Life Insurance

November 18, 2004 3:34 PM

Life-InsuranceFilter

Ok, I just noticed that I'm paying a fortune for my work sponsored life insurance. I need to figure out the best plan for a 35 year old divorced dad with one kid...any thoughts?
posted by keep it tight to work & money (5 comments total)

Personally, I just talked to a friend who is an insurance broker, and an incredibly nice guy (believe it or not). Brokers are there, of course, to figure all that out for you (best price, etc.). Be careful, there are always bad apples anywhere.
posted by RikiTikiTavi at 3:47 PM on November 18, 2004

What you need is going to depend on how old the kid is. The point of having life insurance is to replace the earnings of the deceased. You want enough life insurance to cover his expenses until he's 18, plus maybe college. Probably your guardian in the event of your death would have income of their own, or a place of their own, or whatever, so there's no reason to replace your entire salary; figure maybe $20,000 a year until he's 18, then add in the cost of college. Overall I'd say the $200,000 to $300,000 range should be about right for a policy level. If you're healthy, this will cost you at most $500 a year. I got quotes as low as $329 a year for a $300,000 15-year term policy at IntelliQuote.com (though yours may be higher or lower depending on things like weight, health, etc.).
posted by kindall at 4:08 PM on November 18, 2004

I agree with Kindall except for one thing: put as little onus on the guardian as possible, which means replacing your total income. As well, factor in a small stipend amount for the guardian as well. That way the role of being a guardian is not a burden on the person.

My wife and I did just that when our son was born. We also rounded up to the next "large increment" just for extra measure (i.e. if calculations add up to 675k, insure for 750K)
posted by smcniven at 7:59 AM on November 19, 2004

Yeah, term life is cheap enough to buy double what I suggested -- that's really a minimum. Still, I think there's no reason to encourage the guardian to simply retire on your insurance payout. If you and your son are able to live on your current salary, then giving ten or fifteen years' worth of it to someone else all in one lump sum seems, um, excessive to me.

You might consider splitting off the college money into a separate policy, making the beneficiary a trust or something, so that there'll be college money even in the event that the guardian wastes most of it. You may actually be able to do this on a single policy with two beneficiaries -- the guardian and the trust; I don't know enough about life insurance to be sure -- ask an agent and/or an attorney.

You might also ask an agent about "decreasing term life insurance," a policy where the benefit declines over time, since you'd have less income to replace as time goes on. This should be considerably cheaper than regular term insurance.
posted by kindall at 9:13 AM on November 19, 2004

Term insurance is definitely the way to go. Getting it (if available) through your employer might have the advantage that no medical examination (or medical history) is required. (My experience is that rates via an employer are reasonable - is it that now have something other than term insurance?)

A good, unbiased source of advice is Consumer Reports. The August 2003 issue (available at virtually any library) is the latest to cover this topic in depth. (Not available online except to subscribers.)
posted by WestCoaster at 12:18 PM on November 19, 2004