Life insurance - Page 2

[Mulvah]

Originally Posted by CatsCradle 

I'm not an expert in estates, but I also think that life insurance would be exempt from what would be considered "assets" of an estate.  I also think that because of the language of life insurance policies, monies due would only be due to direct beneficiaries, and I don't think that creditors would qualify as a direct beneficiary under a life insurance policy.

I wasn't speaking to life insurance, I was specifically referring to the mortgage scenario the PP mentioned.

[CatsCradle]

Originally Posted by 3xMama 

I stand corrected. This is the way it was presented to me, albeit many years ago when I was still in high school I believe. So I probably did not understand it correctly, have twisted it over time, or was not given accurate information (which is possible as my mother is full of financial info that I've found out over the years is incorrect). Oh good grief, I'm sure I've spewed this out to lots of people over time. Bother. 

No worries...I really wanted to know!  
 

[crunchy_mommy]

Wow thanks for all the input, sure is a lot to think about!! My mind is spinning a bit. We do have a mortgage but no other debt. We have money in savings that could get us through a year or two should one of us die, which I'm figuring would give us time to sell the house & move somewhere cheaper if necessary?

Situation 1: DH dies
I'd probably go back to working full-time, but continue working from home... I don't think I'd need any childcare and would be able to pay our mortgage & all our major bills. I could probably get a higher-paying job (and still from home) pretty easily in my field. We are planning to homeschool but realistically, I'd probably put DS in public school if I needed some childcare. Things would get tricky if we have more kids (we want more but have trouble conceiving) because then I may need more childcare. Could we increase the insurance policy if we have more kids or does that restart the 'term'? So if we just had DS, I figure I'd need only a minimal policy on DH. Plus he has a small policy through work, and we'd get SS? This makes me think I almost don't need a policy on him at all... or maybe just enough to make a big dent in our mortgage...

Situation 2: DH dies
DS would need daycare until school age, and then pubic school + part-time care... DH does not have a lot of earning power with his background/career choice, plus isn't as financially savvy, so he'd struggle a lot to make ends meet. So from this it sounds like we need a higher policy on me than on DH? Probably enough to pay the mortgage plus childcare...

Situation 3: We both die
DS or his legal guardian wouldn't be responsible for our mortgage, correct? (Now y'all are confusing me with kids paying off their parents' debt...) His guardian makes barely above minimum wage & would need child care for DS (unless her situation improves before we kick the bucket, she's pretty young so that's likely, plus family would likely help her financially with DS)... Would DS receive SS benefits from both me & DH then? With the mortgage out of the picture, I guess we'd need enough to cover childcare and basic necessities? She is very frugal like I am...

I'm confusing myself. Too many factors to consider. I don't want to waste money but I do want to ensure DS is taken care of. We're kind of minimalist in many ways so I don't need extravagances but I don't want him living in a homeless shelter!

[CatsCradle]

Edited out.  Sorry, couldn't articulate.

[SweetSilver]

[delete]

I think you know something and then I start writing and realize.... I.... know.... nothing.

 

[laohaire]

Hmm. I think 3xMama does have a point about the mortgage, actually, though I still don't think whole life is the answer.

No, to the very best of my knowledge, heirs are not responsible for their parents' debt. However, a mortgage doesn't just disappear when the parents die. The heirs only inherit the equity built up in the house.

In different times, that wasn't a big deal - the heirs just kept paying the mortgage while the house was up for sale, then they divvy up the proceeds from the sale.

However, in this post-housing-crisis world, that could be a tall order indeed. While the heirs aren't obligated to pay the mortgage, if the house goes to foreclosure, then they lose the equity, I would think. Which would obviously be a shame. And, in a worst case scenario, actually cause a loss for heirs if they struggle to make the mortgage payments and then still end up losing it (hopefully in such a case the heirs would realize the situation from the get-go and not make any payments and let the house go from the start, but I could certainly see it happening).

So, I would think you would want to have a large enough policy to pay off the home outright OR at least figure for some costs associated with the mortgage (enough to make payments for, say, a year, plus some money to fix up the house for sale, plus maybe some money to figure for the sales commission, which is especially important if the house must be sold in a down market, and gives the heirs some leverage to just move it quickly for a lower price) - AND make the term long enough to cover the length of the mortgage (say, a 30 year policy if you recently started a 30 year mortgage).

OP, I agree with your assessment that your policy needs to be larger than your DH's in your case.

And yes, it's important to figure out whether the combined amounts from both your policies would cover your guardian's needs. I would imagine this would probably be the case, but an important question.

Another question to consider is if you expect to pay for part (or all) your child(ren)'s college. (DH and I don't).

[umarider]

Everyone who pays into Social Security gets a statement once a year that gives you the projected payout amounts for dependent children, etc.  If you can't find that statement, I'm sure you can request a copy.

I think of insurance this way:

If anything were to happen to DH I would not be myself for some time... I'm sure my normally savvy financial skills would take a backseat to grief,etc.  So we have enough insurance to allow the mortgage to be paid off, pay for the kids' college and either let me take some time off to get myself together OR, to invest the balance and have a small income to compensate for the lost $ we would have been putting into retirement accts for DH.  Total, right now is $700k in term insurance for DH.  Our mtg is pretty high, so for most people, less insurance would be fine.

We have a $250k term policy on me. It costs less for women than men, but we needed less insurance for me since I am not the primary wage-earner.  That policy will pay for kids' college and give DH time and financial room to get his act together... especially since I am the one who handles all finances, I'm sure things wouldn't run as efficiently until he got used to things.

As a pp said, insurance is like buying peace of mind.  We don't need to worry about the financial what ifs... just the emotional.  That's worth the $ for us.  

Do go to a website like smartquote to get some comparison values for insurance.  It's best not to go to an insurance agent because they make a profit off of selling you expensive policies.  Check out any company you're considering using through the AMbest site.  They rate the financial stability of insurance companies.

[SweetSilver]

Life insurance payouts are payable directly to the beneficiaries.  It is not taxable--neither estate or income taxes apply to the payout, though I don't know about the investments in whole life-- and is not subject to probate.  The payout is the financial replacement for a human being.  Executors of the estate take on a certain financial liability, and the estate, of course, has a liability to the creditors who come forward during a set period of time.  If the house is to be sold, then there might be no reason to think that the mortgage can't be paid off unless the house is underwater.  My dad died 2 years ago, my mother 7yo.  Using the payout to pay off creditors is thoughtful, but as far as I know the payout is not part of the legal estate.

Edited by SweetSilver - 2/23/12 at 7:10am

[AbbyGrant]

Originally Posted by laohaire 

Hmm. I think 3xMama does have a point about the mortgage, actually, though I still don't think whole life is the answer.

No, to the very best of my knowledge, heirs are not responsible for their parents' debt. However, a mortgage doesn't just disappear when the parents die. The heirs only inherit the equity built up in the house.

In different times, that wasn't a big deal - the heirs just kept paying the mortgage while the house was up for sale, then they divvy up the proceeds from the sale.

However, in this post-housing-crisis world, that could be a tall order indeed. While the heirs aren't obligated to pay the mortgage, if the house goes to foreclosure, then they lose the equity, I would think. Which would obviously be a shame. And, in a worst case scenario, actually cause a loss for heirs if they struggle to make the mortgage payments and then still end up losing it (hopefully in such a case the heirs would realize the situation from the get-go and not make any payments and let the house go from the start, but I could certainly see it happening).

So, I would think you would want to have a large enough policy to pay off the home outright OR at least figure for some costs associated with the mortgage (enough to make payments for, say, a year, plus some money to fix up the house for sale, plus maybe some money to figure for the sales commission, which is especially important if the house must be sold in a down market, and gives the heirs some leverage to just move it quickly for a lower price) - AND make the term long enough to cover the length of the mortgage (say, a 30 year policy if you recently started a 30 year mortgage).

My grandmother died shortly before the housing bubble burst. Her houses needed quite a bit of work before sale, and they sat on the market for quite awhile. The taxes, utilities, and repairs were covered by money in the estate.  I'm thinking this would have been the same if there had been a mortgage. 

[laohaire]

Originally Posted by AbbyGrant 

My grandmother died shortly before the housing bubble burst. Her houses needed quite a bit of work before sale, and they sat on the market for quite awhile. The taxes, utilities, and repairs were covered by money in the estate.  I'm thinking this would have been the same if there had been a mortgage. 

Yes - as long as there are adequate assets in the estate to do so.

[AbbyGrant]

Originally Posted by laohaire 

Yes - as long as there are adequate assets in the estate to do so.

There was cash and other assets to cover retirement.  If someone didn't have much in the way of savings or other assets though, I could see where their mortgage could be a problem for their heirs.  

[laohaire]

So that's why it's a consideration when you calculate what life insurance you need.

[crunchy_mommy]

You guys are confusing me!! So if DH & I both die, no one is responsible for our mortgage, correct? But obviously if anyone wants to keep the house or benefit from its sale, they would need to continue paying the mortgage & related fees, right? If we didn't have enough life insurance to cover the house, it would just go back to the bank?

[AbbyGrant]

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Edited by AbbyGrant - 6/23/12 at 10:41am

[AbbyGrant]

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Edited by AbbyGrant - 6/23/12 at 10:42am

[SweetSilver]

Originally Posted by crunchy_mommy 

You guys are confusing me!! So if DH & I both die, no one is responsible for our mortgage, correct? But obviously if anyone wants to keep the house or benefit from its sale, they would need to continue paying the mortgage & related fees, right? If we didn't have enough life insurance to cover the house, it would just go back to the bank?

My suggestion is to talk to a financial planner.  Advice is at no extra charge if you've purchased one of their investment products, like an IRA.  After my dad died we hired one.  She cost us $1000 for a year of unlimited advice and some services, such as notary service which we needed on several occasions while settling the estate.  Of course, she would have charged by the hour instead.  We did not have any investments with her company, and I felt like she steered us in the right direction, so it was worth it.

Financial planners would have some advice for estate planning, but there are people who specialize in estate planning.

[goldenwillow]

Thank you crunchy_mommy for this thread!  I was just coming to post this question!  I appreciate all the responses!

I am clueless to this!