Another how much term life

[Rambo]

Cannot decide on how much to get. Analysis paralysis!! Would appreciate help.

Some info: 2 doc household, both work, mid 30s, healthy, one newborn child (probably more children at least one another), no mortgage but looking for home (range 1-1.5mil), HCOL area, small amount of student loans (can pay lump sum but saving cash for potential down payment home), combined income last year went into the very low seven figures

Thoughts?

[jfoxcpacfp]

From a financial planning perspective, I'd recommend $2M - $3M each under this scenario, either 15-yr or 20 yr. along with a financial plan to achieve enough wealth to no longer need the policies when the terms expire. Can't be more specific w/o knowing goals and other information. I'm sure the insurance experts will have some ideas, also.

[Scott at MD Financial Services]

At $3 million of benefit (and age 35) you can get that at $49 per month for 10 year, $69 for 15 years and $101 for 20 years of locked in rate for a male.  For a female it would be $46 per month for 10 year, $64 for 15 years and $85 for 20 years of locked in rate.  When you don't need or want it, just drop it.  It does not cost much to get a large amount of coverage that you then own and control.

[The White Coat Investor]

I could be convinced of anything from $0 to $5 Million. In some ways you function as each other's insurance policy. But you will also have a very large mortgage, so it would be nice if that disappeared if something happened to either of you.

The real questions are:

# 1 What is the financial plan if something happens to you?

# 2 What is the financial plan if something happens to your spouse?

# 3 What is the financial plan if something happens to both of you at the same time?

With those answers, it's an easy decision. Without those answers, you're basically saying "I'll figure out the answers to those questions when/if they happen and hope I guessed right on the insurance amount."

[Rambo]

Appreciate the responses. Forgot to add wife may or may not stop workin the future.

No recommendations for 30 year term? The agent I spoke with was nudging towards at least 3 mil and thought 5mil was also ok. There was also some discussion about getting an estate lawyer involved to set up the appropriate paperwork and possible trusts.

Thoughts on getting laddered policies? Something like 3milx30yr term plus 2milx20yr term for me and just 3mil/20yr for wife. Excessive?


Good Questions WCI (answers/assumptions below) - probably good idea to setup a trust for asset protection and I can even use Vanguard as co-trustee

# 1 What is the financial plan if something happens to you?
Spouse collects life insurance, inherits all assets (mainly cash and tax deferred), has to keep working, continues with Vanguard passive investing hopefully

# 2 What is the financial plan if something happens to your spouse?
Keep working, collect life, inherit retirement accounts

# 3 What is the financial plan if something happens to both of you at the same time?
Kids get $, hopefully we have a trust that stipulates some details

Reasonable answers?

[Scott at MD Financial Services]

$5 million probably is excessive for what you need but that is based on what you need and not necessarily what you want.  At the end of the day it costs about $33 per month per million on a 20 year level premium contract for you, if you want $5 million then get it.  Keep in mind some people on this site drive $150k cars to work and others drive $10k, they both go to work.  The reality is if it makes you feel more comfortable to have $5 million then buy it, you can always decrease the policy later as you build more assets.  In addition, from my perspective it seems you are going to have your financial house whipped into shape in no time if you keep your expenses low and income high, I would not be buying a 30 year term policy, save a few bucks and get the 20.

As for trusts, yes get them.  One of the worst things in my business I deal with is when mom or dad pass away and leaves a bunch of unrestricted funds to kids who have no education, planning or training on how to handle / care for that money.  It really is crazy because it does not have to be a ton of money that can totally throw a young adult off track.  Think about it, at 18-25 how many of your friends or siblings would have delayed school, made poor investment decisions, or even lost motivation because of something relatively small like $100,000, now think if they had $3-$5m.  I know it is a pain, heck I just re-did all my trust work a few months ago too, it is better to allow the kids to mature into that responsibility rather than handing it to them at the age of majority (18 or 21).  With a pile of cash in their hands I have seen more kids make the decision to take Harley's over Harvard or that they need a new Ferrari 458 at 19 years old, and so on.  Typically 2-3 years later we often get the call "was that all the insurance Dad or Mom had?", because it is all gone.  If your decision is to leave money to kids make sure it is a blessing and not a curse where they develop a lifestyle they can't support due to the influx of cash.

At least that is my experience over the last 24 years in the insurance business.  If you want to PM or call I can share some distribution methods I have seen that work very well.

 

 

[Craigy]

Even though you are each other's policy, it's nice to know that if you die, you will still provide something for your child and your spouse.  A million or two should cover your children's education and living expenses from birth through medschool, depending on how many kids you have and what sort of schools they go to.  So really whatever amount that makes you feel good knowing it's there is the right choice.

A lot of agents will try to say you need to provide your own salary for your wife and kids to live on forever, even with a working spouse, which is ridiculous.

[Rambo]

Good point about the trusts and distributions.  Hard to control assets from the grave, but can definitely set it up so monies can potentially get managed by an older (hopefully wiser) offspring.

How soon after giving birth is it advisable to apply for term life?

Estate planning is another aspect I need to address at this point as well.

[Scott at MD Financial Services]

Usually we will help clients get this going 2-4 weeks post delivery, that allows the labs to all settle down and get in line post pregnancy.

[TheGipper]

I would recommend stacked policies:
2M 10 yr term
2M 20 yr term

Many ways to estimate need, much of which is personal choice.

My own formula is:
Amount = mortgage payoff + all kids colleges funded + (4million - current retirement savings).

Estimate how long to get that number to zero. For example if you'll get there in 20 years get stacked 10 yr / 20 yr policies. If 30 yrs, get 15/30yr stacked policies.

[caprivenky]

I have a 2 million policy till 65 year.

The way way my agent said she calculated the amount was.

1. Mortgage balance. - so the spouse can pay off the house and own it outright with no payments

2. Any loans - student or loans in investment property

3 kids schooling and college. - approximately 250000x 2 for me

4. Child care expenses - if the spouse decides to not work for one or two years after the incident.

5 yearly expenses for the spouse and kids - approx
With 4% draw

For the wife. She recommended enough to pay for child care do that you could work.

[Rambo]

How does one venture a decent guess for kid's education? Assuming paying only for college and grad school, I am guessing 500k/child 20 years into the future is reasonable?

[Rambo]

Also, if one plans to eventually do some estate planning, is it advisable to get term life prior to or after meeting with estate attorney?

[adventure]

Rambo wrote:

How does one venture a decent guess for kid’s education? Assuming paying only for college and grad school, I am guessing 500k/child 20 years into the future is reasonable?

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Not a bad place to start. That'll cover a pile of it, if not all.

[jfoxcpacfp]

Rambo wrote:

Also, if one plans to eventually do some estate planning, is it advisable to get term life prior to or after meeting with estate attorney?

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I don't see that it matters either way. You should get term life when you need the coverage.