Life Insurance or more Investments?

[expat-mama]

We are expecting our first babe soon and just did a little shuffling around of our finances to take into account that I won't be working for a little (or long) while.

The guy who handles our investments and retirement funds was trying to sell us life insurance. We thought long and hard about, but have (for the most part) decided against it. We make a decent amount and are very frugal and diligent about saving and not acquiring any debt. It just seems like such a scam to me to pay out like 30-40 grand "just in case" one or both of dies in the next 25 years. If we don't die, we get ZIP for that money! It just seems like throwing so much money away.

So we decided it would be wiser to take the money we would pay into life insurance and put into investments that are slighly higher risk/higher gains than our others. We figure at least this way we get SOMETHING back. And the probability of one or both of us dying is pretty low. I'm not a finance person, but isn't it smarter to invest this money than to pay for life insurance that we will probably never need? I mean in terms of risk assessment? (ie: the risk or probability that we would lose the money paid into life insurance because we DON'T die vs. the risk or probability of losing some in a "higher" risk investment)

Our finance guy, trying to convince us, said stuff like, "Well, if one of you dies next year, or even in five years you'd have a million. But if you put that money into investments and took it out if you needed it if one of you died, you wouldn't have anywhere close to that."

I don't want to bet on one of us dying and that's what this feels like. Is that crazy? I don't like fearmongering and I feel like life insurance really preys on our deepest fears... and it works! Now, I find myself questioning our decision but I hate the idea of paying into life insurance.

How did you make this decision?

[RunningMomTegan]

My husband's military, so getting him life insurance was something we feel we HAD to do given his increased risk level. He has a million total, which would let me stay home with kids for at least ten years in the event something happened.

I have $500,000 right now through the military until I get out. When I get out, I'm going to get a policy that is enough to pay off our house and my funeral.

You're overseas, so I don't know how transport of bodies, etc, would work in the vent something happened to one of you. Would your employers cover it?

At the very least, I would consider having a policy to cover funeral costs, etc, if you're not worried about replacing income. A policy that small is pretty cheap!

Good luck making the decision!

[velochic]

I think that a good term life insurance plan is part of a well-rounded and healthy investment portfolio. If you have a family, a life insurance policy, IMO, is one of the most important things to have, in addition to a revocable living trust.

Life insurance isn't a bet on dying. A bet implies that you might not be right. Well, you WILL die. And it can happen at any time. I don't know why death is preying on fears. It's not like you can avoid it.

If you are planning to stay at home, then you absolutely NEED a life insurance policy on your dh.

I agree with the financial planner. He's 100% right, IMO.

[SeekingJoy]

What type of life insurance product(s) is he trying to sell you? Term? Whole life? Carrying a reasonable level of term life insurance (or having adequate investments to support the surviving partner or guardian) shouldn't be that expensive, and I think it the only resposible thing to do once kids are involved.

[MeepyCat]

Where on earth are you getting $30 to $40K quoted as premiums? That seems really high for a million in coverage.

I agree that life insurance is very important for people with children.

[TwinMomPlus]

Originally Posted by MeepyCat

Where on earth are you getting $30 to $40K quoted as premiums? That seems really high for a million in coverage.

I agree that life insurance is very important for people with children.

This.

Don't you want money for your children in case something happens to you? Parents die every day, it isn't that far fetched. What if your DH died? You would have to go back to work right away and handle all the bills yourself.

There are much more affordable plans out there.

[sunflower.mama]

I would not feel comfortable without life insurance. Not at all. My mom died when I was 16, so maybe I am biased, but yes, parents die. Kids still need home, school, etc. Even if the mom who stays home dies, you'll need to replace her w/ a housekeeper, nanny, etc. We pay $140 a month for our joint coverage, and yes, I guess that does work out to $42,000 over the 25 year term ($750K on him, $600K on me). But to me it's worth it for peace of mind. I don't think there's a great chance of me being at fault in a car accident or our house burning down either, but I don't sit around and do a cost benefit analysis of whether I should insure those things. I just suck it up and do it. Perhaps once your LO arrives you will realize how scary the thought of leaving him or her to be cared for by someone else is, not to mention how scary that would be if you left the child without resources to provide for said care. It's a component of your responsibility as a parent.

[iowaorganic]

Why would you NOT provide the security of life insurance for both your partner and you dc? We have term policies with return of premium riders. So it is like a 0% interest savings account at the end of the 30 years. Not everybody thinks these are good ideas- but it works well for us.

[rainbowmoon]

Don't forget if you or your spouse dies you and your minor children will receive social security death benefits until your child graduates from HS or is 18 and 9months.

My parents decided not to get life insurance when I was growing up because of the SSA benefits. They felt comfortable with the amount they would receive I guess (My dad is not my birth father but apparently they looked into it and since he supported me financially since I was 2 it would apply in the event of his death)

I am widowed and I have lived off SSA death benefits for 5 years. My DH made good money (not quite 6 figures but almost) so we were lucky that he paid a big chunk into SSA. It's enough that I don't have to work unless I want to. And even then I am allowed to make a good chunk of change before I am penalized. Sounds like the OP and her spouse might also have a good income and paying alot into SSA so it's worth checking into.

I just got my own statement yesterday from SSA. It is just an estimate but it shouldn't be way off IMHO.

[HappilyEvrAfter]

I have to agree that life inusurance, whether whole or term (I vote whole) is extremely important.

I feel he's right. Life insurance is meant to be an "immediate" covergage in the event of a catastrophic event....investments are there to accumulate for later in life.
However, I would definetly shop around and not just go with your guy just because he's handling your investments.
There are some good, reputable companies out there with affordable premiums.

Nobody likes to think about death, but life insurance isn't about YOU, it's about those left behind and how you can take care of them.

[mnnice]

Just because you buy 25 year level term insurance doesn't mean you need/should pay the premium the entire 25 years.

We have term life insurance and I suspect that we will pay the premiums for a few more years, but not the entire term. We are becoming increasingly self-insured.

Starting in September both the kiddos in this family will be enrolled full-time in public school. The amount (both $ and time) of childcare that would be required to keep the surviving parent working is shrinking. Soon DS1 would be old enough to stay home along for an hour after school.

We own our home outright.

Also each day that we are both here is another day that our children are closer to adulthood/independence and that we have had an opportunity to save in other ways (at least theroticially, actual practice has been a bit spottier with DH unemployed)

Anyway your actual costs might be lower if you only end up need the coverage for 15 or 20 years not the entire 25 or 30 year term.

[karkli]

It does sound like he's trying to sell you on something that will be more profitable for him than beneficial for you. If you and your DH are in good health with clear histories, I suspect you can find more affordable options for coverage.

Still, life insurance is an important part of a complete, responsible financial picture - particularly when there are young children in the family.

A good compromise may be to go for a lower value term policy that would cover funeral expenses, loss of the deceased's income, possible loss of income for the surviving spouse due to time spent grieving, and any additional expenses incurred relating to the care of the child/ren in the event that one of you should die. A shorter term period would also decrease the premium, and might be a good option for you if you believe that you will be in a position to fully self-insure in the future.

As an example, we pay only $160/year for a $250k, 10-year level term policy on me. My DH has a $750k, 20-year level term policy that costs us under $675/year.

Say we were to take what we pay for DH's life insurance and invest it for the next twenty years, and say he were to pass away on the very last day of what would have been our 20-year policy. Making an average of 10%/year, we would have under $50,000 at the time of his death which, considering inflation and cost of living increases, may not even be enough to cover his funeral expenses - let alone provide any additional financial cushion or make up for the loss of his income.

I would look into what other insurance companies offer and go with wherever I could get the cheapest term coverage with the highest death benefit.

[velochic]

Originally Posted by HappilyEvrAfter

I have to agree that life inusurance, whether whole or term (I vote whole) is extremely important.

Why whole life insurance? Maybe I'm missing something in the OP.

[cristeen]

Originally Posted by sunflower.mama

I would not feel comfortable without life insurance. Not at all. My mom died when I was 16, so maybe I am biased, but yes, parents die. Kids still need home, school, etc. Even if the mom who stays home dies, you'll need to replace her w/ a housekeeper, nanny, etc.

Only my mom died when I was 12. And she left $77K worth of medical bills behind (what the insurance didn't cover). With no life insurance, that essentially bankrupted my father. And he still had to hire a FT housekeeper to watch us, clean the house, cook the meals, etc, since he was on the road 14 hrs/day.

Originally Posted by rainbowmoon

Don't forget if you or your spouse dies you and your minor children will receive social security death benefits until your child graduates from HS or is 18 and 9months.

You can't count on that though for being enough. My mom was a WAHM (self-employed) for many years keeping my father's books. But because she didn't draw an income from it, the death benefit was barely enough to pay for uniforms, books, etc., to get us through HS. This is going to be true for many SAHMs.

Because of all that, I view life insurance as crucial. When we got married we each picked up a policy large enough to pay off the house free and clear. When I got pregnant, we each doubled the coverage. So if something were to happen to the both of us, the LO's guardian would get $1M in trust plus the house (worth twice what we owe, even in this economy). If only one of us were to die, the other would get enough to pay off the house + enough to support the remaining family for years (private school + nanny or continue HS + PT childcare/PT work).

Yes, eventually you would hope that you have enough investments to make life insurance moot. But what happens if you die in a car accident when the baby is 2 mos old? How much will you have saved at that point? Would it be enough for your DH to stay home with the babe for 4 mos? Enough to pay a nanny or FT daycare for the next 5 years? Enough to pay for private school, music lessons, etc., for the next 18 years? etc...?

[TiredX2]

We also have term life insurance for the *worst* case scenario--- if we both died. Yes, I am sure the people who we have chosen as guardians would care for our children independent of money, but asking people to do that is a HUGE financial burden. We would want them to be able to increase house size, car size, get counseling for the entire family, and still have money for expenses.

IMO, the last thing you want to deal with in a tramatic event is further turmoil. And, for me, that is what not having enough $ following the death of my spouse would be

[HappilyEvrAfter]

Originally Posted by velochic

Why whole life insurance? Maybe I'm missing something in the OP.

Lol. Because I was having an idiot moment and meant term.

[greenmom4]

I know next to nothing about life insurance, but my husband didn't have any and I felt it necessary that we have something to cover any medical bills and housing costs should something happen to him. So we have a small policy for him (100k) and a supplemental policy on me (I get 50k through work and we purchased an add'l 50k). It's a really minimal amt per paycheck and it's a 20 year term policy. For me, if the unthinkable happens, the last thing I would want to do is worry about who is going to watch my kids, how we are going to pay hospital bills, etc, etc. So it's worth it for the peace of mind (well, for us, it is).

[Hannah32]

We're in the process of applying for term life insurance right now. We're looking at 30 year. Hubby is mired in underwriting process, which can be pretty messy. They have lots of questions, probably because he's only seasonally employed. I'm waiting until I'm post partum to apply, because my weight is really elevated and the agent said it would throw my blood levels off too.

[rainbowmoon]

Originally Posted by cristeen

You can't count on that though for being enough. My mom was a WAHM (self-employed) for many years keeping my father's books. But because she didn't draw an income from it, the death benefit was barely enough to pay for uniforms, books, etc., to get us through HS. This is going to be true for many SAHMs.

well thankfully it has worked out for us. for that I am grateful. Also, this is why I wrote if the OP And her spouse had high incomes they should look into it. I didn't mean count on it for the WAHM or SAHM with high debt that hasn't paid into SSA! Common sense here.

My DH had some medical bills too, they were completely dismissed (As was a 17,000 CC debt that he owed, thankfully in his name only but they tried sueing a dead person instead of his estate so the debt was completely dismissed) completely freeing me and his estate from any liability. I got lucky though I think.

It does work out for some. My children and I are proof. I have another widow friend who gets a higher amount of SSA death benefits as well. I certainly wouldn't discount it either if the OP and her spouse are making high incomes either. It's worth looking into at the least. And it doesn't get much easier when SSA sends you a statement each year telling you what your death benefits would be.

For us it has worked out in our favor actually. We actually get more in benefits than DH used to net per month. (No it's not a mistake and has been rechecked numerous times) I think at his highest he made about 89,000-91,000 just for a point of reference. We received 30,000 from 2 small policies which did help immensely.

[sunflower.mama]

Also consider what you want to do for your kids. When my mom died, we did get 1.5 years of SS benefits for me, and longer for my sister. They were a drop in the bucket of private school tuition, college and grad school which were down the road for both of us. We chose a 25 year policy when we changed life insurance last year because we wanted the policies to see our youngest (yet to be born) through college and possibly some grad school. Clearly that's not everyone's objective. But it's one of ours, as we plan for one parent's income to go straight to college and grad school for many many years. So counting on SS benefits, which end at age 18, wouldn't do a thing for that objective. As I said though, everyone has different plans. Just sharing our thinking.