Reconciling simple living philosophy with life insurance?

[~Shanna~]

I'm really looking for some advice from a simple living/frugality perspective.

My DH and I are expecting our first little one in early spring. Since I'm going to be a SAHM, we're spending a lot of time talking about life insurance lately. The conversations that we've had from the "experts" ring so false to us: The amount of life insurance that they suggest we "need" is hugely disproportionate to our lifestyle. They also seem to confuse large life insurance payouts with somehow making the death of a spouse be less traumatic. We're having a hard time determining what we need, so I wondered if any other simple/frugal living families have any advice? If you are a SAHM, do you plan your insurance needs based on going back to work if something happened to your spouse, or not? More objective questions: Do you figure in a projected income from social security? Any opinions about disability insurance?

[PixelDust]

Losing someone you love is always painful; however, I think it can be more or less traumatic based on circumstances. I can tell you from my experience that if insurance enables you to take some time off work to grieve, that can be very helpful. I wouldn't buy more insurance than you really think you would need to get through whatever time period you choose, but as a soon-to-be SAHM, it is very important to me that my partner carries enough insurance that I know if (Fates forbid) something happened to her, the baby and I would not A) lose the house, B) be in immediate financial trouble, C) have to go the daycare/FT employement route right away, D) lose all our savings. Any of those things would be an extra burden at a time in our lives when we needed it least, so only in that sense, insurance can minimize the trauma of a loss.

I'm sorry if I sound like Doomy McGloomerson. It's just that I've BTDT (not with a spouse), and I saw the insurance money as a last blessing from my parents. Giving me the space to grieve on my own schedule was a very loving thing, and I appreciated it so much.

[fek&fuzz]

You can continue to live simply and frugally even if you have a lot of money in the bank. You can use it for college, unexpected expenses, starting a business, etc. You lifestyle and philosophy won't change simply because you have money.

[~Shanna~]

Originally Posted by PixelDust

I'm sorry if I sound like Doomy McGloomerson. It's just that I've BTDT (not with a spouse), and I saw the insurance money as a last blessing from my parents. Giving me the space to grieve on my own schedule was a very loving thing, and I appreciated it so much.

Thanks so much for sharing that - I'm not at all naive about the problems that money can solve, I just don't know how to balance the huge monthly premiums with our already-tight budget, especially when the life philosophies of the insurance agents seem so foreign to me. I really liked what you said about not having to make major changes (like going back to work) right away. There's a part of me that is so puzzled by approaching this with a philosophy that nothing should have to change if my husband passed away - not that I think it would "serve me right" to have to go back to work if something happened to him, but there's just something uncomfortable about staring this worst-case scenario in the face, and trying to figure out ways that it wouldn't change my life. Does that make any sense?

Originally Posted by fek&fuzz

You can continue to live simply and frugally even if you have a lot of money in the bank. You can use it for college, unexpected expenses, starting a business, etc. You lifestyle and philosophy won't change simply because you have money.

Absolutely true - it's more an issue of meshing the higher premiums with an already simple budget.
The premiums that we were quoted (for much higher policies than I think wee would need) were on the order to $65 per month. That's an enormous percentage of our simple-living income, so we're just trying to weigh what we need from a policy versus the choices we've made in how we live now.

[PixelDust]

I think I understand. It is uncomfortable and scary to face these what-ifs, and it can feel sort of callous to prepare for the financial aspects. The reality is that if your husband were to die, everything would change. Your entire emotional landscape would change. But you can't prepare for that; you can only prepare for the mundane things, to give yourself and your children as much stability as possible. I hope I don't sound like I'm lecturing. I can tell you've put a lot of thought into this, so I'm definitely not sitting here thinking you're naive or whatever, and hope it doesn't come across that way. It's just one of those things -- I've been through it and figure if I can offer any insight from the other side, I will.

Good luck making a decision.

[zoebird]

life insurance

i think that a life insurance policy is a really good idea if you're going to be a single income home with children. i think that this is particularly important if one parent is SAH. the reason is simple--it provides financial stability should anything happen during a time of grief and transition to a different alignment of self-sufficiency.

i would recommend that you calculate a few things:

first, burial expenses--funerals can be as expensive or more expensive than weddings. yes, seriously. if you want a 'traditional' funeral like your grandmother might have had (embalming, open casket viewing, transport to plot, inturment, memorial service, reception)--it could cost more than $15k. if you want the most basic cremation (transport from hospital to crematorium, cremation, and delivery of the ashes to your home in a card board box) it will likely cost between $1-3K. So, you can insure for that cost.

second, fixed costs--determine what your bills are. once you determine that, determine how many months you want to be able to not worry about money. when we factored this out, we included the following: house payment, car maintenance per month, utilities, food, clothing, and savings deposit (yup! we still want to build monthly savings, so that's the way it would work for us). depending upon what this number is and how many months you want it to 'cover' is important.

third, how many months of coverage you want--you can determine this with any amount of thought. here are some of the ways that we think about it:

1. my DH is our primary breadwinner; my work is somewhat 'part time.' he wants to make certain that i'll have stability--a home to stay in--as well as time to build up my business (he doesn't wnat me to have to go corporate should he pass), so our policy right now covers about 1 year of expenses. Since the money comes in a lump sum (in our case), i could use it all to pay off the mortgage and then support myself on my income (utilities, etc), or i could make payments 'as usual' for a year until my business is built up to cover expenses. I would likely do the first option.

2. when we have children, the policy will likely change. it will probably increase slightly to help cover costs such as day care or related needs on top of the money to purchase the house or cover living expenses while i either A. build my b usiness or B. find a 'regular job' that would cover our expenses (including care expenses). this will be a slight adjusted by-in, building off our old policy.

3. as those children age, so also do some of their expenses--even living frugally. we're considering including monies that could be used for specialized grief councelling for our family on top of the other expenses (child care, fixed costs, burial costs).

So, as you can see, we are sort of 'estimating' and 'projecting' into some of the things that we 'may need' as our family situation changes.

disability insurance

at this time, we do not have disability insurance. we are not overly concerned about my husband needing DA because his job is intellectual rather than physical. as long as his mind works, then he can work. but, once we have children we do want to get disability insurance that would cover extra medical costs, fixed costs, and child care costs should he be unable to provide it while i work to cover fixed costs.

i do have disability insurance for myself, which simply covers my monthly income loss if i am unable to work and a portion of medical bills. i recieve this through my liability insurance company for a small fee added to the cost of the liability insurance.

wills and trusts

a really important part of all of this planning is making certain that you both have wills. and as your wealth grows (what you have in the bank, investments, etc--as another poster put it), you may want to form living trusts for your children, which can circumvent a number of sticky financial and expensive tax scenarios for your heirs. these are particularly relavent if you are investing in property businesses (rentals--real estate or commercial) as transferring that kind of wealth via a will often has heavy tax penalties. Talk to an accountant (tax) as well as a lawyer about these issues specificly.

i hope this helps a bit.

[ibex67]

Originally Posted by fek&fuzz

You can continue to live simply and frugally even if you have a lot of money in the bank. You can use it for college, unexpected expenses, starting a business, etc. You lifestyle and philosophy won't change simply because you have money.

ITA. I don't believe families with children [especially young children] should scimp on life insurance. Especially if the children are used to having a sahp. Should you suffer the tragedy of losing your spouse, you don't want your children to also have to adjust to having someone else as their full-time caretaker while you go to work. In fact, even though my dh makes great money and i am sah for years now -- we recently got life insurance on me so that he could afford to stay at home with the kids or at least work only part-time if I were to die.

I believe planning and preparing for the worst is an important responsibility of being a parent. The emotional fallout from losing a parent and a spouse is so great -- you don't want to have to worry about money if you can avoid it. And there is another aspect to it as well. Sometimes simple living/frugal living is a tradeoff between money and time. For example you might be used to having your own animals, garden, doing canning, sewing, baking bread. If you were to lose your parter there might be a bunch of time when your children needed to spend a different kind of time with you -- or when you didn't feel up to all these tasks. So what "simple" living might look like for your family might change.

To me there is nothing incompatible with being frugal with money/living simply and still having access to abundant resources if you need them.

[ibex67]

Rereading, I realize I didn't address the issue of the actual cost of the premium. It definitely pays to shop around!!! My dh has done a lot of research and thought about this. I may ask him to type up his thoughts and recommendations so that I can share them with folks. There are several diff types of life insurance too ...

I'll try to get more info for you.

[zoebird]

two things i didn't include--

1. i am also insured--currently at a rate that will provide for my cremation and a month's expenses so that DH could take leave if he feels he needs to. when we have children, that would increase to more months, expenses for child care and councelling.

2. my husband's company offers life insurance policies as a benefit--thus the premiums are lower. so definately check that avenue.

[~Shanna~]

Thanks for all of the great advice. Any advice about whether to assume a Social Security benefit? With something as inevitable as retirement, we've decided not to depend on it, but when planning for a WCS, it seems wrong to not count on getting some type of benefit (based on the annual statement they provide). Anyone figure this into their decision-making?

[annethcz]

Originally Posted by Shanna4000

Thanks for all of the great advice. Any advice about whether to assume a Social Security benefit? With something as inevitable as retirement, we've decided not to depend on it, but when planning for a WCS, it seems wrong to not count on getting some type of benefit (based on the annual statement they provide). Anyone figure this into their decision-making?

Yes, we did take into account the amount of social security survivor's benefits that we'd be entitled to. We chose to go with a smaller life insurance policy than what is generally recommended. DH's life insurance policy will pay off our mortgage & home equity loan, plus a little extra. Given our current living expenses, the kids and I could get by on the social security survivor's benefits (assuming that the mortgage is paid off).

[zoebird]

yes, we did include them in our calculations as well. but because our policy is so inexpensive for the benefit (because my DH's mother started the policy on him when he was a baby, he took it over at age 25 making the appropriate adjustments when we got married, and we're in a situation where we'll adjust it in the future) that we decided to get all of our costs covered by the policy and get social security benefits as well. again, ours is an inexpensive policy.

[gwen's mom]

Posted by Shanna4000

balance the huge monthly premiums

We live very frugally however I don't consider my monthly insurance payment to be all that large. My husband and I each have $500,000 worth of coverage and it costs us $70/month ($27 for me and $43 for him) Our rates are locked in for 20 years.

Is your agent trying to push you towards "whole life" insurance? You do earn a small return with these types of policies but all in all they are a very poor investment as the premiums are so high. This is where insurance agents make their money. Agents make very little money on "term" policies. Dave Ramsey would tell you that life insurance should not be a place to invest with the thought of making a return on your money while you are living, it is simply a way to provide financial security to your loved ones.

I highly recommend looking into Select Quote as they work with a variety of agencies to get you the lowest price.

[kathymuggle]

A word of caution - have you seen "the Incredibles"? - unfortunately the main characters experience working in an insurance company can sometimes be true! My DH used to work for a major Canadian bank, who had a payout rate of 80% - which sounds good until you realise 20% do not get their payment! I have a friend who is having trouble with an insurance company as we speak. Please read the fine print, do the research, and find out their pay-out rate.

Consider term insurance.

[ibex67]

I asked Dh who has handled this for us to write up what he thought. This is what he wrote:

Life insurance is definitely one of the critical aspects of financial planning. Its purpose is generally to act as replacement income if a spouse passes on and an adequate amount should be purchased to cover living expenses in this event. In my perspective, the critical consideration is to review the age of the children and to plan for a sufficient income level during the school years of the kids. The insurance should be enough to prevent the need for a single parent to go back to work indefinitely while raising kids or require a major shift in standard of living. Ideally, the coverage should anticipate college and other major expenses through the children’s young adulthood. Coverage on the non-working spouse should be taken into consideration as well because this scenario would be a major adjustment for most households.

A quick calculation that I’ve seen as a minimum coverage amount is a multiplier of 10 against the income to be replaced, but other assets like savings and investments should be taken into consideration as well. In this case an income of $50,000 would justify a minimum coverage of $500,000. More important than the specific amount of insurance is having a plan for managing the money. Many lottery winners find themselves in a worse financial situation quickly after winning because they are not able to manage money at a new level. The insurance payout will need to be managed and invested carefully in order for its benefit to be fully realized.

There are several different types of insurance products out there, but term life insurance is the one I would recommend for almost all situations. Term life is simple and consistent across providers and there shouldn’t be a huge discrepancy in pricing, but it is worthwhile to shop around. Unless you are planning on expanding the family, I would suggest investigating a 20 year policy, which should help keep the premium cost down. If the kids are close to school age, this should cover through the college years. Monthly payments are generally pretty low, but you can save a little if you do an annual payment. If spousal coverage is desired, a number of plans include the ability to add the spouse as a rider to the plan, which can provide a discount on the spousal premium.

Whole life and Universal plans include an investment vehicle with their product, but these plans aren’t very good investments unless you are putting in large sums up front and even then there are better investment vehicles out there. For young families, I generally don’t see much of a benefit in these types of insurance programs.

[UlrikeDG]

I have no idea how *wise* our planning is, but we wanted enough money to replace my husband's income if he were to die, but we also wanted enough money to allow him to SAH or SAH part-time if I were to die. We are a homeschooling family, and while his parents and mine would help out a great deal if something were to happen to either one of us, we still believe that having a parent there as much as possible is important.