Appropriate Life Insurance in late 40’s – nearing retirement

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streamline
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Appropriate Life Insurance in late 40’s – nearing retirement

Post by streamline » Sat Oct 28, 2017 7:11 pm

I’ve recently posted my first portfolio review (3 fund portfolio review - married, mid to late 40's)
Now, I’d like advice on my megacorp benefits choices for Life Insurance.

Life Insurance
We’re currently paying $900 a year for coverage of 7 times my salary with term life insurance through my employee benefits. I’m proposing we can dial that down, and invest that money. It isn’t a ton of additional savings, but we’ve been looking for as many “right sizing” opportunities over the past few years, to crank up our savings rate – and to help improve our needed expenses level.
Primary Choices:
  • 2 times salary for $0 annual contribution – dropping down to 2 times my salary coverage for $0 (for me) a year, saving $900 a year. My employee benefits would cover this cost.
  • 3 times salary for $200 annual contribution - dropping down to 3 times my salary coverage for $200 a year, saving $700 a year
  • 7 times salary for $900 annual contribution – staying at current level of 7 times my salary coverage for $900 a year, saving $0 a year
My spouse is nervous about reducing coverage – do not want to cause stress, but they will listen to reason – and advice from SatuMedia. I’m focused on increasing frugality and wise investments. While I think going to “2 times salary” (the free option) would be sufficient, as a middle ground, I’m proposing going down to “3 times salary”.

In my mid to late forties, with good health, let’s imagine that I am 0-4 years away from easily being able to retire. I’m planning to retire in 4 years, at the earliest. We both work, but my salary is a large percentage of our working income.

In case the unexpected happens while I’m still working, my spouse (w/ 2 kids) would be provided the insurance payout (equivalent to about 4 years of my income since it would be tax free), our current savings, and the ability to generate additional cash by downsizing (large equity in primary residence).

Would appreciate any advice you can share here.

Dottie57
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Dottie57 » Sat Oct 28, 2017 7:23 pm

It sounds like your cost is <1k per year. You must be doing extremely well financially. So why cheap out onthe insurance at this point. If the worst happens and you die, The 7 year insurance will make sure your family does not need to worry about money, selling a house, whatever.

Keep paying. You are not saving much by cutting insurance. Instead get a cheaper car, cut out the spendy cable channel contract. Do something else to save money.

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FiveK
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by FiveK » Sat Oct 28, 2017 11:48 pm

Dottie57 wrote:
Sat Oct 28, 2017 7:23 pm
It sounds like your cost is <1k per year. You must be doing extremely well financially. So why cheap out onthe insurance at this point. If the worst happens and you die, The 7 year insurance will make sure your family does not need to worry about money, selling a house, whatever.

Keep paying. You are not saving much by cutting insurance. Instead get a cheaper car, cut out the spendy cable channel contract. Do something else to save money.
+1

By your other post (33% federal tax bracket) you are making >$250K/yr. Just pay the $900/yr until the kids are out of college, at which point you could probably self-insure (i.e., just take the free 2X salary).

AlohaJoe
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by AlohaJoe » Sat Oct 28, 2017 11:59 pm

streamline wrote:
Sat Oct 28, 2017 7:11 pm
I’m planning to retire in 4 years, at the earliest. We both work, but my salary is a large percentage of our working income.
Then you need at least 4 years worth of insurance.

If you don't have enough money to retire then you don't have enough money to drop life insurance.

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Watty
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Watty » Sun Oct 29, 2017 12:51 am

FiveK wrote:
Sat Oct 28, 2017 11:48 pm
Dottie57 wrote:
Sat Oct 28, 2017 7:23 pm
It sounds like your cost is <1k per year. You must be doing extremely well financially. So why cheap out onthe insurance at this point. If the worst happens and you die, The 7 year insurance will make sure your family does not need to worry about money, selling a house, whatever.

Keep paying. You are not saving much by cutting insurance. Instead get a cheaper car, cut out the spendy cable channel contract. Do something else to save money.
+1

By your other post (33% federal tax bracket) you are making >$250K/yr. Just pay the $900/yr until the kids are out of college, at which point you could probably self-insure (i.e., just take the free 2X salary).
Another +1.

Even with medical and disability insurance there could be lots of uninsured expenses if you have a major illness or injury and then die in after a long struggle hospital stay.

You can crunch the number but I would suspect that paying for the additional insurance for another four years would only delay your retirement by a few days to make up for the small reduction in savings.

BruDude
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by BruDude » Sun Oct 29, 2017 2:16 am

So you want to take a $1M risk to save $3-4K over a period of 4 years...doesn’t seem too wise when you can easily afford it.

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BL
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by BL » Sun Oct 29, 2017 4:23 am

I would say it is worth it. Just imagine the thought process if you cheap out, but you could afford it, and leave family with minimum instead of an amount that would ease the transition. Do you really want to leave on that basis instead of having the family grateful that you were considerate? Granted, you won't (probably) hear it. Find somewhere else to save $3/day.

traineeinvestor
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by traineeinvestor » Sun Oct 29, 2017 7:44 am

I waited until I retired before taking action - and cancelled my life insurance altogether.

The rational was that if there was enough money to support the family then there should be more than enough to support the family minus me. At that point, life insurance was a needless expense.

FWIW, there is no estate duty where we live.

ivk5
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by ivk5 » Sun Oct 29, 2017 8:27 am

Group insurance rates increase periodically (eg in 5 year age bands) and pricing may be unfavorable since at least in some cases/amounts it may be guaranteed issue.

Compare individual rates for 5 or 10 year term on term4sale. The same benefit may be available at a lower premium on an individual policy. Best of both worlds: keep the coverage and save some premium.

Valuethinker
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Valuethinker » Sun Oct 29, 2017 9:02 am

streamline wrote:
Sat Oct 28, 2017 7:11 pm
I’ve recently posted my first portfolio review (3 fund portfolio review - married, mid to late 40's)
Now, I’d like advice on my megacorp benefits choices for Life Insurance.

Life Insurance
We’re currently paying $900 a year for coverage of 7 times my salary with term life insurance through my employee benefits. I’m proposing we can dial that down, and invest that money. It isn’t a ton of additional savings, but we’ve been looking for as many “right sizing” opportunities over the past few years, to crank up our savings rate – and to help improve our needed expenses level.
Primary Choices:
  • 2 times salary for $0 annual contribution – dropping down to 2 times my salary coverage for $0 (for me) a year, saving $900 a year. My employee benefits would cover this cost.
  • 3 times salary for $200 annual contribution - dropping down to 3 times my salary coverage for $200 a year, saving $700 a year
  • 7 times salary for $900 annual contribution – staying at current level of 7 times my salary coverage for $900 a year, saving $0 a year
My spouse is nervous about reducing coverage – do not want to cause stress, but they will listen to reason – and advice from SatuMedia. I’m focused on increasing frugality and wise investments. While I think going to “2 times salary” (the free option) would be sufficient, as a middle ground, I’m proposing going down to “3 times salary”.

In my mid to late forties, with good health, let’s imagine that I am 0-4 years away from easily being able to retire. I’m planning to retire in 4 years, at the earliest. We both work, but my salary is a large percentage of our working income.

In case the unexpected happens while I’m still working, my spouse (w/ 2 kids) would be provided the insurance payout (equivalent to about 4 years of my income since it would be tax free), our current savings, and the ability to generate additional cash by downsizing (large equity in primary residence).

Would appreciate any advice you can share here.
Stick with the $900 a year. I am assuming this is level term? I.e. does not go up as you age?

The savings are not worth it. Revisit at retirement.

streamline
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Joined: Mon Sep 25, 2017 10:08 am

Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by streamline » Sun Oct 29, 2017 12:01 pm

Thanks all for the valuable comments.

My summary of the comments: (with a few comments inline)
  • @Dottie57 – cut other costs (like cable), keep paying insurance.
    me: have already cut cable.
  • @FiveK – cover at 7x until both kids are out of college, drop to 2x after that
    me: may be retiring while 1 kid is still in college, but will consider college funding in my planning.
  • @AlohaJoe – if retiring in 4 years, need at least 4 years coverage today.
    me: so, you propose that during the last few years of retirement, you need to cover at least until retirement. Should one scale it down as you approach the Rertirement year?
  • @Watty – stay insured. Sometimes death would be preceded by high medical costs, so the extra buffer is good. Also, working a few extra days will cover this cost.
    me: good point about illness expenses, and the magnitude of the cost.
  • @BruDude – wise move is to keep it.
  • @BL – save the money elsewhere
  • @traineeinvestor – (s)he waited until retirement to drop their insurance to 0.
  • @ivk5 – look at term4sale to shop for better price term coverage
    me: will do
  • @Valuethinker – savings not worth it. Reconsider at retirement.
So, my current plan is to:
  • likely stay the course.
  • look at term4sale (per @ivk5).
  • don't forget college funding (per @FiveK)
  • continue to look for extra savings elsewhere (as several suggested)
  • drop the minimal spouse and kid coverage we already have from life insurance
Thanks!
-streamline

Valuethinker
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Valuethinker » Sun Oct 29, 2017 12:13 pm

streamline wrote:
Sun Oct 29, 2017 12:01 pm
Thanks all for the valuable comments.

My summary of the comments: (with a few comments inline)
  • @Dottie57 – cut other costs (like cable), keep paying insurance.
    me: have already cut cable.
  • @FiveK – cover at 7x until both kids are out of college, drop to 2x after that
    me: may be retiring while 1 kid is still in college, but will consider college funding in my planning.
  • @AlohaJoe – if retiring in 4 years, need at least 4 years coverage today.
    me: so, you propose that during the last few years of retirement, you need to cover at least until retirement. Should one scale it down as you approach the Rertirement year?
  • @Watty – stay insured. Sometimes death would be preceded by high medical costs, so the extra buffer is good. Also, working a few extra days will cover this cost.
    me: good point about illness expenses, and the magnitude of the cost.
  • @BruDude – wise move is to keep it.
  • @BL – save the money elsewhere
  • @traineeinvestor – (s)he waited until retirement to drop their insurance to 0.
  • @ivk5 – look at term4sale to shop for better price term coverage
    me: will do
  • @Valuethinker – savings not worth it. Reconsider at retirement.
So, my current plan is to:
  • likely stay the course.
  • look at term4sale (per @ivk5).
  • don't forget college funding (per @FiveK)
  • continue to look for extra savings elsewhere (as several suggested)
  • drop the minimal spouse and kid coverage we already have from life insurance
Thanks!
-streamline
One additional consideration that may influence payback.

Life policies have exclusion periods. Some are not too worrisome (suicide, say). But you can take out life insurance, get some dread disease, and they can refuse to pay (or fight it, in any case).

I believe these are specified under *state* not Federal law. I am not US based and don't know the exact positions on these, but all policies have them.

The practical implication is that if you take out a new personal policy, particularly at your current age, you may well need to keep both sets of policies in force until the exclusion period is finished. Anything else is to leave your family unprotected -- although the chances of this going wrong are remote, it is also the case that we are single events- -statistics is law of averages, but if we are unfortunate, our probability just became = 1.0. That is the general nature of insurance events (Life & Disability insurance, anyways).

This is why I suggest $900 p.a. is not so big a burden to pay until you retire. Group Insurance is very cheap compared to individual insurance, for most categories (because of risk pooling and an absence of "adverse selection" i.e. that individuals who buy insurance generally have worse claims experience than those who do not)-- I did spend the beginning of my career in an insurance company, working on their computer systems and these principles I do remember.

Contra to that, at what point does that premium go up again?

Slacker
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Slacker » Sun Oct 29, 2017 12:19 pm

I second the vote to look on Terms4Sale.

Early 40s and I just picked up a policy for 5x annual salary with a 15yr level term for about $260/yr. I just moved into an age group where the work group policy is overpriced and the benefit is dropping rapidly.

Also, your other post seems to indicate your college funding for the kids is pretty well taken care of unless you are also paying for graduate/professional school for them. Granted, if you think $50k/yr per child is necessary then you should insure for that, but I find it hard to imagine college costs of over $100k/yr.
streamline wrote:Have total of 239k in 2 Utah 529s for 2 teenaged kids. (funded each $325 monthly). In addition to 529 funds, plan to cash flow for up to ~$50k (2018 dollars) yearly for 4yrs per kid.

streamline
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by streamline » Sun Oct 29, 2017 12:23 pm

Valuethinker wrote:
Sun Oct 29, 2017 12:13 pm
...at what point does that premium go up again?
I don't think it changes much year to year, but I'll have to do a bit of research to see if it changes when I hit the next "5 year band" or the like.

Thanks.

Weathering
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by Weathering » Sun Oct 29, 2017 9:38 pm

I just got a 15 year term life insurance policy at age 46 (2 years ago) which is $400 per year (locked in for the 15 years). I don’t know how much $1M would be because I calculated my need at $500K. $500K plus my existing assets will be plenty for my wife and kids to live on.

I also highly recommend having your life insurance separate from work. Tieing life insurance to work is like having a fully adjustable mortgage for which one would have little control on when it is refinanced (how high/low rates would be then and whether one would even qualify for a mortgage at that time).

AlphaLess
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by AlphaLess » Sun Oct 29, 2017 11:07 pm

Questions:

1. what is your age,
2. what is your health rating,
3. how long do you want to have death (term-life) insurance,
4. how many dollars?

you might find a cheaper policy at term4sale or something like that.

streamline
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Re: Appropriate Life Insurance in late 40’s – nearing retirement

Post by streamline » Mon Oct 30, 2017 10:51 am

Looked at 5 and 10 year term for a similar coverage amount at term4sale.
My current price is several hundreds of dollars cheaper, even if I was the best health risk level.

Staying with current policy seems like the best deal.
Yes, I could probably get by with less coverage, but it would not save me a ton, and would not be as safe if something did happen.

I do wonder, though, what advice would have been if I just asked how much coverage I should have, instead of biasing results with my current coverage level.

Thanks!

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