I’m curious. My husband and I have insurance through work - we pay a few dollars a month for about $100,000 (each) life insurance and the same amount in accident insurance.
We just had a daughter. How much life insurance SHOULD we have? We’re both in our 30’s, don’t smoke, in good health. We do have mortgage insurance as well.
Our financial planner is recommending that we get insurance that is independent of our employer.
I will probably be out of a job this fall too, if that is relevant. (Hubby can purchase spousal insurance for me through work as well).
Is the financial planner correct or is he just trying to make money off of us?
I just don’t want to be taken advantage of, but if it is a good thing to do, we won’t hesitate to do it. So I thought I would turn to the Dopers for advice.
I work in benefits analysis and systems. It is always a judgement call but I would get enough life insurance to pay off a house outright and provide for a full college tuition on top of maybe $10,000 a year per child for support. That might be over $500,000 for you. LIfe insurance for younger people is very cheap but if it pays out, it is extremely worth it (although you would never know heh heh).
For AD&D insurance, the same thing applies. Buy in the mid-levels because it is very cheap and you may need it dearly one day.
I don’t want to go into too much detail but my family hit multiple very unlikely scenarios in the last two years that has cost insurance companies well over $750,000 (house crushed, slow child death, car accident, another major disability). The fact that they were all there saved us big time.
Thank you Shagnasty - that is good information to have. Sounds like we definitely need to get more insurance.
Is life insurance something that you can build equity in? I guess it makes more sense to commit to a plan outside of our employer, so that when we no longer work there, we are established somewhere else?
It’s all so confusing and I am just so leery of getting scammed, know what I mean?
By the way, I am sorry to hear about the very sad, very trying past 2 years you and your family have been through.
I agree with Shag that your policies should be at least enough to pay off the mortgage and put the kids through college, things that would be extremely difficult on one income alone.
I’ve always heard that your life insurance should equal your lifetime’s earnings. (Multiply current salary times, say, 25 years, or however many years left until retirement.) As you get older, you could decrease it.
First off the two worst buys in life insurance are mortgage insurance and AD&D.
Mortgage insurance rates can be 2-3X what regular term life insurance rates are. AD&D while not too expensive only pays if you die in an accident. You cannot guarentee that this how you are going to check out. Therefore this is not a type of insurance to that you should buy to ensure that your family will be taken care of.
Group term life insurance may be a good buy or it may not. Look at the rates and compare. Term life insurance for young people is dirt cheap. I just did a quick Google for a rate quote on a 35 yr old male and got $21/ month for a $500,000 policy.
In addition to what Shagnasty said I would look at does your lifestyle require 2 incomes to maintain? What happens if one of those incomes stops? If so look at what will it take to maintain a lifestyle that is acceptable. That may require child care and expense that was not needed when before.
If you stop working obviosly this isn’t the case, but what happens if hubby dies? A paid off house, and 10K a year probably won’t keep you in that paid off house. Don’t forget that that mortqage insurance will pay off the house period. You do not have an option with that (assuming you purchased it through the lender) You may need that money for other needs.
My advice? Dump the mortage and AD&D. Talk to some real insurance agents. Get quotes, compare. Buy some insurance outside of your group insurance.*
Figure out what you think you need and then buy more. In the history of life insurance no beneficary has ever come back and told a company that they got too much.
*The problem with group insurance is that if you A) leave the group and B) are no longer insurable at a competive rate you can only convert a very expensive rate to a permanent form of insurance.
My husband has about 150,000 dollars worth with his work and a private life insurance company. To be honest I don’t know if that’s the value together or each. I think I’m covered for about 50,000 on one of those policies.
My accountant just told me last week that I can claim half the premiums for business expenses if I take out life insurance for myself, so now I am seriously considering it. Always was, but the business is so new that I am in the “just breaking even and taking hardly any salary” stage. That information might make me act a bit faster…
By law mortage life insurance cannot be required as part of a loan. They can ask and suggest, but they cannot require it. There may have been some screwy preminum arrangement that makes it hard to cancel, but you can cancel it.
I have heard 19x your annual income is a good number, but that may not be based on anything. That also sounds very similiar to the amount you’d need for retirement which is about 17x your annual income (assuming you have no other sources of income during retirement and live to 91).
I would echo what others have said. Enough to pay off the house, to fund job training and to provide several years or living expenses should be a good starting point.
You can get just a disability insurance policy, very important. Young and healthy though you may be, if each, or God forbid, both get injured in a car or other accident and can’t work for an extened period, you could lose everything.
I’d suggest talking to at least three agents, terrible chore though it may be, to get quotes. Tell each you are shopping around. Then be sure and read a sample policy before signing up.
As to life insurance, it’s complicated. When you are young, term insurance is way, way cheaper, but the rates jump up every few years. There is no cash value buildup, so if you ever cancel, it just stops. However, many young people figure to get a lot more term insurance than they could whole life, and save enough to be able to cancel it when the kids are all grown up and on their onw.
Whole life insurance costs a great deal more, but the rates usually stay the same throughout your lives, and there is some cash value buildup.
There are any number of insurance value estimators out there - they take into account things like number of kids, what sort of educational plans you have (e.g. private school), current income etc. I think a general rule of thumb is that most people should have between 7-10 times their income in life insurance.
Some experts say you should go heavily toward term life insurance, as providing the biggest bang for the buck; so what if it’s going to get pricier later in life, in theory you won’t need as much when you have fewer financial obligations. My own bias is to have a lot of term, and a smaller amount in whole, to cover all bases
The cost difference can be considerable between term and whole (the kind that builds cash value) - 3 years ago when my company was sold, I lost access to our existing term insurance, and could get guaranteed coverage through an individual whole life plan. Only trouble was, the term coverage was costing me maybe 60 dollars a month (less than 1,000 a year). Similar whole life would have cost me ten thousand dollars a year. I wound up dropping my coverage value down to roughly 1 year of income, and hoping/praying I wouldn’t die before I could arrange other coverage. I actually went woefully underinsured for about 18 months until I pulled off enough weight to get the new employer’s coverage to take me on.
As far as through the employer: The financial adviser is right. If you get coverage through the employer, you usually lose it if you change jobs. UNLESS it’s a policy that lets you continue your coverage at near-group rates when you leave. If so, then it may still be a good way to go - that’s what I’ve done now through my new employer.
The estimate of 25 times earnings may be a bit high - many household expenses will be less after you go, your spouse would presumably have some income, and of course the insurance benefits themselves would be invested and gain some income. I certainly couldn’t afford 25 times my salary in insurance.
