We’re starting to investigate buying life insurance outside of our jobs. My DH has some from his job and we choose at open enrollment not to purchase more. We probably will change our mind once the baby comes, but at the same time we are adding more supplemental life insurance not tied to his job.
Right now DH gets 2x his salary for free, but we have no dependents and only a mortgage for less than our house is worth. I have nothing, but I will need to get some after giving birth and losing my pregnancy fat. I should have gotten it before, but I didn’t expect to get pregnant immediately. With our savings, if something happened to him or me, the other person could survive, sell the home and walk away.
But what do we really need? We have a mortgage of $425k. It could be more in coming years. We have decent retirement savings $120k and some taxable savings $25k. We have only DH’s student debt $25.5k which goes away with his death, or he would manage if I died. So I decided that an appropriate amount would be $1 million for DH and $500k for me. The question is for how long? Should we do 20 years, 25 years, or 30 years? This is our first and likely not our last child.
But in 20 years will we be “self-insured”? Do I believe we’ll be in the right financial place to stop insurance? I only plan on buying term life insurance. And I’ve heard that sometimes rates drop, so it’s worth checking every 5 years and getting a new policy if the rates are better for a shorter term and higher dollar value. Someone on a message board was trying to convince me for whole life insurance but boy is it a lot more expensive.
My DH decided to not pick up supplemental life insurance at work $250k for himself and possibly $500k on me, and possibly our child. This of course goes away with the job, but it is a good way to supplement our term policies. For DH it will be $15.25/month or $183/year for $250k,$26.5/month or $318/year for me, and 68 cents a month for $10k for children.
$1M for 30 years for DH is $740 versus $455 for 20 years. I think we’ll have to consider it a bit more. Whereas I am overweight because of pregnancy so my DH will pick up a life insurance policy through his professional society for me. The rate is not fixed, reasonable and auto-renews every years without a physical. The reason is that it goes up a fixed amount as you age, but you can never be denied. It will be $425 for 20 years $500k. Not the best deal, but okay. I plan on getting a regular term policy after I lose pregnancy fat.
I’ll update when we finish getting our policies.
13 responses so far ↓
1 Kristy // Nov 30, 2009 at 9:38 am
We decided that we needed enough life insurance to pay off the mortgage and to pay for college for both kids at $200,000 per kid. At the time, we knew we were going t have one child and DH wanted 2 kids. So we each bought a 30 year term policy for $1M. That will cover the mortgage, college and leave a little extra for expenses if need be.
Are you stayiing home with the kids or going back to work? If you are staying home and you end up dying, DH is going to have to pay for child care too. Not only that but he will have to do alot more and may be able to hire additional up. Honestly, I would up the life insurance on you.
2 WellHeeled // Nov 30, 2009 at 6:33 pm
Are you in your late 20s? If you think you’ll be having a couple of kids and you want to provide for them (college, etc.) if anything happens to you or DH, then I’d say 25 years is a good amount. That way you’ll be sure to be done with college expenses. After that, your kids should be self-sufficient on their own that your death, while emotionally devastating, shouldn’t be a huge financial blow as well.
3 JoeP // Dec 1, 2009 at 11:28 am
You might want to visit a financial adviser to go over your situation. Only after looking at your whole situation and time horizon can the proper amount of life insurance be determined. Many times, cheap term can be used to fill in any gaps, but you don’t want to waste money on the wrong product.
4 LAL // Dec 1, 2009 at 12:13 pm
Kristy, not sure if I’m going back to work yet. Depends on a lot of things including moving and job opportunities. I also am not sure how many kids we’re having, we’re definitely having 2, maybe more. I was thinking $500k to start on me and then adding more, but I can’t seem to get a decent quote while fat and pregnant.
Well Heeled, I know we want more than 1 kid, but not sure how many more. Not sure if we’ll be done with college in 25 years, but we’ll likely be on the tail end. My hope is to be financiall secure enough to not need life insurance.
Joe, I hesitate because I hate talking to financial advisors about insurance. It always feels like sales pitch.
5 JoeP // Dec 1, 2009 at 4:19 pm
Then find one that is not tied to any specific insurance company. They do exist, and there is a huge difference between someone trying to sell their insurance product, and someone who understands your whole financial picture/goals and simply tells you what kind you need and how much. You can then shop on your own. Big difference.
6 Kristy // Dec 1, 2009 at 8:06 pm
The reason to lock in now (while you are young) is that your rate will be low. If you upgrade to a higher amount later after you have another baby or two more, then you rate will be higher because you will be older.
When we did ours I was pregnant with our first child and only 27. I bought a 30 year term for a $1m and I think I pay around $275 a year.
7 LAL // Dec 1, 2009 at 9:05 pm
JoeP, probably should look into meeting with a CFP. But I think I just want a cheap and simple term policy.
Kristy I wasn’t thinking of putting it off more than 6 months. But enough so I am not obese and paying more.
Also by getting less now for a longer term, i think if we have more than 2 kids I can always add one $500k for 10 years or something. Until we are more financially stable.
8 Evolution Of Wealth // Dec 2, 2009 at 10:33 am
I just wanted to give you a heads up. A top-rated insurance company is going to understand that you are pregnant. I often help pregnant women get coverage and their underwriting is not affected by the pregnancy. Your underwriting will be slightly different but you will not be penalized for being pregnant. You always have the right to request new underwriting if you feel your health has gotten better.
Also, I just wanted to add, that life insurance isn’t about “managing” when someone dies. It is about helping you and giving you and your loved ones the freedom and flexibility to deal with a traumatic event any way you choose over as long a time as you need. It seems to me that you might be looking at life insurance as a burden?
9 LAL // Dec 3, 2009 at 11:15 am
Evolution of Wealth, no, not a burden. But I think of it as a tool for wealth building. But I know it’s just easier to wait a bit until I lose some weight than to deal with it right now. Plus it turns out I have more on my plate than I expected.
10 Kristy // Dec 4, 2009 at 11:27 am
That’s what I mean about waiting…if you wait 10 years your yearly premium is going to go up drastically. I think once you hit 40 it increases significantly. That’s why I think you should just do 25 or 30 years at whatever you feel is comfortable now. You may not want to pay the premium in 10 years.
11 LAL // Dec 4, 2009 at 12:29 pm
I’m getting DH’s by the time the baby comes and mine by the end of 2010, before I get pregnant again!
12 BW // Dec 4, 2009 at 2:41 pm
Two things to think about:
1. Would your husband REALLY want to go back to work after losing his wife and after his children lost their mother?
2. Is the combined value of your policies enough for the person who would raise you children if you were to BOTH die?
13 LAL // Dec 4, 2009 at 5:46 pm
I don’t know the answer to the first question. I think he would, he isn’t the type to be a SAHP. And I can say this frankly, my MIL would likely move in and take care of our children period. She would be living with my DH until he remarries and do everything, cook, clean, etc . My mom would likely help for a bit afterwards and would likely offer any financial help.
Second question, if we were to both die? Our children would be very well prepared. My mom would leave a substantial inheritance to any kids and my MIL would as well. Only grandchild on either side. With what we have currently and plan on buying, we’d leave probably $2M or more behind. I think that’s enough.
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