Life Insurance

[EddieWalker]

A friend back in CA passed away last week and I've been wondering how his wife is going to get by. He owned his own business, rented the building, and has a fair amount of inventory there all the time. If she doesn't have the cash to pay the rent, I don't know if she can move their inventory, or return it or what will happen to it. I know there will be some cash available to her, but I have no idea if she can deal with it, or how much went to medical bills before he passed away. From several friends who are in the area, they can't figure out what is happening. So far, no funeral, no returned phone calls and both the business and her home are locked up without any sign of life.

This has me thinking about my wife and how will she handle my passing. I'm 50, in decent shape. I don't smoke and all my doctor says I don't have any health issues or concerns. Of course, you never know when an accident will happen. If I passed away today, I would leave my wife with the land, home and equipment. My savings would probably cover my debt with enough left over for a simple ceremony. That depends on how long it takes her to be able to get my savings.

What do you guys recommend? How much should she receive to get through this if it happens? How do you find a good company to deal with? What type of policy is the most cost effective?

She has a very good job as a professor at the University with awesome benefits and retirement. The value of the land and houses, if she sold them should be significant, but of course she would have to deal with the animals and finding another place to leave if she sold the land. I doubt she could keep it up, so selling it would make the most sense. Having some money on hand that would last her a few years would make a huge difference in what she decides on doing.

 

[Bird]

Eddie, I think it's different for each individual. In my own case, if or when I die, my wife will receive half the police & fire pension that I currently receive. But of course, expenses will be more than cut in half; no more premium for Medicare supplement, no more life insurance premium, etc. So I only have $50k life insurance for her to collect. But we have already paid for our funerals, cremation, the niches in the columbarium, etc. And a little over a year ago, we changed to one of the "reverse mortgages" that you see advertised on TV so much. So if anything happens to either of us, the other one can stay here by paying the taxes and insurance. I think prepaid funerals are gaining in popularity.

 

[gladehound]

A friend back in CA passed away last week and I've been wondering how his wife is going to get by. He owned his own business, rented the building, and has a fair amount of inventory there all the time. If she doesn't have the cash to pay the rent, I don't know if she can move their inventory, or return it or what will happen to it. I know there will be some cash available to her, but I have no idea if she can deal with it, or how much went to medical bills before he passed away. From several friends who are in the area, they can't figure out what is happening. So far, no funeral, no returned phone calls and both the business and her home are locked up without any sign of life.

This has me thinking about my wife and how will she handle my passing. I'm 50, in decent shape. I don't smoke and all my doctor says I don't have any health issues or concerns. Of course, you never know when an accident will happen. If I passed away today, I would leave my wife with the land, home and equipment. My savings would probably cover my debt with enough left over for a simple ceremony. That depends on how long it takes her to be able to get my savings.

What do you guys recommend? How much should she receive to get through this if it happens? How do you find a good company to deal with? What type of policy is the most cost effective?

She has a very good job as a professor at the University with awesome benefits and retirement. The value of the land and houses, if she sold them should be significant, but of course she would have to deal with the animals and finding another place to leave if she sold the land. I doubt she could keep it up, so selling it would make the most sense. Having some money on hand that would last her a few years would make a huge difference in what she decides on doing.

Sit down with her an figure out how much money should would need to make any lifestyle changes that are necessary. Then figure out how much she needs to live on. Subtract her income and your combined savings. Get lift insurance for the rest. I would not count the land and equipment in your assessment because she may not be able to get that money out quickly and who knows what will happen with the buying market.

In the end it's a very personal decision.

 

[dmccarty]

We have been working through this issue again.

Check your Social Security statement to see the benefits your wife would receive. Check her statement to see what you would receive. There are also survivor ship benefits if children are involved.

Our main life insurance policy is from one of my employers and we are considering increasing our policy amount. I have checked a couple different companies for prices and coverage which is interesting. AAA is VERY high compared to other policies for instance. Another company was surprisingly high for extra coverage. I think our credit union has a cheaper policy but we have to check the insurance company that has the house, cars, etc policies.

The big question is how much money does the survivor need?

We look at our debt, current monthly bills, and guestimate future bills to try to figure out how my money should be in the policy. The later is hard due to health care costs. What does one do with the insurance payout? Pay off debt and live off the remaining money or invest the money and live off the investment? Both have good and bad points. Right now we are trying to figure out if we can afford a bit more on the policy to pay off the debt to provide more money to live on.

This gets down to how money can we afford to pay out NOW, for an event that may not, and we hope will not occur, until well in the future...

Tough decisions.

Later,
Dan

 

[Travelover]

I'd agree that you need to calculate what the monthly expenses would be and the monthly income would be if you died. It helps to look back over the last years spending to get a handle on it. As a rough guide, the insurance payout should be 25 times the yearly amount needed to plug the gap. (this is the 4% rule, assuming the money is invested in 50% stocks and 50% bonds).

In any case, buy term insurance not whole life and shop competitively on the internet.

 

[jerrybob]

Like Bird says.....everyone is different and has different requirements. My wife and I had a plan to retire early for many years. We live comfortably and moderately but always kept the plan in mind over 25 years. We both had good jobs......we both saved.....we put kids through college. We retired early.....do not owe a penny to anyone. I took my retirement investments with me when I left my company. They now sit in IRA's. I do not have any stocks. Our savings accounts are very healthy. We planned this out over years. We were very disciplined. We now live in paradise......with no debt (unlike our government and many people). If I die......the only problem my wife will have is what to do with all the stuff in my shop......hopefully her next husband is handy! BTW.....we do not have any life insurance......don't need it.

 

[Looking4new]

I am going to assume that the house, land, animals and bank accounts are joint owned. If the bank accounts are joint accounts then the wife would have no problem getting the money. Insurance companies do NOT pay out as quick as they claim.

 

[rtimgray]

As posters above have mentioned, I don't think there is any one "correct" answer. There are many, many variables to consider - what's paid for, what isn't, are there kids to put through school, etc.

I think simple term life insurance policies are typically available from 5 to 10 times your annual income with very little requirement to achieve that, and in your case, probably pretty reasonable. I'm a few years into a 20 year term policy right now, and I'm a few years younger than you. Our property and house is already paid for, we owe a little on a couple of vehicles, but savings could pay those out, and my wife has a decent job. However, we have two teenagers that we are expecting to help send to college, so if I check out early, I want them to at least have that opportunity.

Now, if we fastforward 15 years, kids are out of school and my wife and I are doing as well as we hope to be, then I will probably let my term insurance go because at that point, we will likely be done with expenses like those mentioned above, and I don't want to be worth so much dead that it's worth it for my wife to think how much she still likes having me around...

I do also have a whole-life policy (and it is probably a bad investment, strictly in dollar terms), but it will pay to bury me when its over and my wife/family won't have to worry about money at that time.

Good luck with whatever you choose, and I think the most important thing is that it's on your mind and I know that you will give it due consideration.

Take care.

 

[MossRoad]

First, do a net worth statement for you and your wife. Add up everything you own (land, cars, bank accounts, etc...) and then subtract everything you owe (mortgage, car payments, student loans, etc...) and that's how much you're worth.

See where everything you own is invested. Cash, stocks, land, etc...

Cash can be gotten to quickly. Stocks a bit longer. Land may not sell for years!

I have life insurance = to 4 years of my annual income (double that if its an accident). So does my wife. If either of us croak, we'll have 4 years to get things straightened out. We are debt free. College money is in the bank for the kids. Decent 401k and Roth IRA savings. Either of us will be able to continue living the lifestyle we currently live.

Look into term life insurance. Its cheap! Get enough for your spouse to get by for X years.

One other thing.... she should have life insurance too. Both of you are equal partners. Both of you should have insurance!

Also, a good tool for seeing where you money is, where its going, trends, budgets, etc... is free at mint.com.

Here's a link to a review of it...
Mint.com Review & Rating | PCMag.com

What's nice about Mint is it can't actually do anything with your money. It only reports. We've been using it for a couple years and it really helps see where every penny is.

 

[k0ua]

While I don't have a license to practice in TX, ( I do in Mo. and Ar.) so I won't offer any solid advice, other than this. The time to buy insurance is while you are still young and healthy. Not when you are old and sick. And pick a good independent agent that can choose from several A rated company's and that YOU trust to get your best deal. Don't deal with anything but an A rated company. But trust in your agent is very important. He/She can look out for you and value you as a client for many products in the future, such as when you are ready for a medicare supplement, or start your retirement income, legacy planning (life insurance and annuity's) and other products. This agent if you start a good relationship will value your business and have a vested interest in looking out for you long term, not just making a one time sale. At least this is how I view it, and how I treat my clients.

 

[jerrybob]

I am going to assume that the house, land, animals and bank accounts are joint owned. If the bank accounts are joint accounts then the wife would have no problem getting the money. Insurance companies do NOT pay out as quick as they claim.

We're covered in that regard.....in fact....everything is FDIC insured as well. Hope the government doesn't fail!

 

[murphy1244]

I kept my insurance policy from work when I left and a good thing I did. When I got sick I found out I could no longer get another policy as no one would cover me. So I am glad I stayed with this one through the years. So you might want to keep that in mind cause you never know whats around the bend.

 

[k0ua]

I kept my insurance policy from work when I left and a good thing I did. When I got sick I found out I could no longer get another policy as no one would cover me. So I am glad I stayed with this one through the years. So you might want to keep that in mind cause you never know whats around the bend.

Yep. To my point, if you are sick is not the time to be trying to buy insurance. All you can get is "guaranteed issue". Small amounts of coverage for large money. When you are well, you can get large amounts of coverage for small money. The time to buy insurance is NOW not later. Later is too late. No one told me that, but I am telling you now.

 

[ustmd]

The wife and I have term insurance. We started 3 or 4 years ago (I am 48 now) and have fix rates until 65 or 67--which is pretty typical.

We based our amount on total debt load plus costs for our daughter if one of us had to go it alone. Both my wife and I work, so the idea was to be able to pay all debt, have 2 years of the deceased spouses salary and then have money for the kid's expenses and college (if that is what she wants).

I can't say what is right for you, but my one piece of advice is if you are going to do it, do it soon. Life insurance will only get more expensive as you get older--no matter how excellent your health.

 

[MH8675309]

I will say this - how title to the house and lands is held is VERY important. Here in Michigan there are a few different ways for a couple to hold title and not all of them allow full rights of survivor ship to the surviving spouse. Also, here we have dower rights for women but not for men. It is worth a call to a lawyer or title company to make sure title passes the way you intended it to when the time comes.

 

[gsganzer]

The need for life insurance is something I've always stressed to the folks I work with. Especially the younger 20 year olds that are already married with kids. The younger you are when you get it, the cheaper you lock in your rate for term life.

When my brother passed away in 2006 at the age of 45, I saw first hand how important life insurance was. He was married and had a 15yo daughter and a 19 yo son. His wife worked hard, but she barely made minimum wage and certainly wouldn't have been able to sustain the house and kids. My brother had a $100K policy through his employer. That money helped buy her some time to make arrangements for selling the house and moving on with her life. It also provided some financial means if she wanted to get some schooling/training to help her job prospects, same as the kids. It wasn't a lot of money, but it certainly was better than nothing, without it she would have defaulted on the mortgage and been in dire straits in a hurry.

As some others have said, you need to look at your (you and Karen's) situation. Fortunately, you both have a sustainable income (both could make it on your own) and you're kind of in the same situation as me and Shellie. We looked at what it would take to leave the other debt free (house paid off and kids through college in our case). We decided on $250K term life policies. This is probably low and I wish I went with $500K minimum, but we both had decent retirement and brokerage accounts, so our financial burden was low.

The only drawback I saw to having a huge insurance policy, is that I'd have to start sleeping with one eye open if I ever pissed her off.:laughing:

 

[k0ua]

Things to consider. Term is like renting, you have a box full of rent receipts when you are done. Whole life is like buying. you have cash value when the policy is paid off. (if you chose that option) You can annuitize for an income or take the money including dividends and run. Another consideration is return of premium term. It pays back all of the premiums you paid in along the way when the term is over if you outlive the term, otherwise if you die, it pays the face value. Lots of ways to do this. I am not a fan of the universal life policies, as they require you to keep track of where you are in the policy, and decide how much to pay in premium. Attractive on the front end, and the policy can "eat itself" and you wind up with nothing. Not a fan, too "busy" for most people to keep track of.

 

[Travelover]

Things to consider. Term is like renting, you have a box full of rent receipts when you are done. Whole life is like buying. ........

I respectfully disagree. Do not mix insurance with investments because it gets so murky you really can't tell where you are getting hosed. Buy term insurance and invest the difference between what term and whole life would have cost you at a place like Vanguard with low fees. There is no free lunch and the selling agent has to eat.

Additionally, think about disability insurance. Sometimes getting hurt badly is worse financially than dying.

 

[k0ua]

I respectfully disagree. Do not mix insurance with investments because it gets so murky you really can't tell where you are getting hosed. Buy term insurance and invest the difference between what term and whole life would have cost you at a place like Vanguard with low fees. There is no free lunch and the selling agent has to eat.

Additionally, think about disability insurance. Sometimes getting hurt badly is worse financially than dying.

That is certainly an option, but many people do not have the discipline to invest that difference in premium. Also whole life is for your WHOLE life. If you outlive your term insurance, and will wind up with nothing when it expires. No money, and no way to buy any more insurance, because now you are old and sick. This is why he needs to find an agent he trusts to explain and show illustrations of how the money goes in and grows. Sure you can put your difference of premium between the two products in the stock market if that is what you want to do. Different strokes for different folks. I agree there is no free lunch, and I do like to eat.

 

[MossRoad]

The point of term insurance is just that, you buy it while you need the protection it offers, and hopefully you'll build up your nest egg over your working career to the point where you'll be self insured by the time you retire.

https://www.daveramsey.com/blog/the-truth-about-life-insurance/