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Do we need life insurance when we are on our way to FI?

January 7, 2020

We each have modest life insurance through our employers.  With T getting tenure, the likelihood of no longer having access to that life insurance is low.  It is a little less sure for me.

If I were to pass away, T would get all of my retirement accounts. Unfortunately, retirement budget really wouldn’t change significantly. We share a home, we share a car.  He’d need less food and such. Assuming I die while employed, he’d get a life insurance payout sufficient to pay off about half the remaining mortgage balance, and about $20k/year until LO turns 18. Regardless of whether I’m employed at my current employer or not, he’d also get about $27k/year in social security survivors benefit until LO graduates high school. Conclusion:  While I’m employed at my current job, I feel comfortable that LO and T would be taken care of.  If I was no longer employed at my job, they’d still be fine, although it would be nice to have given T more of a head start on the mortgage pay down.  He can meet his bills without me (esp. assuming SS survivor benefit to help with childcare costs), but he wouldn’t be able to save aggressively.

If T were to pass away, I would get a life insurance payout that could pay about 60% of the remaining balance on the mortgage, and a similar $20k/year until LO turns 18. His social security earnings history is not as strong as mine (grad school), so I estimate the survivor benefit for LO to be at about $14k/year until she graduates high school  Conclusion:  This is probably fine too, although savings progress would be a bit stalled while LO is not yet in school.  Again, it would be nicer if the mortgage could be vanished.

As our financial position continues to improve, the need for life insurance will continue to decrease. Still, we aren’t quite in a place where I’m comfortable saying we don’t need it.  We are most vulnerable right now, when LO is young and needs full-time and very expensive childcare. It wouldn’t be a financial disaster if one of us passed away, but it would not be ideal. I’m comfortable with relying on job-based life insurance for T, but I worry slightly about doing the same for myself. The ideal situation would be for the survivor to be able to eliminate the mortgage entirely, which basically puts the survivor at FI status (pending market corrections, etc.).

Based on this, I’m going to shop for a 10 year term insurance for both of us, separate from our jobs. A quick estimate shows that I should be able to get $500k of coverage for around$200/year/person, which seems worth it.  We could also consider dropping the supplemental life from our work policies (but probably wouldn’t).  I expect we’ll be legitimately FI within 10 years, and don’t expect we’d need life insurance after that point.  Am I wrong?

Any recommendations on how to evaluate and purchase life insurance?

8 Comments leave one →
  1. January 8, 2020 7:18 pm

    I have been of the mind that we don’t need insurance. We already have a lot of savings so we are basically self-insured except for 1 year of insurance (paid for by employers). We are not *quite* able to meet expenses on only one income (a good reason to pay extra on the mortgage!), though could likely squeak by.

    Interested in seeing how you decide!

    • January 13, 2020 3:34 pm

      If I could click one button and add a $500k policy on each of us for a 5 year term, it would be done. I assume that can’t be that expensive. Inertia and the fact that the status quo is “kinda ok but not ideal” might tip this decision, and we might not do anything. Adult life is draining me right now.

  2. January 9, 2020 5:54 am

    To be honest, the only reason we’re keeping our 25 year insurance at this point (bought when DC1 was an infant) is because I’m convinced that if we drop it, one of us will die immediately. (I’m less worried about that outcome once it runs out naturally.) We were lower income at the time and I wanted to make sure our kids would be mostly covered through college (DC2 didn’t exist yet, but I figured we’d have more savings by the time a hypothetical second was in college).

    I did not comparison shop– we just went with the same insurance company everything else was insured under. As a note, if you’re nursing, your cholesterol will be temporarily higher and you should contest that with the company which I did not do but would have if I had known at the time.

    • January 9, 2020 9:34 am

      I want…. like a 5 year term policy, really. Either of us would be fine without the other financially, but we would lose a lot of the financial privilege we currently have. If we could knock out our HCOLA mortgage that would be super helpful.

      • January 11, 2020 3:30 pm

        We honestly wanted a 5 year term policy too, which is why we just ended up going with some extra insurance through my husband’s work. It seemed worth the risk tradeoff to us for the simplicity. We figured we were fine before we bought the new place, so we just took out life insurance in the differences in value between our old condo and the townhouse (rounded up because we had to pick a multiple of his salary). We only did it on him though because we only used his income to qualify for the mortgage.

        • January 13, 2020 10:36 am

          Maybe that is what I should do for him. For me, I still like the idea of non-job based insurance… but I guess if our horizon is truly this short, it is less critical.

  3. January 14, 2020 9:17 am

    We just recently did a 25 year policy on myself and I’m shopping for a 20 year for my husband. There have been too many people in my family who I have seen pass away and what’s left afterward. Money gives people choices, and you markets shift/assets shift over the years – but a life insurance policy (as long as you pay the premiums) is locked in.

  4. January 14, 2020 2:02 pm

    We have both life insurance through work and then separate term life insurance we bought a few years ago. I’m pretty sure when this term runs out we wont need to renew it due to where our finances (both savings and spending) will be by then (i.e. continuing to build savings and then kids not being in daycare anymore). I’m planning on hanging on to the work insurance as long as they offer it because it’s pretty inexpensive. I haven’t actually run the numbers to see what would happen, but I feel a lot safer knowing that if something happens to one of us, the term insurance we have would cover mortgage + taking care of kids.
    I don’t really have much advice beyond that! Keep in mind also that if something did happen to one of you, it’s possible the partner may not be working for awhile while sorting through the stages of mourning, so having an extra cushion of money so there’s less need to go back to work before they’re ready would also help.

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