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Subject: Min-maxing life insurance? rss

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Neil Carr
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With our newborn daughter my wife and I are now exploring life insurance and annoyingly the only answer I can find on it is the rather dull "it depends" response.

We've got quotes, we've got spreadsheets, our heads are so filled with numbers at this point that I'm just more interested in seeing a geeky discussion on term life insurance, just because.

For our particular situation:

We're older (41 and 39) and we're getting it so that our daughter and perhaps a future second child has some safety net in case of one or both of our deaths. We've already worked through life insurance worksheets and the cost of "proper" coverage for us (around $500,000 each) is too much for our current household income, which is around $40k. That income will eventually rise to around $70k.

Right now we're looking at getting some private insurance, but then also getting a policy through our employers. The private insurance is likely more expensive than the group policies from the employers (both of us are teachers) but we do want to have a mix of both private and employer based just so that we have coverage regardless of how our careers go.

Right now we're trying to aim for around $250k of coverage over both plans. The rationale is pay for the house ($160k) and the rest is for state college tuition. If one of us dies then the consolation prize is the children get all or a good chunk of a in-state college education paid for.

We're in a debate right now on the length of the term. The cost effective approach is to stick with a 20 year term, but that only gets our daughter partly into college with coverage. We'd rather go with a 25 year term so that it covers both children up through college. Both my wife and I are of the mind that adolescence does really end until around the age 25, and both of us were certainly man/woman-children into our early 30s so ideally the coverage would extend out to cover that murky post-college period. The problem with that 25 year term combined with our ages makes for a rather expensive premium to pay every month.

Anyway, just throwing that out there for thoughts from others. We're methodically grinding through the numbers, but it's nice to actually hear other human perspectives about this process.
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Christopher Yaure
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Congrats on your family. I hope everyone is in good health and you and your wife lose your bets with the life insurance companies.

Your post raises many issues, but here is one issue to consider that may make things a little more affordable. Consider multiple policies with different terms. For example, if you do want to provide some safety net for their post-colege years, it likely does not need to be as large as what they need if you die earlier. Also, you likely will have retirement savings if you die in 20 years and college savings as well, plu the remaining principla on your home will have decreased. An extreme example might be to buy 5 $50,000 policies, one each of 5 years, 10 years, 15 years, 20 years and 25 years.

Another way to think of it is if you die in 20 years, you only need insurance t cover 5 years of lost income/support, while currently you need enough to replace 25 years of income/support.

You will have to balance the savings from shorter term policies with the additional fees from having multiple policies, but I am sure your spreadsheet will be up to that.

Finally, make sure you are not worth more dead than alive.
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Neil Carr
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That's one thing that I'm a bit surprised by now that I'm looking into term-life insurance. You'd think that they would have insurance products that would adjust over time. Thus you start with a 30 year term that is $500,000 payout, but each year the premium and payout get adjusted down so that at year 29 you're only paying for $16k policy.

We have looked at some staggering of policies. Using an inflation calculator spooked us a bit on the cost, however we weren't looking at it in such discreet chunks as you suggested.
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Ian Klinck
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We recently got our policies set up, and did something like this. It's basically for income replacement, and the key concerns are the mortgage, and looking after the kids. We have one policy for 10 years, at which time our mortgage should be mostly taken care of (and we'll have more retirement savings built up), and another one for 20 years.
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Mike Norris
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Just curious on this...is there a reason why you are just looking into term? Is it it to make sure your daughter gets through college if anything were to happen, while keeping the premiums low?

I donno if i am alone here but I've always preferred whole over term. Premums will most likely be more but you get your payout for sure...which is is good for your family when it comes to funeral costs and such.

Just don't have a gambler in the family if you go whole....lol
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John Hathorn
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My father-in-law made his living selling life insurance and says that whole life policies are not worth what you pay for. He did advise my wife and I to go ahead and get quotes for whole life and term policies.

The quote for whole life should be for a monthly payment that you can afford at your current income, and not a penny more; despite what your insurance salesman says you need or the ideal amount of coverage you would like to have (5 x income or whatever). If that's $50K each or 50K for you and 25K for her, then so be it.

Note what that amount of whole life coverage is at that monthly payment and buy a term life policy at that coverage amount that will last to your retirement age. The monthly cost will be significantly lower. Invest the difference (wisely, of course).

As your income goes up, you can always readjust and get more coverage.

Bottom line: life insurance isn't worth going bankrupt for, or losing your house or car, or not saving for retirement. Fully vesting your savings (6 months of expenses) should be your priority. Then retirement and even a little away for college. Then life insurance.
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SAKURA in KYOTO 2018 Back to Kansai
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I spent 21 years in insurance back offices, 11 dealing with underwriters directly including Lloyds.

You need to clarify some points.

Are you looking purely for death only, not for an investment product? If you cannot afford death cover (1st or 2nd death) on 40k/yr, wow are you being over-charged! Basic death cover should be dirt cheap.

If you are looking at an investment product with death cover included, is it loaded with other stuff, such as critical illness? You might get a lower premium by excluding some forms of death or illness.

Have either of you existing medical conditions or in your immediate family? If you think you're both of reasonable health, then consider having a medical for the insurer (they suggest a pool of examiners for you to go to). Invariably, having a medical report will reduce your premiums, even if you have a serious condition lurking, because underwriters love to have solid information.

If you have a condition that is treatable (obesity is the main one), then start doing something about it. Then get a medical.

Insurance (technically this is assurance, because death is unavoidable, insurance is for risks that might never happen, such as fire) is based on the simple premise that you pay a premium according to the risk you bring to the pool. Whilst you're a vague set of numbers, underwriters will be cautious. Once they have proper data on your health, they can calculate your real risk, and that will under the general rate unless you have something terrible.

Hope this helps.
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Neil Carr
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Thanks everyone!

demondude777 wrote:
Just curious on this...is there a reason why you are just looking into term? Is it it to make sure your daughter gets through college if anything were to happen, while keeping the premiums low?


Yeah the whole life premiums were much higher. We do have investment plans already and so spreading that out to life insurance doesn't seem to fit with our expenses.

But yeah, our ultimate goal is just to aim for protection for our daughter till she's "of age," which to us is post college. In doing the math it looks like the cost for the term is about 1% of our projected after tax income, so that seems like a fair bet.
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