Life insurance for dummies question
January 6, 2013 8:56 AM   Subscribe

Mid thirties married male with no kids yet. Thinking about life insurance in case I do something stupid and die. Am I better off getting a term life insurance policy, a lifetime policy, or should I just take $100 a month and invest it on my own and use that for my wife if I suddenly kick the bucket?

Don't smoke, I drink socially and I am relatively fit. No signs are pointing to an early death at the moment, but I want to make sure my wife and future kids are cared for in case of stupidity.

Perhaps I should do a low sum 10yr term in case I suddenly go, at the same time building up a side fund as mentioned above ($100/month)?
posted by wile e to Work & Money (10 answers total) 9 users marked this as a favorite
Best answer: Putting money into savings is always good, but for life insurance it's exactly the wrong direction. Life insurance is intended to replace your future earnings. Your future earnings go down as you get older since you will be working for a shorter time; therefore, you need more now than you will later. But savings goes *up* as you get older, not down, the opposite of what you need.

This is also why you want term life rather than whole life. Whole life has a constant value over your lifetime, which is a waste of money. You should probably buy term life in amounts that cost about the same, not that pay about the same.
posted by kindall at 9:00 AM on January 6, 2013

Best answer: Do you have a mortgage? Does your wife work? How do your incomes compare?

$100/month would buy A LOT of life insurance, and would take a very long time to build up to a savings equivalent to even a very modest policy.

As to the type of coverage, most financial planners will tell you that term is the way to go.
posted by mr_roboto at 9:03 AM on January 6, 2013 [1 favorite]

Best answer: A whole life policy is essentially a term insurance policy + a savings plan, only you pay a hefty sales commission on both; payments are much higher than for term. Instead, get term insurance, and put the difference in savings.

Most term policies are renewable without additional health tests, so it may make sense to get a bigger policy than you think you need now - if & when you have kids you'll be glad you had it. Also, 2x the coverage usually doesn't cost 2x as much.

(I am not an actuary, but I used to be one)
posted by mr vino at 9:04 AM on January 6, 2013 [1 favorite]

Best answer: FWIW, SBLI quotes $15.23/mo for $500k of term insurance for a 35 year old MA resident male non-smoker. Commercial rates are usually a bit higher, but still, most of your $100/mo would be available for savings.
posted by mr vino at 9:08 AM on January 6, 2013

Best answer: You should get term life insurance for both you *and* your wife. I am a 31-year-old father of one, and got a 20-year term life policy on myself, but not on my wife, because I'm the primary breadwinner and my wife is a stay-at-home mom. She is now dying of cancer and I'm looking at at least an extra $1500/month to cover child care, which as you can imagine, isn't doing wonders for my budget. An extra million dollars would make the financial implications of my wife's death pretty painless, but I won't have that.

Saving $100/month won't cover funeral expenses, let alone child care.
posted by tylerkaraszewski at 9:13 AM on January 6, 2013 [14 favorites]

Best answer: Term life gets more expensive as you get older and as you encounter ailments and injuries. For $1200/year ($100) you could probably get $1.5 million in 15 year or maybe even 20 year coverage - great deal. Also consider supplemental disability; costs more cash but is also more likely to pay out, but also cheaper when you're younger. Reputation of carrier matters more for supplemental disability -- everyone pays life insurance when you die, some carriers are very tight fisted when it comes to paying disability.
posted by MattD at 10:53 AM on January 6, 2013

Best answer: Would suggest you think in terms of the timeframe you expect to have a kid (or kids). Say you have two kids, 3 and 5 years from now. With only a 20-year term life, it will spike up in cost when kid #2 is 15 years old, depending on your income for another 5 years or so. So purchasing a 10-year policy now is too short-sighted.

And then there's the disability question - you are frankly much more likely to be disabled than to die prematurely, and want sufficient coverage. Both term life and disability are much more important when you have dependents - presumably your spouse can work and support themselves should you die or become incapacitated. With kids, a much more difficult situation.

Lastly you will get cheaper insurance the younger you apply, but the long-term trend has been downward for term life, due to better survival statistics. For disability, not so much. So the 'get it now while it is cheap' mode of thinking shouldn't be a main driver.

Lastly, our estate plan has been affected by our insurance - we now have a life insurance trust to shelter that insurance proceeds should I meet my early demise, without federal and state tax liability. It's something to consider as well to maximize the life insurance benefit.
posted by scooterdog at 12:04 PM on January 6, 2013 [1 favorite]

Best answer: Get a term policy now while you are young and healthy. As described above the typical monthly costs are low.

If you eventually will have kids you will need a policy. I

f you don't want your wife to worry about money if something expected happened to you - you will want a policy.

Savings can't possibly match the benefits of a life insurance plan while you are young. When you get older the rates will go up, but the need will go down.
posted by NoDef at 5:47 PM on January 6, 2013

Response by poster: Looks like term it is. Thank you everyone for your input.
posted by wile e at 6:10 PM on January 6, 2013

FWIW, SBLI quotes $15.23/mo for $500k of term insurance for a 35 year old MA resident male non-smoker.

Hmm, I don't know about that. I'm paying $93/month for $500k/30 year (original quote was somewhere around $70, increase I'm assuming is due to high cholesterol). But still, chump change for the investment (if I die the last day of my policy, I will have paid $33.5k, and my widow/kids will get $500k).
posted by disconnect at 1:31 PM on January 8, 2013

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