I'm trying to get ourselves organized to get life insurance in the next month or two. I know that term life insurance is best, right? Because you really only need it until the kids are grown, right?
So a couple questions for the newbie:
How do you figure out how much coverage you need? I'm guessing you factor in how much you still owe on the mortgage plus a portion of the income lost minus the mortgage payment. What happens as you are paying off your mortgage and your income goes up? Do you still keep the same coverage? How long a term is best to get?
I'm also not sure on what a "good" price is for life insurance. The quotes I've received online are in the range of around $110 per month. That seems high to me. Of course, I could be totally clueless about how much coverage we need (see above questions!) and putting in too much. We are in our 30's, just bought a house last year (so still owe alot on it), have one young toddler and are hoping to have 1-2 more kids and live in Canada.
I'm pretty clueless too so I'll be curious to see what others say.
My friend just upped her DH's insurance. I asked her why and she explained that the payout was about 2 years' salary and because she is a (highly qualified but in an academic field) SAHM she wanted more because she felt it may take her longer than that to find a career should something happen to him. They hadn't been concerned about it until they had a child.
Leila, mama to Eleanor (10/08) and Emmett (4/10)
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Term insurance costs much, much less for the amount of coverage you get than "whole life" insurance. The idea with whole life is that you eventually get the money back out if you never use the insurance--it's like a super long term investment, a combo of insurance and investment. But you can probably find much better return on investment if you invest money somewhere else, and whole life is just too expensive for most people to get the amount of coverage they need. Term insurance works just like insurance for your house or car: if you never have a claim, you never get anything back out of it. And that's OK with me-- we're getting it in case we do need it, and I'll be happy if we never do because it means we are still alive.
We looked at 20 year and 30 year term insurance. For me (SAHM) we have $250k worth of coverage on a 20-year term, bought in my early 30s, which costs us about $20 a month. The logic behind the amount of coverage was that it's enough to let DH hire some child care/ pay off the mortgage and use that money for child care instead/ give him some breathing room while deciding what to do next.
For DH (the breadwinner), we have about $250k of coverage through his job. This is useful because it's very inexpensive-- but it will go away instantly if he ever changes jobs, so it's not enough by itself. We just got him a $500k 20 year term policy for about $50/month (so about $1 per $10k of coverage). He is in his late 30s and healthy. We based the amount on:
1. what we would want me to be able to do in the event of his death-- pay off the mortgage (we owe less than $200k) and then take the time I needed to get back to the workforce. I could stay home for a few years while the kids are still small before returning to work, and then would be able to have a job earning less than my DH does because the mortgage is paid off. What we have seen with my parents is that part of the purpose of life insurance is to make sure you don't have to rush into any actions after someone dies. It's traumatic enough to deal with death-- you want to be able to process as needed without having to get a job/different job/etc immediately if you can manage it. For us, having me at home with the kids while they are small is important, and so the life insurance would make sure we could still fulfill that goal even if something happens to DH.
2. what we would want to leave the kids if something happens to both of us. We decided that we would want enough money to send them to college, and would want to minimize the financial burden on their guardian. Our total insurance is plenty to pay off our house and all our debts and provide for our kids.
We ended up going with 20-year terms for both of us. When the 20 years is up, the kids will be in (or already out of) college, we will have our mortgage paid off or close to it, and we can adjust our insurance coverage accordingly.
I will note that $750k in coverage is more than 10 times my DH's yearly salary. And $250k for me is infinitely greater than my yearly salary of essentially $0, LOL. I don't know that calculating according to salary is as useful as calculating according to what you would want for the remaining family in the event someone dies. We feel like the price of insurance is worth it to make sure that our family wouldn't have to be torn up even more by financial upheaval.
BTW, we got DH's insurance through Farmer's and they have a provision (at no extra cost) that allows you to take some of the insurance money out before death in the event of serious/terminal illness. Again, having seen what my parents have dealt with, that seemed like a good idea to us. Even if you have good health insurance, this kind of care can get expensive.
Editing to make corrections on cost & coverage now that I have final figures. Changes in bold.
We have 20-year term policies on each of us. I'm not sure I calculated it right, but what I did was to consider how we want our lives & children's lives to be if one of us should die tomorrow (which would be the bigger burden vs. 15 years from now).
I'm a SAHM and would want to remain that way. So we needed to factor cost of living for at least 15 years (when my youngest would be 17yo). We carry a $1M policy on dh to ensure that (and I factored in SS, but I also did these calculations when we had a much larger mortgage to pay off and much higher property taxes--before being relocated. Our mortgage is now about $150k vs. the $385k it was, and taxes are $6,700 vs. $14k). We were paying $143/mo for that through State Farm and we're just now moving over to Allstate and it's slightly higher ($155/mo) but if we only cover me through Allstate, my coverage cost goes up more than the $12/mo difference. My husband is actually very healthy, but too heavy for insurance companies likings. We have actually had a ridiculous number of tests on him to figure out what's wrong with his system since it's clearly not diet/exercise related (he has to do EXCESSIVE, CONSTANT exercise to remain at a trim weight). So we pay more for him than most healthy people might have to pay.
Likewise, we know that at least our 7yo should continue to be homeschooled. So for my insurance, I factored in a nanny/teacher's salary for at least 10 years (when he would be 17yo) plus housecleaning services. I'm sure that sounds silly, but it's one less thing dh would have to do (the deep cleaning) so he could focus on the kids. We carry $1M on me (because we were originally looking at a little less and it was literally a $2/mo difference than doing $800k). I honestly don't remember the quote for me, but I want to say it was $93/mo. I am healthy, but I have some conditions that make insurance companies cringe. :/ We did also factor in SS benefits from my death. Before being a SAHM I had a high-paying career for enough years to accrue benefits that I will not lose (or at least it appears that way since my SS statements assume my income will be $0 going forward).
Since our goal is a specific lifestyle for X number of years, we also tried to offset inflation to whatever extent we could (again, we assumed that worst-case, we would have a loss within a year of the insurance being bought).
In the U.S. there are Social Security survivor benefits. They send out annual statements to most people over the age of 25 with estimates of potential benefits. For my family, this would cover about half of our living expenses if one parent died. Does Canada have something similar? That could reduce the amount of coverage that you decide to purchase.
We are elgible for some survivor benefits from Social Security. A lot, with my work history, a small amount, with DH's work history. I have substantial coverage at work, around $100,000 lump sum. He has none. We have large policies $1.5m term life with the idea that it will pay off a mortgage and provide some financial cushion but it won't be nearly enough to live on long term if we SAH. But, we have other investments if we need them and both have earning capactiy.
We wanted to make sure, too, that we had enough for the kids to live on if we both died.
I have no idea about insurance pricing in Canada. But we have 20-year term policies, $250k for me and $350k for DH, and they both cost in the mid-30s per month. The rule of thumb I read when we were shopping our coverage was 5-7x your annual income. One tip I would offer you when shopping: when they're asking you medical questions, be honest, and have all your doctors' names/addresses/phone numbers handy. Otherwise, they'll quote you a great rate, and you might get an unpleasant rate increase when the underwriters go through your medical history/exams. Good luck!
wife to Sasha, mom to Marlena, nursed for 3.5 years, aunt to 3 adorable nephews
Thank you all so much for your informative responses!
It sounds like figuring out the coverage you need is pretty individual and there's no set formula for figuring it out. I guess DH and I will have to sit down and crunch some numbers. We both WOH now and I'm guessing we would continue to do that if one of us died, although it would be nice to have 1-2 years to not work and grieve.
I think figuring out how much the kids would need if we both die is going to be more tricky. I would want to leave them with enough so that their daily expenses would be covered so won't be a burden to their guardians and enough to pay for their education. Anything else?
We both have limited group life policies through work so that's something. Neither of us have any major medical issues, although DH smokes. I know that will put our premiums higher. I just thought that 110 a month seemed a bit higher than I expected.
Alright, now to steal some time with DH to talk this over. Quality time with DH never sounded so fun
I listen to Dave Ramsey and he recommends 10 times your annual salary for term policies. If you are a SAHP, he would recommend 10 times the amount it would take to "replace" your duties like childcare, cleaning, shuttle service, etc.
DH and I are in the process of getting 20 year term policies for 10 times our income (we took the 10x number and then bumped it up $50,000 just to pad it a bit). It will cost us about $20 per month for me and about $15 per month to cover DH. We chose 20 year policies because we have a one year old and really just needed to help cover until he is out of the house. We plan to have the house paid off before DS goes to college so in theory at the expiration of our 20 year term, we should be okay to self-insure. If not, we will shop for a 20 year term policy to replace that one before it expires.
His theory behind this is if you took the entire payout amount and put it into a bank/mutual fund making 10% interest, you could cover the lost income and keep the principal intact. I could certainly see bumping it up a bit in the theory that you'd like to be able to live on an 8% return.
We ended up going through an insurance broker to get quotes from several companies based on the really brief information we gave them. All the quotes were fairly close but it was nice to see that we weren't just choosing a very expensive company.
WOHM: Married 2002. Dog parents 2005. DS arrived 3/3/10. Newbie expected late June 2013.
I started out with the place that carried our car & homeowner's insurance policies because usually there was a "multiple line discount" if you had more than one policy with them. To be honest, I didn't really look anywhere else. That company declined me (and refused to look at the info they missed for at least a year) and charged us an OUT. RAGEOUS amount for homeowner's when we relocated (it was similar to our NJ cost where every other insurer--even the really big ones--were half the cost!) so we went looking for new home and auto insurance--and reapplied for life insurance for both of us since their rates were slightly lower on that front as well.
I'm sure that there must be a better way to do it. I'm probably not paying the lowest rate, but it's within our means. We did ask other people who their insurance was with, but it was a lot of smaller companies I'd never heard of--which made me nervous (I don't know why--probably really silly).
So start with whomever has your car and/or home/renter's insurance first and go from there to compare. Make sure you know what category they're quoting you (Select, Premium, etc.) so you can compare apples to apples. I also got quotes on what they thought my category would be and then the next 2 categories down--just in case. Sure enough, the company that now insures us does so at the level below what the agent thought we would qualify for.
We got DH's policy via quotesmith.com when DD was a newborn. I had worked in securities and my boss recommended that particular site. I ran the details by her due to mommy brain and everything has been great. (I know the company we ended up using very well due to working in the industry.)
We each have complimentary life insurance policies through our credit union, also (with another company I know well due to working in the industry). Those would pay for services plus.
The ten year level term policy on DH is going to be up soon and I discovered quotesmith has changed to lifequote.com and I did a preliminary search. Very easy site and you can see the monthly rate for comparison and the company's rating on a handful of scales. (It's cheaper to pay annually, though.)
Our viewpoint on life insurance is very different from others on this thread. We are not attempting to replace salaries via life insurance payouts. We only care about paying off our debts (mortgage only) with DH's policy. Life would change if one of us were to pass. My dad lives super close and would happily take on after-school childcare and he's young enough and healthy enough to be capable of doing so. Although I am not currently employed, I am well educated and employable. We have short-term, mid-term, and long-term savings to assist the surviving spouse (primary beneficiary on all accounts). DD is the sole contingent beneficiary on all accounts for us. Plus, I am the primary on each of my parents' policies and accounts (my parents are divorced/single) and DD is the contingent (only grandchild). DH is one of four kids on his parents' policies/accounts (and six grandchildren). However, his family would raise our DD -- specifically one sister/BIL -- and my dad would be the trustee.
"Kind words can be short and easy to speak, but their echoes are truly endless." - Mother Teresa
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