Term Life Insurance Advice

[stskay]

I purchased a $2 million 'Term to age 80 with increasing premiums' life insurance policy 2 years ago (age 32 at the time) during my final year of residency, unfortunately without much knowledge or research at all.

I am now 34, first year as an attending, making $350K base salary, single but with the hopes of marrying and starting a family one day, and have a goal of being financially independent in 30 years.

I just began following the website and discovered the plan I originally purchased was less than ideal (i.e. not a ~ 30 yr long-term, level-premium term plan).

I would like to cancel my current plan and purchase a new one but am seeking advice before I do so.

-Are there usually fees associated with cancelling plans? I cannot see anything explicit in my contract.

-Given my current status and future goals, what is a reasonable amount of insurance to buy at this time?

Thanks in advance.

[q-school]

if you are single now, are you sure you need life insurance?  who is the beneficiary?  parents?  siblings?  do they need it?

[jhwkr542]

Based on the provided info, you need a $0 life insurance policy currently.

[stskay]

Thanks... I feel sufficiently stupid now.

 

Just to clarify, is the risk of increased premiums from starting a policy at an older age with possible future health co-morbidities outweighed by the fact that I don't have any true beneficiaries at this time?

[jhwkr542]

To your second post/question, I think so. With that big salary you have, you may never need it depending on your life timeline since you could theoretically reach FI incredibly quickly. You also don't know how much you'll need in the future or for how long. But again, with that starting salary, it's unlikely you'll need it for very long since you can likely reach FI easily but that also depends on your spending/savings. Term life is so cheap to begin with. Remember, you won't need to replace your income, just what your future dependents spend.

[White.Beard.Doc]

I would considered laddering level premium term insurance policies. Consider 1 million 10 year, 1 million 20 year, and 1 million 30 year level premium term policies.  The total coverage now would be 3 million, but in 10 years, as your assets grow, your theoretical future family will have assets to fall back on that mitigates the needed amount of life insurance.  You will save substantial money on the shorter coverage policies and avoid overinsuring later in life.

Personally, I am nearing retirement with one policy about to expire, and another that will expire in 10 years.  But our youngest is finishing college and our net worth has grown to the point where we would no longer would need life insurance to replace income.

Now I am starting to investigate life insurance for a different purpose, to pay estate taxes, but that doesn't accomplish anything but help my heirs pay estate taxes on the business entities that I started.

[Faithful Steward]

stskay wrote:

-Are there usually fees associated with cancelling plans? I cannot see anything explicit in my contract

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If this is truly a term life policy, the should be no fees. Matter of fact, some life insurers will even issue a prorated refund of your premium.

[Faithful Steward]

White.Beard.Doc wrote:

Consider 1 million 10 year, 1 million 20 year, and 1 million 30 year level premium term policies.

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A better idea would be to simply buy a $3M 30-year level term life policy. Then, simply do $1M face amount reductions at 10th and 20th anniversaries. The advantage would be that you probably would receive better pricing on the one large polcy versus three smaller policies. This is because most life insurance companies offer break-point premium reductions for higher policy face amounts.

[Scott at MD Financial Services]

If you don't have dependents (this could even be mom and dad if you want to pay them back for your education) and you don't want to leave money behind for a particular charity then you don't appear to have any need for the life insurance.

If however, you want coverage here are your numbers today assuming great health:

Life Insurance (current age 34 male):

$1,000,000 of Coverage Cost is per Year

10 Year Rate Lock $235

15 Year Rate Lock $285

20 Year Rate Lock $390

30 Year Rate Lock $754

 

Life Insurance (age 34 males):

$2,000,000 of Coverage Cost is per Year

10 Year Rate Lock $385

15 Year Rate Lock $515

20 Year Rate Lock $710

30 Year Rate Lock $1449

Now lets roll up your age by another 2 years to see the cost of waiting...

 

Life Insurance (age 36 male):

$1,000,000 of Coverage Cost is per Year

10 Year Rate Lock $245

15 Year Rate Lock $305

20 Year Rate Lock $454

30 Year Rate Lock $814

 

Life Insurance (age 36 male):

$2,000,000 of Coverage Cost is per Year

10 Year Rate Lock $405

15 Year Rate Lock $555

20 Year Rate Lock $825

30 Year Rate Lock $1569

 

My opinion is if you don't need the coverage then don't buy the coverage just to lock in your health.  Health does change from time to time but if there was any great (actuarial) chance of the health changing over the next couple of years it would be clearly reflected in the cost the insurance companies are charging for the risk they are taking.

In addition, sometimes we out think ourselves and while doing a ladder term portfolio sounds good and might save a few bucks so certainly look at the math.  Today you can lock in $2 million on a 30 year contract at $1,449 per year vs. $1 million at both a 20 and 30 year rate lock for a total of $1144.  It might be worth $305 to have the full $2 million of coverage in years 21-30 or it might not but that is the dollar decision you face.

Let me know if we can help further.

[Donnie]

Rex wrote:

Given inflation for most laddering is unnecessary

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I think of laddering as a way to reduce the cost of life insurance as your need declines.  Future spending will necessarily decline as more years go on, so you have less life insurance need later in life.  This is especially true if you are accumulating assets over time as well, enabling partial or full self insurance.

How does inflation play a role in laddering?

[Craigy]

Rex wrote:

1 million isn’t 1 million in 30 years. Thus you auto decrease your insurance over time.

Can’t tell you how many discussions I’ve seen where families have a hard time figuring out which insurance policy is still in force.

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+1

I recently had a succession with a whole life insurance policy still in force from 1944.  Found a copy of the policy in a safe deposit box, and the insurer paid out the full $40,000 face value.  Clearly that would have been a huge windfall in the years after it was first issued.  But inflation shows us that the value took a significant hit as the first decades ticked by.  Today, it was a nice extra but hardly an amount to support a family in the event of death.

[stskay]

Thanks very much.

 

I appreciate everyone's responses.

[MaxPower]

Let me guess...Northwestern Mutual salesman got you?

I agree with Rex. If you have concerns about decreasing insurability, with that income just buy some type of term policy and be done with it, and then cancel your less than optimal policy (just in case something gets discovered on your workup--unlikely but not unheard of).

But I also agree that I'm not convinced that you even need life insurance now at all based on what you've written.

[Jason Veirs]

It definitely sounds like you went with a Northwestern Mutual policy, and as you probably already know, NWM is typically not one of the the most competitive carriers when it comes to price - I believe that they have actually pulled their rates off of www.Term4Sale.com recently, but I'm not entirely sure. I can actually still see their rates on one of my Agency Quoters, so it's always funny to go up in competition with them and show the clients the actual rates in writing - It makes the decision rather easy for the client (SEE ATTACHED QUOTES for age 32 and age 34 rates - I included the top 15 lowest carriers along with NWM's rates, who is at the very end, on page 3).

Also, as others have mentioned, you may not have real urgent need for life insurance at this time, so you can just weigh the costs and do what you'd like. What I can tell you, is that if you wanted to maintain coverage, and were to replace that NWM policy with a new policy from another carrier today, it would most likely be less than what you're currently paying, or right around the same price - This is even with your age increase, and based on the previous information that you provided.

Lastly, with regard to the laddering/layering approach, many carriers will only let you have 1 face amount reduction through out the life of the term policy, but this is definitely something that you'd want to double check on, in the event that you just went with a $2MM or $3MM 30yr term policy (NOTE: Northwestern Mutual does not offer a 30 year term policy at this time). If I remember correctly, Prudential will let you do multiple face amount decreases, but they're the only carrier that comes to mind off hand.

Hope this helps!