Not getting life insurance

[Here]

We have talked about it, but we haven't gotten life insurance. I don't understand the need for it. In situations where a parent has died, my experience has been that the kid's money gets quickly wasted.

I have life insurance at my work that covers around 200K. We are 30 and have one daughter. We both have good jobs and live on one salary. Our only debt is our mortgage, which we owe around 100K. Our investments/retirement/savings is around 480K (100% vested).

Is there a benefit to having life insurance in this situation? When would it not make sense?

[GailGoldie]

all i can say is that when my BIL died, he didn't have it- and it made life VERY hard for his wife and daughter.

Life as a single parent is not easy to begin with - having some extra cash to help with expenses makes going through it all much easier.

If you and your husband both died - you would have someone in charge of your daughter's money... so it wouldn't be wasted (hopefully)... sure, an older child who gets money might waste it- but for a child, it can be the only way they can attend college in some cases, etc.

for DH and I we wanted enough to cover the cost of our mortgage - so neither of us would have to move out of our home + funeral costs + help with college for our boys.

[AAM2012]

What if you lost your job, then you would have no life insurance.

How old is your daughter? Who would help her financially if something should happen to both of you?

Can you afford all bills and afford to retire comfortably if something were to happen to your spouse?

[h]

Nov 20, 2012 15:02:25 GMT -5 Here said:

We have talked about it, but we haven't gotten life insurance. I don't understand the need for it. In situations where a parent has died, my experience has been that the kid's money gets quickly wasted.

I have life insurance at my work that covers around 200K. We are 30 and have one daughter. We both have good jobs and live on one salary. Our only debt is our mortgage, which we owe around 100K. Our investments/retirement/savings is around 480K (100% vested).

Is there a benefit to having life insurance in this situation? When would it not make sense?

What makes you think the money your kid got from life insurance would be wasted? I have two friends who put themselves through expensive private colleges (and medical school, in one case), then bought first homes with life insurance they received from a deceased parent.

As others have pointed out, if one spouse dies, life insurance can provide the surviving spouse with the flexiblity to take time off work, get a lower paying job with more family-friendly hours, hire additional household help to make life as a single parent easier, etc. But beyond that, what if you and your spouse were to die simultaneously in a car accident or something? Wouldn't you want your child's guardian, and later your child, to have more than the $500K or so they would have now to cover all the expenses involved in raising a kid, the cost of college, and perhaps even help with a wedding or first home purchase? I know if DH and I died, we would want to know that our children would not be a financial burden to my parents (who would be raising them) and that the kids would be able to go to college without worrying at all about the cost.

Honestly, you can obviously afford life insurance. You have a kid. I think it is pretty irresponsible and short-sighted not to get it.

[calledout]

We decided that, if one of us should die, we'd want the surviving spouse to be able to cut back on work so as not to go crazy as a single parent. So, we made sure that our life insurance policies allowed for that.

From a child's perspective, we also decided that if a kid loses its parent(s), then the rest of life should just get to be as easy as possible for him / her. So, we made sure that our childrens' "inheritance" (life insurance + our savings / assets) was enough to cover all of the kids costs of living through and including college. So, in a nutshell: mortgage, college, annual living expenses (multiplied by however many years until kids turn 18 or 21 or whatever year you pick), plus some extra to account for all of that post-college help that I know I'd want to give my child.

ETA - You can establish a trust for your DD, such that she isn't handed a check for $500k, or however much, when she turn 12 (or however old you are when you hypothetically die). My kids funds will be handled by a guardian (who will be able to spend the $$ for their benefit) until they reach a certain age and are able to make financial decisions for themselves.

[Susie]

Nov 20, 2012 15:02:25 GMT -5 Here said:

I don't understand the need for it. In situations where a parent has died, my experience has been that the kid's money gets quickly wasted.

Huh?

In the event of one spouse passing, we want insurance to replace that spouse's income, at least up to ensuring that the surviving spouse can afford to maintain the house and his/her SL payments, maintain the same quality of life, and if we had kids, to provide for them and their college educations in the manner that we would if both of us were alive. I'd also want the surviving spouse to be able to take an unpaid leave if needed to deal with grief and affairs, without worrying about money.

In the event of both of us passing, we'd want insurance to provide for our kids (who are still hypothetical, but planned) in the manner that we'd provide for them if we were alive, including college.

$200k wouldn't do it for us. Even if it did, I wouldn't be comfortable with life insurance that's tied to employment. That locks you into your job, and precludes changes in the future that you may not be able to foresee yet, should you want to make a change at a time when obtaining your own life insurance would be financially prohibitive.

[noodleoo]

We got it when we bought our house to cover our mortgage. We both work and neither could afford the mortgage on one salary alone, so in the event, we wanted to make sure that was covered. We will consider getting more when we have children.

In your case, i would consider getting some term life insurance while you are young (maybe $100-200K) to cover the mortgage plus some living expenses/childcare should something happen. For example: what if you are both in a car accident and the primary earner dies but the other spouse is left, but injured and can't work for a year. They'd need money to cover the mortgage, medical expenses, childcare, etc, etc. They could blow through your savings very quickly. Term life insurance is pretty cheap if you are healthy (I pay $300 a year for mine, which is like $25 a month for $500K, 30 year term. Yours could be much cheaper if you get a smaller amount).

I never thought about it until we bought the house. Even then, we didn't necessarily *need* it. But I would never consider not having it if we had a child.

[w2w]

If we both die, we want to make sure our child can go on having the same lifestyle (at least financially). I don't know how to do that without life insurance. What if you lose your jobs? Or have to use your savings/investments for something? You can easily set things up so the money isn't wasted.

[auberge]

Honestly, this is stupid. Money makes everything better (besides the emotional pain/loss of course). A policy would be cheap for someone your age and you sound like you can afford it.

Protect your child and do it. $200,000 is not enough.

[chessie]

There is a few ways to look at it here. Even if you got a small policy for each of you, your both still pretty young where it be peanuts yearly for at least 300-500k policy. Its not about getting rich at all, paying off the necessary bills so the other spouse, children can live, and also, have some extra over to hire the help or take the time they need.

We have 2 portable policies ourselves and we don't have kids yet..back of my head though, if 1 person died, and we did have kids- imagine who you would have to hire to assist you? maid, nanny, babysitters..think about that one.

[zacksbride]

i also would not be comfortable with only life insurance that is tied to work - if you lose your job, you have no insurance. and if you change jobs in say a few years, life insurance policies will cost more, and who knows if your health will change in that time, making the cost even more.

dh and i have worked very hard, and gone through boatloads of school/training to be able to afford a comfortable lifestyle. if we were to both die, i would want my child to be able to go on to live the same type of lifestyle and have college paid for. if i were to die, i wouldn't want my husband to have to stress about money either. my life insurance is enough to cover the value of my lost wages for many years. 200K would not be enough for me.

[Here]

Wow. So friendly. :-)

H and I were talking about some things we needed to do or look into. This was one of them.

If one of us dies, we could afford to live comfortably on either salary. I didn't consider if one had to take off time from work. If both of us die, then kid has some money. At what point is it enough? Sure, enough for living expenses and college. I don't think lots of money is going to make a kid happy for long.

To me, after you take care of the financial "pain" of losing someone, it is like betting on your life, which seems really odd.

I do plan to look into replacing the work one. I signed up years ago and, when I look at the rates not, it doesn't seem like a good deal. :-) I'm not worried about losing my job though.

[Deleted]

It depends on how you feel about your current savings and ability to provide for the family if one spouse dies. I certainly have no plans on getting a new policy after our term insurance expires.

[barefootcontessa]

I SAH and we have $500K on me. We have a big family and my DH would need a significant amount of help to continue on without me for many years. I got a policy when I was 35 and it still was dirt cheap. DH has about $1M I think, in addition to what he has at work. We see work as a bonus, since it goes away when/if he leaves that job.

[Deleted]

I don't have life insurance outside of my work policy (3x final salary) yet because I'm worth more dead than alive with my student loans so things for DH wouldn't be too different without me. I wonder if I should change this now that Gizmo is on the way. I have to look into it.

[Susie]

Nov 20, 2012 15:59:17 GMT -5 Here said:

Wow. So friendly. :-)

H and I were talking about some things we needed to do or look into. This was one of them.

If one of us dies, we could afford to live comfortably on either salary. I didn't consider if one had to take off time from work. If both of us die, then kid has some money. At what point is it enough? Sure, enough for living expenses and college. I don't think lots of money is going to make a kid happy for long.

To me, after you take care of the financial "pain" of losing someone, it is like betting on your life, which seems really odd.

I do plan to look into replacing the work one. I signed up years ago and, when I look at the rates not, it doesn't seem like a good deal. :-) I'm not worried about losing my job though.

The money isn't just for your child to be "happy." Everyone has different ideas re: providing for kids/education, but that $200k would be gone in a snap paying for college, to say nothing of providing for him/her in the intervening pre-college years. It really won't go as far is it seems like you imagine. If we were named guardians of any of our siblings' kids, I'd want them to have more than $200k in insurance for the kid's benefit.

I also want to reiterate - it's not just about concern re: losing your job. It's pretty impossible for anyone to know that they bet-the-farm-definitely want to stay in their current job forever. You, your needs, your employer, your geographic location could all change over time. If you decided to change employers for ANY as-yet unforeseeable reason, you could lose that insurance and not be able to get replacement coverage at a reasonable cost. Not all employers offer life insurance as a benefit, so you can't bank on that, and you can't know what your health status or age might be when you might need or want to make a change. You also can't know the circumstances. Imagine you lost your H - how do you know for sure that you'd want everything to stay as it is? If I lost my H and had kids, I'd probably want to up and move closer to family. Well, there goes the job that I currently have and plan to stay in.

Those kinds of what-ifs are why life insurance that isn't tied to a job are valuable.

[formerlyak]

I don't think not having a policy if you have a child is very smart. Yes, you say you and your dh could each cover expenses on your salaries alone if the other were to pass (we could, too), but there will be unexpected things that come up that might not be as easy to manage with just your salary. And seriously, I got mine for like $19 a month ... it's a term policy with enough to make sure my ds' college bills would be covered, his current after school care and college living expenses would be covered and then some. I listed my brother as the beneficiary, because I know he is trustworthy and would make sure it went to what I intended. DS' dad and I are divorced, but even when we were married I had this policy. There are certain things you just don't want your heirs or surviving family to have to even think about.

[Deleted]

Nov 20, 2012 15:02:25 GMT -5 Here said:

When would it not make sense?

You're the only one who can answer this. For us, I'd say we definitely don't need one if our networth is at least $2M.

[catsarecute]

My husbands best friend died suddenly. He didn't have life insurance. His wife was a SAHM. Two kids. They have moved several times because they can't afford to settle in one place. I was told that life insurance isn't for you- it's for the people you leave behind. Peace of mind that money is one less thing that you have to worry about in a crisis situation.
We don't have any kids right now but we both got coverage to cover our mortgage, funeral expenses and other costs if we can't go back to work. It's worth the money we spend each month for the policy.

[Here]

she would have more than 200K after selling the house and factoring in non retirement investments. 200k is too little.

[cjeanette]

What if you and your H both die tomorrow and you have to leave your child with a family member. Do you think 200k is enough to for them to raise them and put them through college?

Honestly you logic seems very flawed.

The cost of insurance only increases as you age and you don't know what your future situtation might be. Having a policy outside of work is a very good idea. At least 20 year term.

[imojoebunny]

I don't have life insurance. I have savings. If something happened to me, then my children would benefit from my 401k and retirement funds, which are enough to raise them along with DH's salary ,and cover extra child are expenses. We have insurance on DH, since he has the income. It is not enough to live on forever, but it is enough to give me time to modify our lifestyle (we would move to a house we currently rent, that I could pay off the loan on by selling our current home, rent out the basement to pay the taxes) and build my career up.

I was just thinking about this the other day because a mom in my daughter's class died suddenly. She was divorced, but the main earner of the parents. I hopes he had insurance to benefit her children, or they will be living in the dads crappy 1 bedroom apartment full time.

Another over looked aspect of insurance is to pay back for time of or end of life care that your spouse may need. DH and his dad scoffed at the amount of insurance that I wanted for DH, but then our friend's DH was sick for a year, required long term expensive care, not covered by insurance, such as a home health aid, and special travel. By the end it cost several hundred thousand in that last year of his life. She was glad for the insurance to know that she could cash out her 401k and other investments to give him the best care.

[thegooser]

I am going to go against the grain.

You say that you have almost 500k in the bank total, and that each of you could afford the mortgage yourself. Considering how much you have saved, I don't doubt that you could. Life insurance seems to be for one of two things: make sure that you aren't faced with financial ruin if an income earner unexpectedly dies, or make life easier by making sure you have lots of extra money (a' la fully funded college, wedding fund, no change in lifestyle). Seems like the former is irrelevant and you don't much care about the latter. The only thing missing is if you both die. Will you have enough after everything is cashed out to allow someone to comfortably raise your child? If so, then I don't think you need it.

[Deleted]

If you are worried about it being wasted, create a trust.

We each have $1mil policies and I'm worried that won't be enough if we both die when DD is at a young age. We don't have as much net worth as you, and I don't know how old your kid is, but there is a long time between now and when my DD goes to college. I don't want her to want for anything just because her parents are gone. I dont want to jeopardize our parents' retirement, or place a financial burden on our siblings, because we decided to be too cheap to pay for life insurance.

[zacksbride]

we got a 20 year term, and honestly, i will likely not carry life insurance after that point (but not totally decided). the reason being, by that time, ds will be almost done with college and any future children will hopefully be close behind. given our jobs, while we do not have much net worth now, we should be able to accumulate a reasonable net worth over the next 20 years. the plan would be to have our assets serve as our "life insurance." however, at this point, if we were to die, and a family member had to care for our child, i would want to provide them wil ample money to do so comfortably. we have policies that are about 10x annual salary, then a separate one through work that is 6x salary (it is super cheap, so no reason to not hold onto it).

[kellbell191]

My mom's life insurance policy paid off my parents house, paid for my law school, and helped pay for our house down payment. Does it erase the pain of losing her or come close to making up for it? No. But it allowed me to take a lower paying public interest job and has made other parts of our lives easier.

[countthestars]

Two of my uncles passed prior to age 40. Despite being in good financial positions and living off only one salary, neither wife would have been financially sound and able to raise their kids in the same lifestyle without LI. It's not a risk I am willing to take.

[froggy76]

It is so cheap to get a term policy, and your best bet is to do it now while you're still young and healthy.

Anyway, some more questions to help determine if you need it:
What if you both die?
What if you lose the coverage from your employer?
What are the tax implications of your DD/guardian using the money you have saved?
What if your DD wants to go to a private college? What if she needs medical care after you're gone?

[sillygoosegirl]

I'm pretty amused at some of the numbers people are throwing around here. $1M is more than we intend to spend on our entire family over the next 18 years.

We also live on one income, though for us, we won't be able to afford daycare and child-related expenses on one income. And I will probably be a SAHM (definitely would want to be if I lost DH). So we'll be buying some insurance. But probably only $800K for DH, and somewhat less than that for me. I'm not sure who we will ask to be the backup guardian for our future child/children, but I can't imagine that wouldn't be more than plenty for any of the families under consideration. I wouldn't want our child to be a burden, but I also wouldn't want him/her growing up as the rich child among siblings. As it is, between assets an insurance, I imagine we'd end up paying for college for our own and my sister's 4 kids if we both died early. We don't have life insurance yet, as there are no dependents in the picture.

If you are truly able to cover all the household bills, including daycare and savings, on one income, I don't think you really need life insurance. I don't know how inheritance on retirement accounts works (how much gets taxed/penalized), but personally, I think $500K sounds pretty good, especially if you also have equity in your house. A little more might be better, especially if you have multiple kids and want to pay for college even if you are dead, but it hardly sounds irresponsible to me.

However, like others, I would be hesitant to count the insurance through work as being worth much. What if you had terminal cancer? Is going to work every day so your family could get the insurance money how you would want to spend the last 6 months of your life? Personally, I'd want to spend more time with my loved ones, and see a little more of the world before kicking the bucket. Not to mention that somewhere before the end, I'd probably be too sick to work. Of course, maybe you really love your job that much... But... food for thought.

[froggy76]

Another point- what if one of you dies after a long illness where you couldn't work and racked up huge medical bills? You could potentially leave behind hundreds of thousands of dollars in medical debt. What if the surviving spouse had even had to take a leave from work to care for the ill spouse?