Annual Enrollment Thinking of Term Life Outside of Employer

[PenguinMD]

So that time of year for annual enrollment. Mainly due to laziness (just so busy) usually just default into the company's standard life insurance policy which is auto-covered by the company. However, now looking to supplement that especially now we have a 2 y/o.

Pulling some quick term life quotes online, seems I can get much more value from outside my employer term-life Unum offering.

Trying to figure out how much coverage and for how long. We're both in our early 40s with a rambunctious 2 year old (thus looking into life insurance). We're dual income with one at the physician rate (employed salary not sole) and the other in high tech, combine a little north of $400K/yr. For debt we have a nice size mortgage plus minimal school debt. Not including equity in the house have roughly a $1.5M nest egg built so far (bulk is all tied in

Looking at the "what if" scenarios if anything would happen to one spouse, we would want to at least have the mortgage taken cared of (one less payment to worry about), some money for college, and maybe some money for yearly living.

 

So breaking it down:

College: That's a straight calculation - let's say around $200K (whatever shortfall will be made up by loans or donating plasma)

Yearly Allowance: Will just use 4% safe withdrawal rate, figure that should at least last 10+ years. So at $1M I'm calculating it will generate $40K yearly allowance for at least 10 years.

Mortgage: This is where it's a little tricky as this will eventually get phased out so don't necessarily use the max amount for 20 year term. For instance to make the numbers easy if the outstanding mortgage right now is $1M, I don't want to go get a $1M for 20yr as 15yrs later the mortgage will be way less and basically being way "over insured".

Looking through older threads seems several folks in their early 30s opted for 30 year terms which means for us looking at 20 year terms.

My gut says something like this:

Doctor Spouse: $1M for 20yr / $1M for 10 yr

Non-Doctor Spouse: $1M for 20yr / $500K for 10yr

 

Figure this plus the nest egg should suffice. But then I also think of inflation and in 20yrs, $1M is not really $1M anymore ...

 

Curious how others backed into the "right" amount and the length of the term.

 

Thanks!

 

[LBKCLU]

I agree that a 20-Year Level Term makes sense. This will get your 2 year old out of college and allow you to continue to accumulate wealth over that time period.

You are also correct that employer sponsored life insurance is not a good deal unless you are lazy or would not qualify for a favorable underwriting classification when purchasing an individual policy. Generally, the annual premium for employer sponsored coverage will increase and an individual level term policy will not. The individual policy is also portable and not tied to your employer.

Finally, you will probably find that the cost is about the same but the individual policy's premium rate is guaranteed for 20 years while the employer sponsored coverage is not.