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Life Insurance

post #1 of 11
Thread Starter 

Is anyone here versed in life Insurance?  I could use input or understanding.

 

DH is a public school teacher making about 50K annually gross.  We are supplemented by "gift" money that could go away at any point but currently covers necessary expenses/bills.  We are debt free with the exception of a new mortgage.  I am SAHM homeschooling two kids, age 5 and 12.  We have little retirement and no college savings.

 

DH has term insurance in the amount of 200K, an amount I believe should be raised.  I have no life insurance, and would like to get it asap.  When I checked rate quotes for term insurance online, I was told that I can only get a certain amount since I do not work.  *That* I do not understand.  I can get it for my kids, why am I limited in what I can get for myself?  In addition, I cannot exceed what DH is insured for (reason unknown?) so need to raise his amount first.

 

If I use the formula Suze Orman recommends, I use what we need annually x 25.  If dh were to die, we'd need $3500 a month which is roughly 1 million in insurance.  Do I then insure myself for the same amount?  Lesser?  

 

All suggestions, thoughts, knowledge welcome.  I would like to have this figured out by end of February.

post #2 of 11
I think you need to think about what you are truly insuring yourself against. I mean, where does 25x come from? Does she think about earning interest on that balance? As a sahm dependent on a partner, yes, you need his income replaced, but for how long. Is it your goal to not work, homeschool the kids till they are each 18? Would you work after that? How would that change for dh if you died? What is the difference in premium for various coverage levels.

Just to give you our train of thought, we have enough money to pay off the mortgage, replace the car, and one ample year of living expenses to get our life sorted out and get back to work. It isn't that much money, but it will clear the practicalities. This is a very reasonable monthly expense for us. I wouldn't want to pay for more.
post #3 of 11

We took a similar approach as Carson.  I work outside the home, and my husband stays home with nearly 3 and 5 year old.  My policy will pay off the mortgage and leave enough money for him to stay home for several years (we're planning on homeschooling at this point, but its not enough for him to stay home until they're 18).  Note that because our mortgage interest rate is so low, it wouldn't make sense for him to pay off the mortgage.  Just making regular payment and investing the principle will likely enable him to stay at home considerably longer than if he did pay it off.  My husband's policy will cover child care until they're teenagers (and they'd likely need to attend public school).  I'm not sure what company you were looking at, but there was no cap on his policy because he doesn't work.  Both policies are 20 year terms.

 

Good luck.  I felt very relieved once we had insurance in place.  I didn't even realize I was feeling anxious about it until then.

post #4 of 11
Thread Starter 

Carson, I think the 25x is an amount that allows the principal to be invested and the interest to be the amount you live on.  In my case, if DH died, I would lose the pension and projected SS as well as his current income.

post #5 of 11

When I checked rate quotes for term insurance online, I was told that I can only get a certain amount since I do not work. Not correct. In addition, I cannot exceed what DH is insured for (reason unknown?) so need to raise his amount first. Not correct.

 

The first thing I would recommend is finding someone reputable to work with, just ask around. I agree with the others you need to figure out how much you need by figuring what your plans are for the future as far as working v homeschooling, cost of mortgage, etc.

post #6 of 11

I agree with the pp's. We have tiny policies for each of the children to cover final costs in that unimaginable circumstance. For dh we keep enough that I could pay for final expenses, home, replace the car, and cover expenses for a while depending on how I spend so I can get on my feet. For me we keep a fairly small policy but it would still cover final expenses, pay off my student loans, and cover child care for dh for a very long time. Given our current situation he would also have a job change to deal with that would leave him needing the extra for a bit while he got settled since he works off right now and that wouldn't be possible if he was raising three children alone. 

post #7 of 11

A surviving spouse caring for minor children, and those minor children, will probably be eligible for Social Security survivor's benefits, so that may lower the amount of life insurance that you need.  But also allow for the long-term effects of inflation; many prices are double or triple what they were 20 years ago.

post #8 of 11

We need to do this soon. From what I have read, you should have 10x your income in life insurance. My DH makes around the same as yours, so that means he needs to get a 500K policy. I stay at home so I'll get a smaller policy, like around 150K. Our kids are 3 and 6 so a 20-year (term life) policy would be enough.

post #9 of 11

I drink the Suze Orman Kool-Aid, but not when it comes to life insurance.  In fact, just this year I lowered DP's life insurance because it just felt disgustingly excessive and unnecessary.  I don't need life insurance to keep me in the lifestyle I would have lived.  We talked about what was truly important - paying off the mortgage, giving me a year or two buffer for both children to be in school, health insurance considerations, and an additional buffer for college funds. 

 

Inflation, taxes, SS (minors), lifestyle, salary, and other issues are things to take into account, but I think many people over-buy life insurance. 

post #10 of 11
Yes, yes! I just don't get arbitrary amounts of anything, and I hope those of us reading this forum at least try to put arbitrary numbers in context.. Someone spending 50% on housing or $800/mo on food... What does that number mean on its own, nothing. Dh frankly paid very well for our frugal I lifestyle. 25x his salary would totally be a windfall, but expensive to get that much coverage, I assume, and just excessive, I guess...
post #11 of 11

I agree, but I think it would be wise to just have more available especially initially. I have been out of the workforce for over 6 years. The more time that goes by, the rustier my skills become, and I'm sure I'd be getting paid from the bottom of the barrel until I gained more experience again if I had to go back to work, which I would. Plus, we homeschool and I know that if one of us died, we would no longer be able to continue that. After school care, babysitters, stuff like that would come into play. I think there will be more expenses that arise even though you may be able to pay of CC debt, mortgage, etc. There is just no way of knowing for sure... better to be prepared.

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