Do I need life insurance?

[Win]

We just had our third child ( previous two children are grown, with children of their own ), and I saw a commercial on television this morning for term life insurance that made me pause to consider this.

I'm 53 in excellent health, and have two homes paid for. My debt, business and personal combined, is about 8.5% of the value of my real estate at today's depressed market prices. Some of the undeveloped land is in a now hot area and will significantly increase in value. The real estate that is developed right now would pay enough to live on comfortably if I were hit by a bus this afternoon, and my wife can run that business. One home could be rented out for additional income for her.

I tend to think I'm OK without it. The business will grow and throw off more money, and I can put away for college now, or a piece of property could be sold to fund it.

If I got any at all, term would be the way to go even at my age?

edit: should I consider it on my wife?

 

[Quest]

Congrats daddy Win!

There was a wise man who said this (to me) before:

"...If you believe your life in this world worth something, you should get life insurance..."

As a daddy of 2, and a mortgage to pay and a family to raise, I opt for life and disability insurances for both of us. We both have some sort of genetically-related health issues down the road so this shall provide a bit of added peace-of-mind to both of us further down the road.

Take care,

Q.

 

[MaximusD]

My thought is, with all of that, is 20-30 $ a month really that much? I mean, 500k tax free income to help cover incidental costs just makes sense to me...

 

[PhillyJoe]

First, stay away from busses.
Second, you don't mention savings.
Real estate is not all that liquid. With life insurance, you send them a death certificate, they send you a check. No panic selling at a distressed time. A $100,000 policy should be fairly inexpensive at your age and would cover the funeral and a nice lunch after.

 

[dparm]

Funerals cost $8-10k. Hope you have that kind of money socked away.

Plus, the insurance will help pay for any other immediate expenses, along with future ones like college, a house, etc.

Life insurance is so cheap I see no reason NOT to get it unless you can invest the premiums in something very lucrative.

 

[rshaw125]

Yes you have things to protect with it.

 

[NateDN10]

For the average American with a mortgage to pay, and minimal liquid assets, life insurance makes sense. However, if you have the money saved up, you are "self-insured."

So, here is the question: If you died this afternoon, would your family be able to maintain their current standard of living plus funeral expenses while mourning, and thereafter, would they be able to achieve any long-term goals such as college for your child, paying down debt, etc, while factoring in expenses such as child care if your wife needs to get a job (if she doesn't already have one).

If not, then life insurance would be wise, IMO. And term is the way to go, not "permanent." (In most cases)

 

[bepperb]

I'd get a small policy just for the liquidity of it. I'd agree it's not hard to self-insure if you have decent assets, but I'd rather my wife not make difficult decisions when there would be so much else going on. A 250,000 policy shouldn't be much per month, and would be more than enough to get through a few years before having to worry about money.

 

[HerrStig]

Look for inexpensive term life insurance, stay away from the fancy offers which promise to have the policy pay for itself and such other blandishments.

 

[pcoxe]

You need life insurance so that other men will find your wife attractive after you're gone. ;-)

 

[JHZR2]

I dont know what your real worth is, and what your typical income and expenses are.

Let's say your real estate is worth $1M and your debts are $85k. What is the income lost from your operation of the business that would have to be made up? Do you and your wife work?

Let's say you bring in $100k, your wife $80k and you collectively service $10k in debts per year. if you die, and your wife runs the business remotely, say the household income drops to $120k. Could she cover household expenses and the current standard of living on such a presumed income, and cover debts, etc.?

See, its all about what you have, what you owe, and what income is lost if you are.

As others have stated, life insurance (term) is so cheap that it would be sensible to me to just have enough to cover all debts on the business and self so that they are forgotten, and that your wife and child could grieve and get through without the pressure to support the business or work for some time. Dave Ramsey says 8-10x your income. is that right? I dont know. We are young and high earners, so we have a pretty fat insurance policy. Others may not need as much. At your age and business scale, it may be less important. The range probably varies from something as low as enough money to service your debts for a few months and your funeral expenses, all the way to enough so that the wife can afford to hire a business manager in your place, funded for 3-5 years, and some funds to grow the business to make that position self-paid by income from the business, plus child's college in full and the debts and the funeral expenses (and pay to get you out of pergatory), and a new car and a new roof for the house just so all bases are covered. The "Cadillac" plan may be such an incremental addition in monthly cost that it is just worth it for extra peace of mind and to leave a greater legacy.

So unless being 53 means that premiums are getting real high, such that saving the cash (or paying debt with it) provides a better return, Id try to at least have enough to let the debts be settled and some interrim business ride through be granted so that the wife and child have a chance to get back on solid ground comfortably.

 

[eljefino]

What would your kids' college financial aid be like with insurance or without? Would the insurance payout just get vacuumed up with a worse aid offer?

I would get a $100k policy for the thrill of it and see if you get a break by paying annually. I'd be afraid of getting a million dollar policy and having them weasel out of it b/c you smoked one cigarette in a bar 25 years ago or whatever. OTOH this would not be your problem.

 

[rjundi]

The major problem you have is your age. The rates are much higher at age 53 vs younger years.

I would definitely get it but at same time not go overboard.

 

[JayhawkRoy]

Here are some thoughts. No guarantee that they were ever correct, but the concepts worked out for us fairly well.

1. Because wife and I are near equal wage earners, we carried term insurance to pay off the mortgage and help with funeral expenses. Rationale was that the survivor's income would cover all expenses and this eliminated any housing concerns. Your situation may be different, but ths approach worked for us. We are in process of eliminating our life insurance because over time we have built up enough assets to cover any funeral expenses, and our mortgage debt is now approaching zero.

2. In college I took a home finances course, and the professor was adamant that term insurance (which is true insurance vs some level of savings plus insurance that whole life represents was the only way to purchase life insurance. I also suspenct whole life is now too expensive for you to consider. We used his advice and in general got the cheapest means of insuring our lives in the process.

3. We feel we can eliminate life insurance as I approach full retirement next year because of the investments we have made in IRAS, 401K, etc, so the cash assets are there to draw on by the survivor. We are invested in mutual funds, so liquidity is not an issue.

4. If you do choose term insurance, shop around carefully. Premiums vary quite a bit by insuror.

5. I would also consider decreasing term, or a 10 year level term policy. I would think in 10 more years you would build up enough other savings instruments (like 401K) than can be touched when/if needed. The risk is between now and when you can touch IRA/401K without penalty. For IRA and 401K, the magic age is 59 1/2, if I remember correctly.

Hope this helps out, or brings some level of clarity to your thoughts.

 

[javacontour]

It doesn't seem that you need insurance to pay off any debts. From how you describe your current situation, life insurance could replace lost income for a short period of time. Do you have any assets other than the real estate you mention? Pension plans, 401(k) or IRAs?

When do you plan to retire? Perhaps you need some insurance to address lost wages should you die before your planned retirement or if your assets are not very liquid such a the realestate.

The question you need to ask is what income/asset are you seeking to protect with insurance and then find an insurance product that meets that need.

If you don't have something like an income stream or asset you are trying to replace or protect, then you may not need the insurance.

 

[BubbaFL]

You need to talk to a financial planner who can assess your situation and help you make a decision.

Find a local fee-based financial planner who holds the Certified Financial Planner (CFP) designation AND the Chartered Life Underwriter (CLU) designation.

 

[javacontour]

I agree, not someone who makes a commission from selling you a product. Instead a qualified expert who gets paid for their time and expertise.

Originally Posted By: BubbaFL
You need to talk to a financial planner who can assess your situation and help you make a decision.

Find a local fee-based financial planner who holds the Certified Financial Planner (CFP) designation AND the Chartered Life Underwriter (CLU) designation.

 

[Win]

Thanks for all the responses, guys, I'm processing information and will probably visit with my accountant about it next week.

 

[Win]

Originally Posted By: PhillyJoe
... Real estate is not all that liquid. With life insurance, you send them a death certificate, they send you a check. No panic selling at a distressed time. ....


This is a good point that I thought could be addressed on its own merits.

You can't best the convenience of being sent a draft, but real estate that is paid for is something that you can always go to a bank with and use to back a short term line of credit. Panic selling is always ill advised as well as unnecessary. You have to pay some interest on a line of credit, but interest is deductible, and taxes are due on a sale.

And I am definitely staying away from buses.

 

[JHZR2]

But again it all comes down the the current earning level of you and your spouse, the amount lost and the amount that would need to be covered.

Do you really want your widowed spouse to have to go to the bank to take a loan on something to cover your bills and debts? Doesnt sound like a good move. And, what is to say that she could take over the business, and bring in sufficient additional income to cover everything? What if she is no good at it and fails? Does the business and all assets end up getting liquidated over time (panic selling or not) to cover expenses?

If you can't cover your debts and live off of her current income, sounds to me that you need at minimum sufficient insurance to do that, unless you want her and your kid to have to downgrade in QOL.

I wouldnt worry about financial aid. If youre a high earner, youll never get it anyway. Youre just subsidizing someone else and they want you to be good with it. The kid should strive to get real scholarships, and have a budget to cover college. That is something that if your wife cant cashflow alone, likely should be covered by an insurance policy. But still, $100k for the local public university may well still cover a couple years if the kid stays at home with widow mom and commutes to college. $100k shouldnt be an expensive policy even at 53.

I just wouldnt want to leave my widowed wife straddled with debts... Unless she can cover EVERYTHING with her current income, in which case, why does she need you anyway?