How much life insurance?

[kellia]

We need to get a new term life insurance policy for dh and I. We make the same pay, so figuring out what each of us would need if the other died is pretty easy. My biggest concern is how much my 3 kids would need. Any ideas? They are ages 6-13. I know that the family they would be going to would need to get a bigger house since they have 3 kids of their own, so want enough that they would all be covered and not suffer any financial difficulties. We all live pretty average to frugal.

Also, if we have life insurance with the kids as beneficiaries ( we have the proper adults set up in our will to handle the money), our debts do come out of the money we leave them, right? I am not sure if life insurance is considered our assets to take our debt out of or not... Our house is currently worth about $100k less than we owe due to the economy, so that is what I am concerned about.

I know that kids can receive SS if their parents die, anyone have any ideas how much that is? (I know I'll never see it when I retire, but, LOL!)

 

[BridgetBordeaux]

I would encourage you to surf the net or visit a library and research articles in Money/Kiplinger's etc.

My first comment would be to research term insurance.

As to the amount, there are some guidlelines relating to "x" times your salary as being a good place to start..

Your thought on making is financially easier for the kid's new family is smart.

It seems like due to your overall situation (married w/3 kids as opposed to 2 newlyweds), you might need to talk to a professional.

I wish I could be more help. I think the boards are great, but you need to talk to someone with some expertise who knows your whole picture.

Good luck and I want to wish you all the best. You are doing the right thing!

 

[disneystacy]

I would get a million dollar policy for each of you. This would cover all your debt, pay for your kids to live (food, shelter,clothing). Pay for college for each as well. This is what hubby and I have. We never have to worry if we have enough. I would also do a 20 year term instead of 10 as this will get you well past college for your youngest.

 

[aka-mad4themouse]

I can't add anything about the insurance, but I do know that the SS benefits for surviving spouses and children is based on the deceased wage-earners income. Unmarried children receive benefits up to the age of 18 years, or 19 year if they are in high school full-time. The spouse's survivor benefits can be affected if they also work or remarry before the age of 60.

 

[DISdreamin']

JMHO, but I would be looking at an amount that, given a return of about 5% or so, would replace your income for at least a fair period of time! Thus, $1M sounds about right if you are currently earning about $50K. IMHO, this means that you won't need to bite into the principal and yet your wages will still be replaced. This seems to make a lot more sense to me than trying to figure out what it would take to pay off debt and be ready for kids college and stuff.

Personally, before too long I'll be shopping for a new term policy for myself and DH. Right now, we are definitely underinsured in that department. If something were to happen to one of us, the policies we have in place don't come close to replacing our income!

 

[ColoradoLime]

It seems like due to your overall situation (married w/3 kids as opposed to 2 newlyweds), you might need to talk to a professional.

Just wanted to add that if you do seek professional advice, please do so from an estate planner or attorney and not from the person who would be selling you your insurance policy. You want truly unbiased advice from someone who has nothing to gain from your business.

 

[Handbag Lady]

Isn't whole life better than term?

I don't have any insurance outside of work-purchased insurance, but I was always told by my elders that whole was better. Of course, I don't know why...

 

[tonilea]

From what I understand, term is always better than whole life. Our policies are for 250k, but we are debt free and we only have one child. At least in theory, by the time the policy expires, we should have significant savings and our son will be out of college, so at that point we should be "self insured".

Term policies are almost always cheaper - the only exception being a poor medical history that would preclude you from having a term policy - in which case whole life would be all you could get.

 

[tonilea]

Here is what Dave Ramsey at www.daveramsey.com has to say about term vs. whole life insurance:

The Truth About Life Insurance

Myth: Cash value life insurance, like whole life, will help me retire wealthy.
Truth: Cash value life insurance is one of the worst financial products available.

Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are HORRIBLE. Your insurance person will show you wonderful projections, but none of these policies perform as projected.
Example of Cash Value
If a 30-year-old man has $100 per month to spend on life insurance and shops the top 5 cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100.
WOW! If he goes with the cash value option, the other $93 per month should be in savings, right? Well, not really; you see, there are expenses.

Expenses? How much?

All of the $93 per month disappears in commissions and expenses for the first 3 years. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger's Personal Finance, and Fortune magazines. The same mutual funds outside of the policy average 12%.

The Hidden Catch
Worse yet, with whole life and universal life, the savings you finally build up after being ripped off for years don't go to your family upon your death. The only benefit paid to your family is the face value of the policy, the $125,000 in our example.
The truth is that you would be better off to get the $7 term policy and and put the extra $93 in a cookie jar! At least after 3 years you would have $3,000, and when you died your family would get your savings.

A Better Plan
If you follow my Total Money Makeover plan, you will begin investing well. Then, when you are 57 years old and the kids are grown and gone, the house is paid for, and you have $700,000 in mutual funds, you'll become self-insured. That means when your 20-year term is up, you shouldn't need life insurance at all - because with no kids to feed, no house payment, and $700,000, your spouse will just have to suffer through if you die without insurance.

Don't do cash value insurance! Buy term and invest the difference.

 

[njcarita]

Here is what Dave Ramsey at www.daveramsey.com has to say about term vs. whole life insurance:

I'm looking at lowering what I pay for my term insurance-- is there any good websites on line to compare policies????

 

[tonilea]

I'm looking at lowering what I pay for my term insurance-- is there any good websites on line to compare policies????

We got multiple quotes through Zander Insurance and our regular insurance agent. Zander had several quotes that were well rated and significantly cheaper.

 

[amylevan]

We have just applied for term life insurance and I followed advice from consumer reports and some money websites. Basically the formula I followed was this:

Determine your currently monthly expenses.

Determine what your monthly expenses would be if you or your spouse were deceased. (Multiplying your monthly expense by 0.8 was recommended - I went conservative and just used our monthly expenses.)

Determine the monthly income of the surviving spouse and add the social security survivorship to that. This becomes the new monthly income.

The monthly shortfall is the new monthly expenses minus the new monthly income.

Take the shortfall and multiply by the number of months will need to account for. (I will have a newborn - would like to be safe until newborn is 22 - so multiplied shortfall by 264 or 12x22).

Add funeral costs and college costs (I used 15,000 for funeral and 150,000 for college.)

This is your total needed to survive.

Subtract out any funds (I subtracted out the small life insurance we get through work, one of our 401ks leaving the other for the spouse to use for retirement, and an investment account we have). The remainder is a ballpark figure for life insurance.

I ended up going for a $250,000 policy for each of us.

 

[DebMcDonald]

I'd recommend getting a financial planner, we have one who's also an attorney who does not sell policy's, but for me at the time I was a stay at home mom and he recommended $250,000 and for my husband who is the primary salary he was closer to $500,000. We have three kids, 5, 8, & 15 and he broke it down vs my kids ages, social security, college, etc. Definitely term not whole life, because you are looking to just be able to provide for your kids until they are old enough to provide for themselves, your kids at the age of 40 don't need a 1 million life insurance policy (It would be nice for them), but at that time they just need enough to bury you.

 

[PinkRhombus]

You should receive periodic statements from the government regarding your Social Security benefits...dig one of those out of your files and look at the bottom. Should show what your spouse and dependents receive in the event of your death.

 

[mjkacmom]

DH is a financial planner, so he figured it out, but we have a million on him, $500,000 on me as a SAHM. Term, of course.

 

[PatsMom]

I definitely agree with seeing a good fee based financial planner but I have a conflict there because that is what I do.

Term life sounds appropriate for you right now but obviously there is limited information available to make a recommendation. A financial planner will take the time to go through your entire situation and come up with an appropriate amount of life insurance.

To just say buy $1,000,000 may not be realistic - depending on your income and assets there may not be a carrier who would write such a large policy. You have some financial disclosure requirements at the level. Typically they want some type of net worth statement and income information.

 

[kellia]

Thanks for all of the help! I will take all of that into consideration to figure out a good amount for us. As I said, I'm mainly worried that our kids would have enough if both of us were gone, if it were just 1 of us, I know the other could manage since we wouldn't have to sell the dumb house, etc.

We were thinking of going through Zander, too, their prices seem pretty good and hoping Dave wouldn't steer us wrong. I also like that they have 20 year policies so we won't have to worry about this again until after the kids are grown and we don't need much! I hate thinking about this subject!

 

[Longsx3]

DH is in the Military and is the sole income for our family of 3, we recently added another 500,000 because we purchased a home giving us 2 Million in coverage. Plus SS and Veterans Benefits we would have an additional 4,000 a month.