26
Age: 42
Married
No kids

I'm currently the only source of household income. My wife doesn't work outside the home. However, that decision was by choice since my income easily supports the both of us.

If I were to die tomorrow, we have enough short term savings to pay for funeral expenses. We also have enough in Retirement accounts to pay for approximately 22 years worth of our current yearly expenses (in 401k and IRAs, this doesn't even include Social Security). This assumes that money earns just enough interest to match inflation. That is a very conservative figure since if that money were supporting only one person and the money was invested to beat inflation to some extent, that 22 years could easily be extended significantly.

In addition, if it came down to it, my wife is certainly not above getting another job. She is the type of person that could get a job doing just about anything she wanted.

Both of us are of the opinion that I don't need Term Life Insurance for myself. However, when my parents found out, they were very adamant that Term Life Insurance is just something that everyone needs (like health insurance or homeowners insurance (only if you own a home, obviously)).

I certainly don't want to be a penny wise but a pound foolish, as the saying goes. Is Term Life Insurance really that necessary, even in my case?

  • What insurance do you have through your job currently? Many jobs offer some life insurance as a benefit. – enderland Jul 21 '17 at 13:14
  • @enderland Good point, I should have mentioned that we do have life insurance through my employer, but it is merely a stipend to help pay for funeral expenses. It certainly wouldn't go very far to help mitigate living expenses for my wife. – Kris Johnston Jul 21 '17 at 13:25
  • 1
    "Votes form the audience" .... I wouldn't bother. It's throwing away money. – Fattie Sep 30 at 11:09
30

While this is a totally personal decision, I still think it would be a good idea to have some life insurance simply because you have someone that is currently dependent on your income. Yes you have about 22 years in retirement, but if you consider taxes and market risk, there's still some uncertainty there.

Also, while your wife may be willing and able to work now, will she want to do that for years just to earn living expenses?

I would look at the costs on 10-year term life insurance and see if it's worth the extra peace of mind to you and your wife. If your wife is fine with using your retirement as life insurance, then you can probably be OK without it. So to answer the question, it may be acceptable, but it's generally a very cheap way to get a lot of peace.

I would not worry too much about the opinions of your parents - unless they are going to pay for the insurance, it's your decision.

  • Agreed 100%. In comparison, my wife and I are 61/54 respectively, and are now considering letting the term policies come to their end, in 2 years. We are retired, child off to a fully funded college. – JoeTaxpayer Jul 20 '17 at 16:03
  • 1
    @KrisJohnston Fair enough - obviously you should respect their opinion - what I intended to convey was "don't buy it just because they say you have to". – D Stanley Jul 20 '17 at 16:39
  • I'm not sure I like this answer. Let's say that there is no moral hazard with life insurance, in which case the surplus from the insurance contract is generated from reducing the risk which a risk averse individual values - it's not clear to me that the value of that risk is equal to the price/gain of the insurance. I would emphasize to look at opportunity cost of insurance (how would you invest the money otherwise privately for insurance), against your personal survival rates. – FooBar Jul 20 '17 at 17:39
  • 15
    Also, while the wife may be willing and able to work now, things can change. What if, God forbid, the car accident that kills you also disables your wife such that she can't do "just about anything she wanted"? – user42405 Jul 20 '17 at 17:54
  • 3
    I would say you should be looking at a joint term insurance policy for you and your wife. You are assuming that "death" is just a short term interruption to the status quo. What would happen if your wife became ill or was injured such that you had to (or would prefer to) give up working full time to care for her, for example? The one thing you do NOT want to do is to mix up "insurance" with "investment" - keep those two things completely separate! – alephzero Jul 20 '17 at 22:43
15

If I was in your shoes I would have some term insurance, and it is pretty darn cheap at your age.

Your wife is dependent upon your income, and it will take sometime to transition from non-working to working. As she could probably get a job doing anything, it will probably take many years to build up to the lifestyle she is accustomed. She may never be able to obtain your salary.

While she could spend down the amount you two have saved up for retirement, tax will have to be paid on any non-ROTH contributions. The decisions for this have to be made within a year of death and are not easy. I would not want to put my spouse through this.

Plus some day she would have to retire. If she spends down a significant portion of the savings you have built, well that will need to be replenished. In order for her to retire. She will be doing that later in life, without the benefit of years of compounding.

Do you have to have 10x-15x times your earnings in insurance? No. Do you need to do a 20 year level term, No. Perhaps a 10 year level term for like 5x your income. Just something to "bridge the gap". If you live, you will be much better off financially, and could probably drop the coverage. If you don't you will not leave her sad and with difficult financial decisions; just sad.

  • 1
    "you probably know time is not on one's side when it comes to compounding." This seems to be awkwardly phrased. Time most definitely is on your side if you want investments to compound. I take it you're referring to the fact that the surviving spouse wouldn't have a very long investment horizon to build up a pension if they have to (re)enter the workforce? – Lilienthal Jul 20 '17 at 19:35
  • 1
    Thank you Pete, you've given me a lot to think about... time to go shopping for Term Life Insurance... – Kris Johnston Jul 20 '17 at 20:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.