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Life Insurance Question - How much should I purchase.

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  • Life Insurance Question - How much should I purchase.

    I'm looking into buying term life insurance and was would appreciate any sort of feedback in terms of suggestions as to how much to purchase and from where. My background...

    I am a 29yo male second year resident married to a physician assistant. I already have disability insurance but am looking to purchase life insurance now that I just found out a few weeks ago that my wife is pregnant (both excited and nervous). I currently make ~50k a year and my wife ~100k and our expenses are quite low (live like a resident). However, some of that will change when our baby is born next November. She will likely cut down to part time and our expenses will undoubtedly go up (nursery, we actually need to buy a car, other child expenses, etc...). At this point I don't plan on doing a fellowship so I will likely be making "attending level" salary of >350k in about 2.5 years. She will likely continue working but only at part time.

    Our current combined financial situation:
    ~150k in retirement savings (all in tax protected accounts)
    18k emergency fund
    110k in student debt (which my wife is not responsible for if I were to die)
    No mortgage or any other debt obligations
    We are also expecting an inheritance of ~150k within the next year

    We are generally pretty frugal and will never live extravagantly, but our as we purchase a house, move back home, and have more children (2-3) our expenses will certainly go up. I am only interested in term life insurance and just trying to decide on how much to purchase. The hope is to make a single purchase now while I'm young and healthy (no comorbidities currently) so that I never have to buy another policy again. I plan to run the numbers to see what makes sense but I was thinking of doing something along the lines of a $1 million dollar 10 year policy as well as another $1 million dollar 20 year policy. That way, if I were to tragically die in the next few years, she would get $2 million dollars but after a 10 year period our finances will likely be much better and $1 million dollars should be enough. I was thinking of only keeping it at 20 years (and not 30) because my hope is to be financially independent before twenty years and it would also save on some of the premiums. Questions...

    -Is this reasonable or would you suggest something else? More coverage, less coverage, only do one policy, stack the policies differently?
    -Are there any suggestions for websites to run sample numbers through to get estimates? The insurance salesman I bought my disability policy through was very knowledgeable and I will likely go through him again, but I like to do my own due diligence beforehand.
    -Any companies historically provide the best rate?
    -Finally, does it make sense to get a very small policy for my wife...such as 250k for 5 years. That way if anything were to happen to her, I would at least have some financial means to support a family until I start making an attending salary.

    Any and all thoughts would be greatly appreciated.

  • #2
    I used http://www.term4sale.com/

    Same age as you and got a 2 million / 20 year for like ~$700 I think.  May get a second policy in a few years for stacked coverage.

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    • #3
      It's really what your wife is comfortable with.  Mine wanted a 30 year policy, so I have 1/3 dropping out each 10 years for the same reasons you mentioned.  I went with Joe Capone who is on the WCI website and he was great.  The first application came back way to expensive as I had one lab value out of whack by 1% so he shopped it to others and saved me 5k a year compared to the first quote.  Use the term4sale site to check rates so you know if you are in the ballpark.

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      • #4
        There are several topics in WCI about this.  If our financial portfolio goes well and we pay off our house early as planned, we will start dropping some of these. Also once kids out of college, if we can help them with college then we can drop them all in 20 years instead. We have ~ 2M in coverage, all in term. Mostly followed WCI suggestions.

        https://www.whitecoatinvestor.com/how-to-buy-life-insurance/

        https://www.whitecoatinvestor.com/term-life-insurance-strategies-for-physicians/

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        • #5
          I would get a 30 year policy for at least  3 million dollars for you, and perhaps a 2 million 30 year for your wife.   You want to have enough to support your children through college.  If you have several children, the youngest won't finish college for 25 or 30 years, not to mention graduate school.  If your wife were to die, you would probably want to cut back on work, and might need more help at home, ie a nanny.  Term policies at your ages are very cheap.  You could also consider laddering policies ( a 2 million 20 year policy, and a 1 million 30 year) but I would just go for the 3 million 30 year.

          That would only be paying  100,000 per year for 30 years (not counting interest income ).  College for one child will cost over 100k a year by then.

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          • #6
            I'll disagree with AlexxT.  Insurance is just there to cover a loss.  If you or your wife dies it needs to replace your income, or pay someone to replace it in the case of a stay at home parent.   Being that you are onto the WCI website and will understand things better and sooner than most I would stick with the 20 year policy.  The 30 year policies are much more expensive and you likely will be able to self insure by then.  If you get 10-15 years into this and need a little more, but another policy for 10 years, but with an income over 350k and a working spouse you have the chance to be financially independent quickly.

            Also, I don't like insuring hypothetical things like kids college if I don't have kids.  When the kids come, you have 18 years to save for college.  If things change dramatically, get another policy that makes sense.

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            • #7
              Your plan sounds very reasonable to me. I had a ten year $1 million policy, and stopped making payments after 8 or 9 years when I no longer needed it.

              The more you plan on saving, and less you plan on spending, the less insurance you'll need.  AlexxT's recommendations are good if you need $5 million to support the family and neither of you would work if the other passed away.

              For many physician couples, $2 million in coverage could suffice, and you shouldn't need it beyond 20 years, but it depends entirely on how you live, and how you save.  I like your layered plan a lot, actually.

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