Is this crazy re: life insurance

[janegold]

PDQ

I met with a broker this morning who has been bugging me to meet with him for months.  H and I need to take out life insurance policies anyway, so I thought I'd hear what he has to say. 

He did a hard sell on an extra LTD policy and whole life policy, which I need to research more and am a bit skeptical about.  But the thing that really stuck out to me was his recommendation that we should have policies worth "at least" 12-15x our annual income.  That's way higher than the standard recommendation, right?

On the other hand, the term policy quotes he sent seem fairly affordable?  I make about twice what my husband does.  He's recommending, at a minimum, an almost $4M policy for me and $2M for my husband, each with 20 year terms. The combined monthly premiums for both policies start at less than $200/month, which doesn't seem bad.  I think I would maybe want at least some 30 year coverage too.  I feel like I don't hear most people on this board talking about policies this high, though.  

This is not in my wheelhouse and I just don't really trust the broker to give me non self-interested information.  Any thoughts?

[sandandsea]

Whole life is pricier than term and the goal would be to be self insured at some point so you don’t need life insurance. Once your kids are adults and no one is depending on your income, you really don’t need life insurance like you do with younger families.

10x your annual income is generally the standard recommendation. But anywhere from 8-12 can be “normal”. Also depending on your current financial status and needs it can go up or down dramatically.

His job is to sell you high and I think he’s doing a good job at that. $200 a month forever seems like a very large expense.

I’ve also heard of people buying term (much cheaper) and investing the difference which seems like a good strategy as then you have access to the cash if needed and keep any growth on the investment.

[ohgillian]

There are a bunch of lines I want to quote from your OP! Basically, I don't think you should buy any financial product from someone giving you a hard sell, who is bugging you to meet w/him, and who you don't trust. If that's too much detail, please tag me and I'll edit this post.

And to answer your question, yes, I think that's way too much coverage.

[janegold]

Oh, I doubt I'll go with him. I'm more asking about people's impressions on his advise re: standard coverage amounts and whether I am way off base on what constitutes "reasonable" premiums.  

I often feel like I live in a land of Lucille Bluths with ten dollar bananas.  The broker described the premiums as "peanuts" and I have no clue whether he's way off base.  On the other hand, my husband has been getting quotes on his own and was recently quoted $230/month for a $2M policy, so these quotes do seem reasonable in comparison.

[janegold]

sandandsea, sorry if I wasn't clear - the quotes I received are for term policies only.

He was selling whole as an investment vehicle, which I need to investigate more.

[ohgillian]

Oh, I get it.

When H and I got our policies, they were about 10x our annual salaries (maybe slightly more) based on advice we got from the USAA Financial Advice Center. Now they’re less since our income has increased. We’ve been told we are now underinsured, but because we are relatively expensive to insure due to some health issues, we’re going to stay at this level we’re at.

[sandandsea]

Sorry I totally missed that. I agree with you and don’t think you’re off base at all.

ETA. I think at a certain income the x times salary gets to become impractical. For instance, if at $5m I could retire and life off the growth without touching the $5m, I likely don’t need more than $5m in life insurance. So you have to apply common sense to it. With 2 working parents with good incomes, what do you need/want the insurance to cover? Mortgage, college, weddings, cars, childcare, etc. price those things out and start from there. You likely wouldn’t starve without one income so you’re talking bigger ticket items and goals, not survival.

[sadlebred]

Clark Howard hates Whole Life insurance. I agree. You'll be better off investing money elsewhere.

clark.com/insurance/5-insurance-policies-you-shouldnt-waste-your/

[sandandsea]

Aug 15, 2019 13:46:12 GMT -5 sadlebred said:

Clark Howard hates Whole Life insurance. I agree. You'll be better off investing money elsewhere.

clark.com/insurance/5-insurance-policies-you-shouldnt-waste-your/

Dave Ramsey agrees with Clark.

[Mrs.flang]

When we got our insurance I thought more about what I would want it to actually cover vs as a multiple of my income. I ended up with a $750k 20 year policy (if my memory is correct!) I figured that is enough to pay off our current mortgage, and a good chunk toward college, but its actually only around 6x my income. I'm not looking to make anyone rich, I just want my family to be taken care of. Since you are the higher earner by a lot, I could definitely see wanting to pad that a bit more, but the amounts you are stating seem like a lot to me in terms of what you would want it to cover.

I went with 20 years because my kids will be much older by then. You could stack a smaller 30 year policy on top of the 20 year if you think it's necessary and it would be pretty affordable for a smaller amount of coverage.

I know nothing about whole policies except that term policies are usually overwhelming recommended on this board.

[CloudBee]

IMO, much of it depends on your current and likely future financial situation, than just your income.

Our house is paid off and we have a lot of $ in investments. DH's life insurance policy (separate from his group life policy at work) is a lot lower than I think most would expect of him. But it is many multiples of his income.

Unfortunately due to some structural congenital heart defects I have, my policy was insanely expensive so we went low. Merely to cover a full time nanny to care for DS in my absence. (I'm a SAHM.)

[oswin]

Basing it off of income only works if you're spending the majority of your income and therefore need to replace it all. When we bought life insurance we looked at expenses and what the plan would be for the money. At the time, either of our salaries could cover our bare necessities easily. We made sure we each had enough to pay off the mortgage plus some extra to cover taking a chunk of time off of work. For us, that's $400k on each of us, costing less than $20 each/month. At this point our expenses are higher because we have 3 kids, but we also have significant investments and 401ks that could be used if one or both of us died. Basically we're self-insuring the rest. When our 20 year term is up, our youngest will be 15 and our assets should be substantial enough that further life insurance will be unnecessary.

[janegold]

Thanks all. What you're all saying is what my impression had been, but this guy made me start wondering if I was way out of touch.

[farmvillelover]

I wouldn't bother with whole/permanent life ins. It's used by a VERY small % of the population and typically ultra high net worth where they are maxing out all retirement vehicles, need guaranteed liquidity upon death (like to pay estate taxes and perhaps their estate isn't liquid) or just are fine with a portion of their portfolio having less of a return on investment because they have so much other money in other high risk assets.

Term - if you are the higher earner, look into staggered policies like Mrs.flang said above. My H is an ex smoker so a 30year policy on him for $1.5 was expensive. But $1mil for 20 years and an additional separate policy for $500k for 30 years was much cheaper per month than the premium for a 1.5mil 30 year policy. So we did the staggered policies on him. 10x income is a rule of thumb but it doesn't necessarily make sense for those that are much higher income.

I am a BIG FAN of long term disability policies. I am in the process of getting mine and I started the process by going through www.policygenius.com - I answered questions online and then the next day got quotes from 3 diff carriers. To give you some perspective, I chose the benefit to age 65, I think it was $6500 or $7500 a month tax free benefit, waiting period of one year, and premium was about $240-$260/month. Obviously the premium goes down the less coverage you get, and even cheaper if you only insure a benefit for a period of 10 years.

[dr.girlfriend]

I used selectquote.com to compare quotes and recommend....they had all the height/weight tables and so were able to tell me not just that I'd get a better rate with Prudential but also what weight I would need to hit to fit in their "preferred" category.  I think xander.com (zander.com?) is another one people recommend (or used to) If it helps, I was just turning 35, both parents living, no health risks, got a $1 million policy, and my YEARLY rate is about $650.  At the time $1 million was probably about 12 times my income, but now it's about 5x.  We went high because at the time I made almost twice as much as DH and also carried our health insurance, although now we make the same and each have our own health policies.

I don't see life insurance as a big payoff, I see it as filling a need at a difficult time if necessary. $1 million is enough to pay off the house, pay for college for the kiddo, and otherwise give DH enough time to regroup and restructure so he can live off investments plus his own income.

I have to say, my whole view on life insurance has changed after my colleague's experience. Her husband died very suddenly in his early 30's -- he was a little overweight but there were no warning signs, he had a heart defect he didn't know about. His life insurance refused to pay out and basically put his widow through hell, dragging her through a lengthy court battle and basically implying she was a bad wife because she hadn't noticed the symptoms her husband didn't even have. I always thought they made their money by playing the odds, but now I wonder how much they rake in by not paying out unless they've already turned a healthy profit on a person's policy. :-(

[krystee]

My dad is an insurance broker and won’t sell whole life, even though it gives him the highest commissions, because it is a terrible deal for his customers.

[Violet]

I think 12-15x income could be correct depending on your current life and cost of living. Maybe add up expenses and see were you fall?

Here's the example I usually give:

Remaining mortgage balance + any expected major repairs it might need (i.e. if you know your spouse would stay in that house 30 more years and it will need a kitchen in that time)
Remaining daycare + after school costs
College for kids?
Maybe a "buffer" to supplement your spouses loss of retirement contributions for you
Plus whatever you'd need to replace your spouses income and be comfortable

As a typical mid-30s person living in HCOL I would need at least $1mil to cover the mortgage, replace a tiny portion of husband's income, and get kids through daycare/school on one income with the hours my job requires.

Of course the flip side is to argue that your spouse could downsize or make adjustments but it'd be nice to not force them into that immediately.

[simpsongal]

Aug 15, 2019 13:56:16 GMT -5 Mrs.flang said:

When we got our insurance I thought more about what I would want it to actually cover vs as a multiple of my income. I ended up with a $750k 20 year policy (if my memory is correct!) I figured that is enough to pay off our current mortgage, and a good chunk toward college, but its actually only around 6x my income. I'm not looking to make anyone rich, I just want my family to be taken care of. Since you are the higher earner by a lot, I could definitely see wanting to pad that a bit more, but the amounts you are stating seem like a lot to me in terms of what you would want it to cover.

I went with 20 years because my kids will be much older by then. You could stack a smaller 30 year policy on top of the 20 year if you think it's necessary and it would be pretty affordable for a smaller amount of coverage.

I know nothing about whole policies except that term policies are usually overwhelming recommended on this board.

That's exactly what we did - each both have $750K, 20 yr policies. They're $307/year, and $350/year (DH is higher b/c he's a dude).  That's about 5 times my income, and 6 times DH's income (our incomes were smaller when we took out the policies).  I think we can extend the policy rather cheaply if we're still relatively healthy (big "if" of course).

$200/mo sounds like a lot to me, but I guess it's peanuts to some...

[SusanBAnthony]

We each have about 2x our income. That seems crazy low compared to others but we looked at our individual situation and feel very comfortable with it.

- we have almost a million in retirement so we are good there
- the kids will get SS until they are 18 and that money can all be saved for college
- we earn similarly and could live off one income only
- 2x income would come close to paying off our house.

So for us more didn't make sense. If one of us died, the other could pay off the house, stop contributing to retirement and just let our current savings grow, and use SS for college, and have plenty of extra.

[aprilsails]

Our trusted financial advisor told us how much insurance we should carry. We’ve modified it this past year as we bought a larger home and took on a larger mortgage, and are expecting a second child. Right now we are both insured for about 750k on 30 year plans. We both have an additional 1x salary through work. This value will cover childcare/university payments, pay off the full mortgage, and leave about $200k additional towards retirement and/or an extended year off for recovery. Our current spending is based on only one of us working, so taking childcare/university and the mortgage off of either of our plates makes enough space for comfortable living expenses and proper retirement savings.

We probably wouldn’t bump it up again unless we have another kid (unlikely) or if we buy another bigger house (also unlikely). Even if our salaries increase, I don’t think I would base the amount on salary since that changes all the time. The fixed expenses method makes more sense.

[awkwardpenguin]

I think that is A LOT of term insurance. I think I'd be more likely to base it on expenses rather than salary. We wanted enough that if we both died, we could cover the kids expenses and college. We also would have our current assets to support that goal. So current assets + term insurance + social security survivor's benefits = total money available to support the kids. If only one spouse dies, we want some breathing room for the surviving spouse and the ability to maintain their current standard of living, but we're not planning to set up term insurance so the surviving spouse never has to work again.

Something no one has mentioned is Social Security survivor benefits for the kids while they are minors. Looking at my earnings record, each child would receive $1477 a month until age 18. So that's almost $36k per year in just survivor benefits until the kids are 18. In addition my spouse could receive benefits while caring for the minor children, although the total family benefit is capped.

Term is usually very cheap if you are healthy. DW's policy is $36/month for a $1MM 30 year policy written when she was 35. Mine is more, but I am rated because of health issues.

[aspentosh]

We have a mix of Term 20 and Term 80. The Term 20 will get us through DD's college and is a constant price. The Term 80 will slowly start increasing, but by the time it gets cost prohibitive we will be well enough (hopefully) not to need it. I think it was around age 40-45.

Right now we pay about $90/mo for over $1.7m in coverage between us. I am healthy, H has a couple health issues that made his a bit more expensive. We looked into whole but realized it was $$$$ and just not something we needed.

[flygirl]

Brokers make $$$ selling whole life insurance so in my opinion I’d run from any broker pushing it. Like Farmville said, it only makes sense for a few higher income earners as part of a larger portfolio. I’d run from this dude.

[barefootcontessa]

Agree with all comments regarding whole life.

We also used policygenius and got excellent rates.

What we did is figure out how much cash we would need at various points of life. For example, once our five kids are through college, we will need a lot less. We have laddered policies to meet these various needs. So we have one 30-year policy, another 20-year and another 10-year. This was significantly cheaper that getting a simply getting one 30-year policy.

[dochas]

The commission on a whole life policy is huge.

[sillygoosegirl]

Kind of depends on your goals and where you are at. Do you want enough life insurance that the surviving spouse could live your current lifestyle until retirement? Until kids are through college? Would the surviving spouse work? Would the surviving spouse be hiring extra help or paying for private school for children? Or do you want enough life insurance that the surviving spouse would have a few years cushion while transitioning to a lifestyle sustainable on the the remaining income?

Life insurance I think is better thought of as income insurance, in the event that you are unable to work due to death. LTD is income insurance in the event you are unable to work due to permanent/long term disability (which is actually more likely than dying, which is why it is so important).

It's worth considering also what life insurance you already have through social security. If you have minor children, social security will generally pay out quite a bit to them/your surviving spouse who cares for them. It may not be enough on its own, but it would cover well over half our household expenses if one of us died, so that lowered what we felt we needed in life insurance by quite a bit. Also, how much money you have in the bank/in retirement is a factor. We're only 10 years out from retirement, so we only need "income insurance" for that long maximum anyway. If you are young and far from retirement, a long term might make a lot of sense for you. Especially if you can lock in a low premium because you are still in excellent health.

[msmerymac]

Um, we pay about $235 per month combined, and that is for a split $1 million for my husband and $500k 30 year for me. I guess we're pretty far down on the tables?