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How much term life insurance to buy - some unique considerations

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  • How much term life insurance to buy - some unique considerations

    My spouse and I are both in our first year of being attendings. Based on the trajectories of our jobs and partner track considerations, I anticipate our salaries 2-3 years from now to be in the neighborhood of $350-380k for one of us and $450k for the other. We live in a high cost of living area and are planning carefully to make sure we live within our means but we are not particularly willing to sacrifice to achieve early retirement as opposed to a normally timed but secure retirement. One kid coming later this year and we've discussed having two.

    One of us (higher salary) is essentially uninsurable in a meaningful way for medical reasons, at least in the current environment where insurers may not be issuing high table rated insurance. This person has a few hundred thousand of guaranteed issue life insurance and I am thinking about supplementing with some accidental death and disability insurance. I have been in touch with a couple brokers who specialize in difficult situations such as this, but for this discussion, assume that one of us is uninsurable.

    The challenge is deciding how much life insurance to buy for the healthy person. In addition to easing the burden of the surviving spouse adjusting to one (still large) income, it needs to entirely cover the contingency where both my spouse and I die but there are surviving kids.

    Based on reading WCI and old posts, my initial gut thought was between $2m and $3m but now I'm wondering if something like $2m 30-year + $1-2m 10-year might make more sense, since in the case where both of us die that would have given us 10 years to accumulate assets which could contribute to the kids' financial security. I'd be interested in what other people think the right number is and whether they'd get one large, presumably 30 year term policy, or find it worth it to complicate things slightly by laddering.


  • #2
    To offer dollar figures, you need some more analysis.
    How much education debt do the two of you have?
    How much do you plan to spend on a house?
    How many children do you have or intend to have?
    How much do you intend to pay for their education? None of it? All of it through med school? Somewhere in between?
    You need to figure out how much money the unisurable spouse and the kids would need to carry on if the insurable person were to die prematurely. In part, this depends on whether the uninsurable person is able to keep working or the health problems kick them out of the workforce. In the latter situation, costs could go up. Include medical care not covered by insurance, home help and modifications that may be required by disability.
    I don't know your circumstances, but many people get at least some life and disability through their work, needing only to be healthy enough to be hired.
    Without knowing any of the above, I would err on the side of getting a large amount of coverage now. Probably even more than you are suggesting.
    As time goes on, you can reduce it as the two of you accumulate assets. But if something bad were to happen soon, your need for insurance could be very high.

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    • #3
      Term life is cheap, you can overkill what you need and it still won't cost you much. I like to look at the death benefit as an asset that can create cash flow to clients so the question I have is how much cash flow do each of you need/want if the other passes away? Once you know that you will know the amount of assets you need to create said cash flow. From there you can calculate how much how much total benefit you need minus savings already in accounts. The next step is to figure out how fast you are saving money and at what rate of return you are receiving. When you have that data you can then project how much you are going to have at 10 years, 15 years, 20 years, and 30 years respectively and have the corresponding term life benefit loads drop off as you hit the points in time.
      Scott Nelson-Archer, CLU, ChFC
      303-953-0263 Direct / [email protected]

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      • #4
        We just did one simple 30yr term. We considered laddering but didn't think it was worth the risk of being under-insured or undersaving. What if you both go on DI for those first 10yrs? How does that affect your plan then? Term is cheap enough to not worry about cost savings too much. In any case, I believe too you can lower the value of the policy in the future. As to amount that's totally subjective and something you have to figure out but don't forget to include SS survivor benefit which can be rather substantial.

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