I think you have received lots of good advice here. Carefully consider any products before buying.
The general principle to remember is that life insurance’s proper place in your financial plan is to provide for your family’s needs in the event of your unexpected, premature death – not as a funding vehicle for a financial windfall to your heirs upon your (expected) death at a ripe, old age.
My husband and I are in the same boat, both age and kid-wise. We have $1m on him and about $450,000 on me, both term. A lot goes into determining how much you need. A good agent will walk you through it, as well as through all the different products out there. After that, you can evaluate everthing on your own, just to make sure you’re not falling for a good sales pitch. If you are thinking of going with whole life (there may be some tax advantages to that) or any other type of hybrid policy, it might also be good to check with your financial advisor who can compare the cost of that type of investment with the cost of other types of investments. FWIW, we’re with Northwestern Mutual and have been very satisified.
Edit: You should also make sure you are coordinating your designation of beneficiary with your estate plan (you have a will, right!!). For tax reasons, the beneficiary is usually a trust.
I agree with that.
Maiximize the term, minimize the whole/universal life. You will thank me later.
O.k…so am I understanding correctly then, that most people in, let’s say, their fifties and sixties, no longer have life insurance because their term policies have run out?
I would imagine that obtaining life insurance at that point in ones life is pretty costly…so you just go with out? Hoping that mortgage is paid off, kids through college, etc??
I got term life insurance such that it expires (20 years) when my oldest daughter will be through college (I’ll be in my early 60s). After that, I’m sure that Social Security and my retirement funds will keep my wife solvent. Mortgage is already paid off. I just started a new job, and I’m paying extra for another $250K, plus finally getting half that for my wife (she’d do a lot better without me in raising the kids than would I without her!). Also, I have a personal LTD policy (far more expensive than my life insurance).
Oh, my life insurance policy costs about $420/year; to get another $500K now (about 5 years later, and another age group up) would cost over $1,000/year. Get it earlier than later!
What if my long term plan is to fuck my worthless family with all the costs of putting my sorry ass in a hole and donating my home and cars to an animal shelter? How to I plan for that?
The recommendation for people your age is usually to get a term insurance policy. Invest separately.
Between my work and life ins. policy, I have 6x my salary in coverage. My wife works part-time, but should I die I’d like her to have the option of not working, or at least only part-time when the kids are in school (they both are preschoolers right now). (I have a coworker who insists his wife shouldn’t be better off just because he’s dead!)
Keep in mind that your kids and wife will get social security payments should you die. These can really add up (for me, about 80% of my takehome). Its my understanding that the kids would be tax-free, and your wife’s would be as well if her AGI is low…but it might be taxable if she’s working.
Part of how much you should get depends on how much in assets and liabilities you have. Lets say you have a mortgage, car payment, credit card debt, etc., and only a few thousand in savings. The amount you would want is probably different than if you have $200k in a 401-k.
There’s no perfect way of doing this, but one way of estimating what you might need would be to add the following amounts together:
Debts minus assets. (Don’t actually have to pay the debts off, but I’d like to think the money would be there to do so if that made sense,)
Total annual expenses for your family (assuming the debts are paid off) less the amount they’ll get after taxes from social security payments. This is the shortfall in the budget per year. Multiply this by 15. ($90,000 invested at 5% per year will be able to pay out $6,000 per year plus an extra 3% per year for inflation until the kids are in college)
An amount to set aside now that can serve as a college fund. Assuming college costs grow at the same rate as your investment, you might put in $200k for this for two kids (about $25k per year per kid). You could definitely use a lower number than this. If you assume you’ll earn 3% more per year than college costs go up, you could put away $125k now. And $25k per year is a lot…can get a fine education for less.
Example:
You have $210k in debt (mortgage, $10k each on two cars, some credit card debt). You have $10k in savings.
Your wife and each kid would get $700/month from Social Security (this assumes you make in the $50k range I would guess).
You estimate your family expenses would be $3,100 per month, assuming no debt payments.
You’d be happy if your kids could have about $20k/year for college in today’s dollars, and assume your wife could invest to earn 3% more per year than the increase in college costs (good luck 
).
So…you croak. Your wife sells one car for $10k. She spends $10k on a funeral and a big wake for us slowtwitchers to attend. Net, she’d need about $200k to pay off all debts. Now, she’d have a house, car, furniture, etc., no debt.
They’ll get social security payments, but they’ll fall short of the budget by about $1k per month, or $12k per year. $180k put into an account today would provide that extra $ for the next 17+ years.
$90k invested today and earning 3% above college cost increases should provide about $160k in 20 years ($20k per kid per year).
$200k for debt, $180k for future expenses, $90k for the college fund. $470k total. Your wife, if she works, will be able to put that towards her own nest egg, a cute pool boy, whatever. Of course, she’ll also have a house that she could sell.
Hmmm…I need to go up my life insurance…
Of course, your wife could work part-time and make up that budget shortfall. Or your kids could be more on their own when it comes to college (or have to incur more debt, go to state school, etc.). In the above example, $500k should suit them just fine. $250k would allow your wife to be debt-free and have a $50k nest egg. If she worked part-time and cover the budget shortfall, that could grow into a good chunk of change for the kids to use towards college. Depends how comfortable you want all to be and how much you’re willing to pay now for that.
It’s called a Will.
Be sure to shop around. Prices vary considerably. A direct writer is most likely the cheapest alternative.
I have $500,000 term policy, think it’s $20 month. for stats, I am single, 35, have a 3yr old son, own a house.
As a guy in the business I can tell you that if you buy term, find a good cheap policy. You can get that from a local independant, West Coast life is a good carrier, so is FNG. Buy term and invest the rest only if you are diciplined to do so. I see plenty of 60 yr olds with no insurance and no health and wish they would have done whole life. Perhpas a mix will work better to keep the cost down. Lets say you should get 300k of life, do 200 term and 100 whole. In 20 years you have a hundred (perhaps more if it grows) and if it has dividends, it should be able to pay it’s own premium. They should be able to show you the progression of cash value insurance and the cash value should equal your premium in around 20 yrs if it’s a good policy. Insurance isn’t an investment, but you should see some of the old sweet whole life policies that are paid up and kicking out a 2k annual dividend. No money in and 2k comes out, let’s see the market do that. Now it’s not 12%, but a solid 6% isn’t bad either. We sell a ton of insurance to those over 70 these days. Think about it, if they won’t spend it, why not double it and give it to the kids tax free. Or convince them to spend some of the money and fill the bucket with death benefit tax free. Again, shop an independant as well. I sell BXBS, Prudential, Mutual of Omaha, and anyone else who will take me. So what’s nice about guys like us, is that we try to sell you the right box, and not try to tell you that our box is the best.
I am also in the Life & Health Insurance field. I write a fair amount of both permanent and term life coverage. I agree with the previous post which recommended that you consider blending the coverage buy purchasing two separate plans. With this design, you will have a large amount of total protection in the years when you may need it the most, but still have a fair amount after the level term period has expired. I also agree that it would be helpful to speak to an independent broker who can help you to determine an appropriate amount of protection and shop on your behalf to find the best company to fill your need. You may shop the marketplace and get quote comparisons at several websites. Check out http://www.insure.com and http://www.termcomparisons.cc/ - both of these sites will provide you with a large number of quotes from highly rated insurance companies. If you already know what you want/need, you can also begin the application process online. However, I highly recommend that you first have a detailed discussion with an independent agent/broker. Most independents will be able to provide many of the same quotes that you will see at the above mentioned sites, but should also provide you with quality service and a place to turn with future questions and concerns.
As far as an appropriate amount of coverage, only you can make that determination. A good agent/broker will help, and give you an opinion regarding the minimal amount that should be considered, but it boils down to whether or not the minimal amount is something that you’re comfortable with – both in your desire to provide for your loved ones, as well as your budget. A good place to begin researching the amount of appropriate coverage is Prudential’s online needs analysis, this can be found at: http://www.prudential.com/HTMLEmbed/0,1469,intPageID%253D4234%2526blnPrinterFriendly%253D0,00.html - Play around with this and then contact an independent agent/broker to compare their advise and quotes to what you receive from the Allstate guy.
If you have any further questions, feel free to contact me at apfs@aol.com.
Good Luck!
As a former financial advisor, here’s my take. Find an insurance agent and/or financial advisor that you trust and ask them these questions. You’ll know the right questions to ask. Don’t jump into anything blind or without really exploring it. What I’ve seen in many of these replies are rules of thumb, and even a large number of “myths” You go to the experts to get expert advice baed on YOUR situation. To say one thing is better than another is a generalization. Most of America follows their neighbor’s advice and most of America is poor.
Ok, for what it is worth here is my opinion. To set the stage I entered into the insurance profession in 1990 and after two years realized it was not for me. My goal was always to start an investment advisory firm which I did and we now manage close to 100 million give or take the current market environment. I decided to keep my insurance license current because inevitably we will help our investment clients attain the correct coverage because usually it is a complete disaster when it is reviewed. I would say that most insurance agents are in it for the commission and that is it. I hate to say this but it is true! Disclaimer: Yes I do have the designations and we are fee only advisors
Their are several key elements that we look at when reviewing these policies for our clients:
A) The one thing we stress the most is that insurance is just that…Insurance. Is to protect against the unknown. **It is not an investment…let me repeat, it is not an investment!!! **Max out your IRA’s, your 401k and then start on your regular brokerage account. I can remember companies like Kentucky Central promising their clients 12% in the late 80’s on universal life policies and that their policies would be paid up (Meaning no more premium payments) in only 7 to 10 years only to see them go belly up in the early 90’s. I have seen Northwestern Mutual (The king of whole life) illustrate their policies to be paid up in 10 to 12 years only to see them now take 20 to 25 years. You see, the rates they gain on their portfolios are tied to their underlying portfolios of Mortgages, Bonds etc…and let me tell you they are not great money managers. Variable life is the only one that remotely makes since as you can pick investment options similar to mutual funds (although technically they are called separate accounts), but the mortality costs (Insurance) is high and the investment fees are even higher. You usually only have 10 to 50 options and our philosophy is why limit your options when you could invest in anything inside a brokerage account. This may seem like a lot but it is not. The above referenced types are permanent policies. We use only Term policies for our clients. We discuss how much, how long they need the coverage and then have our insurance broker spreadsheet out the best companies for them. This is a must as the environment is always changing. You could have the same amount on a 31,32,33 year old and every time different companies will be more competitive. We usually have at least 20 companies for the clients to review and to make their decision on.
B) Do they have the right amount. The amount should be based on what the client wants not what the agent wants you to buy. Replacement of income, mortgage pay-off, college funding for your children, final expenses, estate taxes are just a few of the items we discuss with our clients. I remember seeing a stat in 1991 that said that less than 2 percent of all term policies pay out a death claim. I look at this two ways. I maybe throwing my money away or if I buy a permanent policy the insurance companies are using my money for their benefit. Believe me it is the latter.
C)The final thing is that I always want my clients to have is options. To lock into a policy and invest Thousands of dollars only to be told their is a penalty if you want your money back can be very costly. Oh, they will say it is a loan, but that is another topic (don’t get me started).
I could go on for days about this, but I need to go buy some cycling shorts or bibs. Any suggestions? Good Luck!
Pull the trigger on anything last night?
Thanks to everyone for the info…FWIW, I swear sometimes I think I’m in “Better Hands” here than with my insurance guy.
So we met with him last night (State Farm, NOT Allstate - already I’m not impressing my wife!)
At my age, 38, he quotes a 30 year, 1 million term policy at around $1500 annual. Based on the numbers I’ve seen floating around here, that seems high. Especially at my resting HR, BP, cholesterol, etc. - I better be able to get a preferred rate because Lord knows I’m certainly not winning anything else!!
Anyway, I’ll check out some other companies, using some of the websites you guys provided. Thanks again!!
Oh and to “Keep it Fun”…I love my DeMarchi Contour Plus bibs, most comfortable pair I’ve ever owned!!
I am not sure what they quoted but it is very high. Here is a spreadsheet in the link below for you to view of a client of ours that purchased a 20 year level term policy 1,000,000, 38 years old at preferred non-tobacco. I would use this as a standard and not let anyone pull the bait and switch on you. The first three companies are excellent to deal with and will give you a better rating if you qualify.
http://www.lifelinkpro.com/pdfOut/pdf.aspx?sid=31wvS4sF9YRq3qtcSmQ6&file=7638966.pdf
Thanks for the bib recomendation. In your opinion do they run small, bid or are they pretty standard is their sizing.
Thanks for the spreadsheet…will definitely take it into consideration.
As for the Bibs, I have a 29" waist, weigh just under 140 and am only 5’5". The medium fits like a glove. First time a bib has fit right with regard to my height (or lack of height). When I first put them on, it felt like too much padding. But after several hundred miles now, I’ve never had any discomfort/chafing, etc.
There on sale at Worldcycling.com for 90 bucks right now!
where can I get some of this “Soul Bread.” It sounds good.
Im proud of you that you are thinking about your family! I wish I had all of you guys and gals as my clients! Im a Farmers agent so I know a little about life insurance.
There are many factors to take into consideration and any agent worth a damn will meet with both you and your wife to determine your needs. Term=coverage only, builds no cash value. Whole Life=pays death benefit and builds cash value. When your kids are young its a great time to buy a policy for them as well as long as they are healthy. That way if they develope health problems they will have insurance. It is very affordable. Even for yourself it shouldnt be too terribly expensive.
I sent you the wrong comparison. The first was 20 years. Here is the 30 year for your review http://www.lifelinkpro.com/pdfOut/pdf.aspx?sid=pA4tM26Hn8k7tK5X9P7S&file=5475426.pdf If you get the next step up in rating you will save anywhere from 200 to 300 dollars. Beware of the rating quoted they can be very tricky! FYI…First Colony is very good about giving the better rating.
Thanks for the bib info!