19

I am looking at a term policies for my wife age 56 $250k worth of coverage with an initial cost $957/yr and myself $400k worth of coverage with an initial cost of $1450 /yr. We have about $100k left to pay on our home and $700k in 401k. Kids are out of house and not convinced we need these term policies.

Thoughts??

  • 16
    The question to ask is - if you were to die today, could your wife live out the rest of her life on the net $600k (at 4%/year that's a 24k annual income) plus any other income (e.g. social security)? If she were to die today, could you live on the $600k? Would the additional amount make a big difference in the standard of living? – D Stanley Jan 18 '18 at 17:36
  • 1
    Other than the mortgage, what other financial risks would your wife face if you kicked the bucket? – RonJohn Jan 18 '18 at 19:16
  • Also... "initial cost" makes me think it's gonna go up in later years. – RonJohn Jan 18 '18 at 23:43
  • 1
    Depends on who is working. If this is level term, I personally would do it. If you die tomorrow your wife pays off the house and has $1m that can hopefully grow as she lives the rest of her life. If you live a long life you can cancel this at any time, when you have assets to cover everything. – AbraCadaver Jan 19 '18 at 15:54
44

The answer to your question will depend on your own preferences and circumstances, but I would argue that generally at your stage of life you do not need nor want term life insurance.

Life insurance exists because having someone die when they are critical to the financial well-being of the family is a disaster. This is often true for people with children at home or who rely heavily on someone's work income or caretaking.

Once your children are gone and you have few years of work left, insurance isn't the primary concern. Instead you should be trying to maximize your total net worth and ensure that your savings are sufficient to allow you to retire at your target retirement age. Insurance costs (on average) more than it pays out, so by spending a lot of money on insurance now, you are reducing your expected wealth after retirement. For that reason in most cases I think it would be better to forgo the insurance and increase saving by a similar amount.

Your family may be very special if one of you really relies on the work income provided by the other and expects to for some time. In that case, you may want to insure the worker (but not the other spouse). However, if you would not financially be devastated by the death of one of you, you should pass on the term life insurance completely.

There are insurance plans designed for people in your age group, but the life insurance products are mostly mechanisms to allow slightly wealthier people who are not worried about their own consumption to pass down wealth from their generation to their childrens' without the risk of taxes---you can look into these if that is your situation. You may also want to consider other products, like long-term care insurance. Death is not usually the major financial risk at your age.

12

Life insurance has several purposes

  • To pay funeral and burial expenses.
  • To replace the income of a breadwinner, so the survivors can continue to live in the manner they are accustomed. For a rough rule-of-thumb, you will need 10 times the annual income of breadwinner.
  • To pay off a debt so the payments will not be a burden on the survivor.
  • To fund major expenses for minor children like college, a first home, or marriage. While this could be accomplished by simply replacing the income of the policyholder, many find comfort knowing such expenses are specifically funded, apart from the beneficiary diligently saving the money.
  • To fund a buy-out in a partnership (each partner carries the policy on the others, so if one dies, they have the ready capital to buy their former partner's interest out.

Therefore, if you have enough of a nest-egg so your family can pay your final expenses, your debts, major expenses for the family, and still be fine without your income, you have become self-insured.

Note: I used to be a licensed Life, Accident and Health agent.

1

To give even a good guess for an answer, we would need to know your income and your wife's. If only one of you works, that one probably needs life insurance for salary replacement (unless the other has skills and could re-enter the job market without problems).

  • This doesn't really make sense. There is no particular reason why someone with a high income needs large amounts of life insurance, and there is no particular reason why a widow or widower needs to replace the income of the dead spouse. The question is what assets and expenses they have, and what their financial outcome would be. – Ben Crowell Jan 18 '18 at 23:26
  • 1
    The amounts of savings mentioned there are highly unlikely to allow the survivor to maintain his or her lifestyle. $700K in saved at that age suggests a household income well north of $100K/year. If that vanished from death of only employed spouse, what do you see replacing it? – Andrew Lazarus Jan 18 '18 at 23:47
  • 3
    I think I was too polite. "There is no particular reason why someone with a high income needs large amounts of life insurance" is one of the more backwards ideas I have ever seen. – Andrew Lazarus Jan 18 '18 at 23:50
  • 4
    @AndrewLazarus why does it need to be replaced if all they're doing with it is saving it? – Tom W Jan 19 '18 at 11:03
  • I don't see anything in the OP suggesting they are saving all their income and living on air. That's why we need to know something about their income (not just their 401k balance), and who is earning it. Nothing in what is posted suggests they could manage wage income going to zero (only earner dies) without significant drop in standard of living. – Andrew Lazarus Jan 19 '18 at 19:06
0

What would happen if you didn’t get life insurance now while you are healthy and qualify at the best rate you could qualify for but later on needed it and at that time something happened to you and/or your wife that would cause you to be uninsurable or to cost a lot more than you can afford?

I am not simply referring to the rates being higher because of being in a different age band which happens to everyone but rather to a catastrophic health event.

  • Welcome to PF&M. Your answer does not appear to answer the question. If you need additional information before answering it, please use comments. – Rupert Morrish Jan 21 '18 at 18:44
  • Please elaborate how you think it is off topic. – הבלשן Jan 21 '18 at 18:50
  • It's a question. Answers are for answers. – Rupert Morrish Jan 21 '18 at 19:12

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.