| Author |
Message |
    
taam
Citizen
Username: Taam
Post Number: 137
Registered: 1-2006
| | Posted on Monday, April 17, 2006 - 8:29 am: | 
|
i know this is subjective & answers will vary due to how much people make...etc. but....
what are some opinions on how much life insurance one should have? we're trying to get our finances in better order. we have 2 very young kids & a $350,000 mortgage. any tips, opinions, advice..etc. would be much appreciated! thanks! |
Tom Reingold
Supporter
Username: Noglider
Post Number: 13689
Registered: 1-2003
| | Posted on Monday, April 17, 2006 - 9:34 am: |
|
Get the book The Only Investment Guide You'll Ever Need which is an excellent book. It has an appendix on how to figure out how much insurance you need. He tosses in some interesting points. Some people buy too little, and some too much.
|
HOMMELL
Citizen
Username: Hommell
Post Number: 117
Registered: 11-2005
| | Posted on Monday, April 17, 2006 - 9:58 am: |
|
I have heard 20 times your yearly salary for term life insurance. |
Smarty Jones
Citizen
Username: Birdstone
Post Number: 528
Registered: 10-2005
| | Posted on Monday, April 17, 2006 - 10:26 am: |
|
Take out a term policy on each of you for the balance of your mortgage and two estimated college tuitions. Shouldn't cost you more than $30 a month for both(on the high side).... that way...should the unthinkable happen, you'll not have to worry about your mortgage, or paying for the kids school.... |
eliz
Supporter
Username: Eliz
Post Number: 1399
Registered: 5-2001
| | Posted on Monday, April 17, 2006 - 1:24 pm: |
|
I agree with Hommel - I have always heard of the "rule of 20" - 20 times the salary you are looking to replace. |
Pippi
Supporter
Username: Pippi
Post Number: 2098
Registered: 8-2003
| | Posted on Monday, April 17, 2006 - 1:33 pm: |
|
I am doing research on this now and the 2 people I have spoken with told me 6-8X, maybe 10X
these are people selling insurance. why would they tell me this if 20X is better?
also, 20 years or 30 years?
|
greenetree
Supporter
Username: Greenetree
Post Number: 7264
Registered: 5-2001
| | Posted on Monday, April 17, 2006 - 1:47 pm: |
|
You need to set goals. That will set your "rule". If you are a 38 y/o smoker, and the formula dictates that you pay $10k a year in permiums to get several million dollars worth of life insurance, do you know why you need that much?
Do you want to pay off a house? Pay off all debts? Pay for child care? Re: college. Harvard or Rutgers? If something happens to you, do you want trusts to ensure that your kids can go to summer camp, after school activities, etc.?
There is such a thing as being overinsured. How old are you now? What kind of policy do you want? Do you want the premium/benefit reduced as you get older? Will you need the same amount of insurance when your kids are grown and you may not want to keep the house? Do you want a rate of return that will pay premiums in a well-performing product?
If you are talking about taking care of kids, make sure that you work with an agent who is experienced in tax and estate laws. |
mim
Citizen
Username: Mim
Post Number: 579
Registered: 5-2001
| | Posted on Monday, April 17, 2006 - 1:48 pm: |
|
My agent recommended the following, which made perfect sense to me. Figure out what it will take to send the kids to college and pay off the mortgage. Buy that amount of term life insurance for the number of years that those bills will still be on the horizon. (With the mortgage paid and no college savings to fund, we figured the rest of the household bills would be manageable on one salary. Once the mortgage is paid off and the kids are thru school, life insurance needs would drop dramatically, so no need to continue buying for decades more.) |
Pippi
Supporter
Username: Pippi
Post Number: 2100
Registered: 8-2003
| | Posted on Monday, April 17, 2006 - 2:09 pm: |
|
These are good questions.
We have a mortgage, but no kids (yet). We want a policy that would pay off the house and pay for college.
We are both 36 years old and, at this rate, will need a 30 year policy to pay for college (I am just guessing here)
Is it possible to get a 30 year policy now and knock it down to 20 years later?
We have an appointment to see a financial advisor. Is this something they'd be qualified to help us decide? Should we wait until after our meeting to decide on the particulars of a term life insurance policy?
taam - thanks for starting this thread. sorry I hijacked it!
|
Tom Reingold
Supporter
Username: Noglider
Post Number: 13703
Registered: 1-2003
| | Posted on Monday, April 17, 2006 - 2:16 pm: |
|
Tobias -- and you REALLY should read his book, and it's an easy read -- points out that if you are married and you die, your spouse would probably be wise to downsize the home. This tosses out the notion that you have to cover your mortgage.
Pippi, I can't see the point of having life insurance for kids you don't have yet. Well, one possible reason is to lock in a rate, since it goes up as you get older, but it doesn't go up while you have a policy.
So it's possible you need life insurance because your husband needs your income to survive. But is that the case?
You can break the life insurance contract any time you like, but the insurance company can't. It's a one-sided deal, favoring the insured.
|
Pippi
Supporter
Username: Pippi
Post Number: 2102
Registered: 8-2003
| | Posted on Monday, April 17, 2006 - 2:22 pm: |
|
Tom - The primary reason for getting life insurance is for paying off the mortgage and death expenses. We do intend to have children, and we don't want to wait to get the policy. We're each getting a policy but now I am thinking my policy doesn't have to be as much as his....
|
KRNL
Citizen
Username: Krnl
Post Number: 49
Registered: 9-2005
| | Posted on Monday, April 17, 2006 - 2:26 pm: |
|
Add one more expense to the calculation that includes college education and mortgage: a fudge factor for the increase in property taxes if you want the family to be able to stay in our community for a few years. Property taxes keep going up and would be a bigger part of a expenses on a reduced income flow. |
Innisowen
Citizen
Username: Innisowen
Post Number: 1963
Registered: 3-2004
| | Posted on Monday, April 17, 2006 - 2:29 pm: |
|
Perhaps the first question is:
For what purpose do you intend to use the life insurance?
1. To cover debts and mortgage in the event of death?
2. To provide an immediate estate for your survivors in the event of your untimely death?
3. To ensure there is funding for your children's education if one of you dies?
4. To provide funding for other purposes?
5. To provide a psychological comfort level because we've all been taught that we need life insurance at certain death benefit levels?
If you have a financial planner (not a salesperson who might like a commish), seek that person's advice on the pros and cons of life insurance, and on how much you can reasonably afford vs how much you might need.
IMHO. |
Tom Reingold
Supporter
Username: Noglider
Post Number: 13706
Registered: 1-2003
| | Posted on Monday, April 17, 2006 - 2:29 pm: |
|
Death expenses are well under $100,000. I don't know what a funeral and burial cost, but I'd bet under $20,000. You hardly need any life insurance for that.
I just googled "life insurance site:andrewtobias.com" which limits the results to his site. I found a column where he says you don't need life insurance when you don't have dependents.
As for paying off the mortgage, couldn't the surviving person sell the house and move to a less expensive place? And isn't there a chance that that person will eventually remarry?
I suspect you're shopping for more than you need.
Buy the book! Or get it from the library. Or borrow it from me. 
|
greenetree
Supporter
Username: Greenetree
Post Number: 7265
Registered: 5-2001
| | Posted on Monday, April 17, 2006 - 2:32 pm: |
|
Insurance gets more expensive as you get older. You can always reduce death benefit. But the closer to 40, the higher the premium. Little things like weight and blood pressure can affect your premiums, never mind medical history. If you want more insurance later, you don't want to have to take another physical. A life insurance physical will do the routine stuff, request medical records for all doctors you've seen in the past 3-5 years and screen your blood for everything from cholesterol levels to nicotine to illegal drugs. You don't even want to be pegged a drinker, so refrain the night before.
Remember, these people are selling you insurance to make money; they want as little risk as possible so that they don't have to pay. The agent makes the commission, but the underwriters assess the risk.
I know a couple people who got $2M policies in their early twenties (non-smokers) who pay not much more than I do for a lot less, purchased in my late 30s.
Pippi - it makes sense to talk to the financial advisor about contigencies for the future, which would include how you would provide for future kids and how much insurance you need. But, be careful; insurance is a highly, highly regulated industry and many people who deal in finances and tax law think they know the ins and outs, but don't. Some less scrupilous finance folks will sell certain life insurance products as an investment, which is misleading and illegal. Talk to an agent when it's time to buy insurance. |
Rastro
Citizen
Username: Rastro
Post Number: 2908
Registered: 5-2004
| | Posted on Monday, April 17, 2006 - 4:33 pm: |
|
Remember that you can have more than one life insurance policy. So you could have one policy that will cover college, if you don't make it to that point. Once you are past that expense, it's ok for that policy to lapse.
So you might have a 30 year policy for, say, $500,000. Plus a 20 year policy for $750,000. That provides $1.25 million in coverage for 20 years, and $500,000 for the ten years after that. That lets you lock in the current rate for the ten years after 20 years. It’s almost like being able to buy ten years of term insurance, twenty years form now, at the rate you would currently pay for it. I say almost, because longer term insurance obviously cost more per year.
In twenty years, it would likely cost you more annually for ten year term insurance than what it will cost you now for thirty year term…
|
taam
Citizen
Username: Taam
Post Number: 139
Registered: 1-2006
| | Posted on Monday, April 17, 2006 - 6:11 pm: |
|
All this is great advice. Thanks so much everyone. If anyone feels to add anything else...please do! Thanks again! |
greenetree
Supporter
Username: Greenetree
Post Number: 7269
Registered: 5-2001
| | Posted on Monday, April 17, 2006 - 7:11 pm: |
|
Tom - the likelihood is that neither one of us would want to keep the house by ourself. But, it is nice to have the choice. And I would think that it would be especially so for someone with kids.
Since it's just us, we made the decision to purchase enough insurance to just cover the mortgage. I agree that it would be silly for use to have millions of coverage for each other. Besides, it might incentivize TS to knock me off.  She's safe; I need someone to cook for me.
You can always lower; but the longer you wait, the more you will pay if you have a life change and you need more insurance. |
Wendyn
Supporter
Username: Wendyn
Post Number: 2959
Registered: 9-2002
| | Posted on Tuesday, April 18, 2006 - 7:25 am: |
|
Just make sure you do term life and not "whole" life. Some "financial planners" try to sell whole life policies as an investment strategy, but it is a very poor one. |
Closed: New threads not accepted on this page