college (estimated). For us, that's probably more than $1M. At that point, the survivor should be in a perfectly fine position financially to raise a child alone - even if we chose to move to a less lucrative job - because the really expensive things would be taken care of. That might be overkill, but the entire point is security.

Brij can speak more to this, but the quotes you received seem high to me. H and I each have a $500K policy because we are not TTC yet. H is 26 and I am 27. I pay $12.50/month for my coverage and H pays $14.50/month for his. You guys are a bit older than us, and you are being quoted for more coverage, but it still seems high. Maybe others can speak to that?

als1982 · June 2014

blondie42107 said:

I rarely see anyone with whole life insurance. I'm curious how you determined your coverage amount.

Individual annual income x10, plus a little padding for inflation and raises.

als1982 · June 2014

hoffse said:

Term is better. If you save well and live long enough, eventually you can cancel it. My parents just cancelled theirs because they have enough saved for the other to live on for the rest of their lives, I'm out of school with my own job, etc. Life insurance for them became pretty expensive at their age for something that ultimately would not be necessary any longer.

Whole life is typically way more expensive than term because you build it up through your life. This is an oversimplification.... but when you buy term life when you are young, the premiums are quoted with the expectation you will probably live. When you buy whole life, the premiums take into account the fact that you WILL die someday. As you age, term life does eventually become more expensive than whole life that you bought at a very young age, but as I said if you save well then you no longer need life insurance anyway.

Personally, I would want more than $1M with a little one. H and I figure that we want enough to pay off all debt - including student loans and mortgage - plus enough to pay tuition for daycare, catholic school (estimated), and college (estimated). For us, that's probably more than $1M. At that point, the survivor should be in a perfectly fine position financially to raise a child alone - even if we chose to move to a less lucrative job - because the really expensive things would be taken care of. That might be overkill, but the entire point is security.

Brij can speak more to this, but the quotes you received seem high to me. H and I each have a $500K policy because we are not TTC yet. H is 26 and I am 27. I pay $12.50/month for my coverage and H pays $14.50/month for his. You guys are a bit older than us, and you are being quoted for more coverage, but it still seems high. Maybe others can speak to that?

Thank you, Hoffse!! Good advice.

brij2006 · June 2014

Here is usually the guideline we use. Add up all of your debts, plus 10x your salary, plus any future expenses. When we bought our term policies at the beginning of the year we were TTC, we are now expecting. So we added in enough coverage to cover daycare expenses if my H or I were to pass away soon after baby is born, and enough to cover college tuition (or at least start a college fund).

As far as what term to use, we try to get people as close to age 65 as possible. I'm 26, so there isn't a 40 year term policy out there, but the theory is that if you set yourself up right you will be self insured and not need a life insurance policy the closer to retirement you get. Our term is 20 years, and we figure that will get the kids through daycare, money in their college fund, and a paid off house (along with the other debts that will be gone soon anyways).

Do a Google search for an "Independent Insurance Agent" in your area and have them run you some quotes for term only. They will have multiple companies to choose from and can give you the cheapest option.

As far as why to go with term instead of whole life. A whole life policy is an investment within a life insurance policy. You contribute almost 10 times the amount needed to pay the premium on the insurance coverage itself, and that money is put into a very low risk investment. The reason why it isn't the best option is because you pay a lot more for a lot less death benefit. Also you are better off taking that extra money each month and investing it elsewhere. The returns within the life policies usually average 2%. A CD is even doing better than that. It is just a bad investment, and in the end most people do not have enough life insurance coverage when they have a whole life policy.

vlagrl29 · June 2014

you guys are making me want to raise our life ins

Go thru an individual agent for quotes….it's much cheaper that way. That's what we did. State Farm was way to much money for us

twoforksonelove · June 2014

We talked to a financial planner (via Dave Ramsey, so FREE) and he recommended 1 million on a 20 year term. We wound up going with two different companies since mine was less expensive with one and his was less expensive with the other.

brij2006 · June 2014

twoforksonelove said:

We talked to a financial planner (via Dave Ramsey, so FREE) and he recommended 1 million on a 20 year term. We wound up going with two different companies since mine was less expensive with one and his was less expensive with the other.

This is what we did too. It's still through the same agency, but my H has a different company than I do since it was cheaper that way.

athlete010688 · June 2014

brij2006 said:

Here is usually the guideline we use. Add up all of your debts, plus 10x your salary, plus any future expenses. When we bought our term policies at the beginning of the year we were TTC, we are now expecting. So we added in enough coverage to cover daycare expenses if my H or I were to pass away soon after baby is born, and enough to cover college tuition (or at least start a college fund).

@brij2006 - I missed this! Congrats! I believe you guys had some TTC initially, so big contrats!!!

brij2006 · June 2014

athlete010688 said:

brij2006 said:

Here is usually the guideline we use. Add up all of your debts, plus 10x your salary, plus any future expenses. When we bought our term policies at the beginning of the year we were TTC, we are now expecting. So we added in enough coverage to cover daycare expenses if my H or I were to pass away soon after baby is born, and enough to cover college tuition (or at least start a college fund).

@brij2006 - I missed this! Congrats! I believe you guys had some TTC initially, so big contrats!!!

@athlete010688 Thank you. It has definitely been a rough road for us, and we feel so fortunate to be here. 3 losses, 16 months, therapy sessions, and a couple of TTC breaks later, things are growing with flying colors. It's something we didn't expect at all and were getting our financials in order to start paying out of pocket for more treatment and testing.

juliebeannn · June 2014

brij2006 said:

athlete010688 said:

brij2006 said:

Here is usually the guideline we use. Add up all of your debts, plus 10x your salary, plus any future expenses. When we bought our term policies at the beginning of the year we were TTC, we are now expecting. So we added in enough coverage to cover daycare expenses if my H or I were to pass away soon after baby is born, and enough to cover college tuition (or at least start a college fund).

@brij2006 - I missed this! Congrats! I believe you guys had some TTC initially, so big contrats!!!

@athlete010688 Thank you. It has definitely been a rough road for us, and we feel so fortunate to be here. 3 losses, 16 months, therapy sessions, and a couple of TTC breaks later, things are growing with flying colors. It's something we didn't expect at all and were getting our financials in order to start paying out of pocket for more treatment and testing.

/threadjack/
Wow brij2006 CONGRATULATIONS!!! I hope and pray that you have a wonderfully healthy pregnancy!!!
/threadjackend/

DH (32) and I (30) have a $500k term life each. (His policy is $21/month and mine is $23/month -- mine is slightly higher b/c I have a history of asthma) We were told the standard was 10x your income. My policy is quite a bit less than 10x my income and my DH's policy is just about 10x his salary. We were newlyweds and renting when we got life insurance so, it made sense at the time to just get around 10x our combined income.

We are now first-time home owners and are thinking of possibly TTC in the next year or so. Once/If we conceive, we plan to double both our policies.

mbecker03 · July 2014

Two things:

1. Someone mentioned that Dave Ramsey's advisors are free, and I just wanted to clarify. While they hold themselves out as free, the truth is that they get paid to sell you products. So they're definitely getting paid, it's just kind of hidden. I'm not a huge fan of that kind of model for financial advisors.

2. Here's why whole life insurance is a bad idea: momanddadmoney.com/why-whole-life-insurance-is-a-bad-investment/

Life insurance.

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