Thursday, August 2, 2012

Life and Death

Mr. Sam and I have been married for more than five years now.  But one of the personal finance tasks that we have not addressed since marriage is life insurance.  Life insurance and stream lining our other insurance has been on our "to do" list for years now.  We do, both have a life insurance product through our employment, but as you may or may not know, that policy is often not portable after you leave employment.

We have met with folks over the last few years, but we have never committed to buying life insurance.  Most of the folks we have met with have focused on whole life insurance  or some hybrid of whole life insurance.  Whole life can be very expensive since, as the name implies, it provides life insurance for your whole life and pays out upon death.

Life insurance is a very personal matter and how much you need or want depends on lots of factors.  We have generally decided that we want term life insurance.  Term life insurance means it lasts only for a certain number of years.  At present, we are looking at 20 year term insurance.  What do we want the insurance for?

Our general thought is that we want enough life insurance to retire any debt, at present we have @$580,000 in mortgage debt.  We don't have any other debt and our plan is to avoid incurring debt for the rest of our lives (ignore the fact that we have @$1500 in Home Depot debt at 0%, it will be paid in full shortly).  We expect that in the next 20 years we will continue to pay down our mortgage debt, with the plan of completely paying off our primary dwelling within 15 years, as our tenants pay down our investment property mortgages.   We may incur additional mortgage debt when we build our retirement home, but the plan is to fund that project when we sell our investment properties.  

So, we want at least $580,000 in life insurance for both of us to cover our debts.  Secondly, we want enough life insurance to ease the transition for either of us since we each rely on our joint income to maintain our current lifestyle.  What does that mean for us?  Well, we want enough life insurance money so that upon death, neither of us has to start liquidating assets right away in order to maintain current lifestyle.  On the other hand, we are not looking at this life insurance to be a "lottery" influx of cash.  There is a balance between how much we should pay on a yearly basis for term insurance vs. risk vs. pay out.  So, at present, we have settled on that magic number of $1 million in term life insurance for each of us, $580,000 in debt coverage and $420,000 in transition monies.  We have a pre-medical quote and we are also going to shop it around a bit as well.

How about you, do you have life insurance, what kind, how much and how did you settle on same?


prevyetn said...

We were both covered by our employers with 2x our income. To supplement, we purchased an additional $350k of 20 year term. The term covers through all kids completing college. After that, there is no need for life insurance. We now need to learn about long term care insurance, but I kind of want to wait to see where the US medical path leads between now and 2015.

Sam said...

Prevyetn - we both have life insurance through our employers as well. But the catch is that insurance doesn't follow us if we leave the employment.

Long term care insurance is a whole other issue, but an important one as well.