[Nick]

Insurance question. I’m 50, the wife is 44. We had a 1 million net worth that is now ~850k… not the point.

We’ve never had insurance except for A,D&D policies through work insurance options.

My wife and I are wondering about getting life insurance for her peace of mind, and potentially leave a benefit for the grands.

I’m confused and irritated that I can’t make it make sense.
When I ask an insurance agent, of course they want to sell insurance, but won’t, or can’t tell me the pros and cons. Whole life, term life, life annuity.

Help me make some sense. Or do we go without insurance and continue to contribute to our retirement accounts and after tax investments?

[Frank]

Life insurance beginning at age 50 will be very expensive. And no, you cannot afford to be buying insurance products for grandchildren, so lets just stop with that kind of nonsense.

Nobody who is not a dependent needs to get a windfall for no particular purpose when you are dead.

Whatever nice things grandpa wants to do with them should be done while grandpa is alive.

Real legacies are what you do while you are alive, that creates positive memories, not what is left when you are dead.

If you buy term now, it will get prohibitively expensive within a decade, so you would only do that if your wife was concerned about you dying in the next decade. Otherwise, its a complete waste of money.

Whole life will last your whole life, but you should expect to pay extremely large premiums of roughly $5000 per year for 20 years and only get a few hundred thousand dollars in coverage.

It will not outperform investments if you actually live to expected death dates.

The real questions revolve around your income, lifestyle and when you expect to retire.

Honestly, you have not defined any problem or purpose in financial terms that life insurance will solve at this point.

“Peace of mind” is not a real financial goal. Won’t she have peace of mind just inheriting your money?

Do not buy annuities. You are not old enough for that to make sense.

[Cindy]

If your house not paid off, I would go 10-20 yr term if you want wife to be comfortable. Cheapest way to go.

Not sure why thinking of grands….

[Ernest]

It depends on your purpose. Do you still have dependents? Do you and your spouse rely on each other’s income?

If the answer to either of those is yes, then term life insurance can make a lot of sense—it’s affordable and designed to cover temporary needs like income replacement.

Whole life, on the other hand, is very expensive and often not worth the cost for most people.

If you’re thinking about leaving a legacy for your grandchildren, a better option might be to include that legacy in your FI number.

Save and invest what you need to fund it yourself.

That way, your money grows over the rest of your life without being drained by the high costs of insurance, and it’s available if you ever need it for long-term care or other unexpected needs.

[Scott]

Usually the main reason for an insurance policy is that the loss of your income would jeopardize the status of your survivors.

This could be a spouse (who will now collect one SS benefit not two, a a pension benefit could fall or a salary disappears), a child (minor/college age/special needs) or tax planning (a large estate such that insurance proceeds fund the tax liability).

If some of those apply…you should have a financial plan that identifies the gap and shop for that amount for the term it is needed.

That may be ‘peace of mind’ ie if you are hit by a bus tomorrow would she be able to pay the bills and live the life she is accustomed to?

There is not enough to answer that question in your post, but where her future looks like if you are hit by a bus tomorrow is a valid question.

If none of those apply there is generally less value you are better to not buy the policy and invest since insurance by definition has a negative expected average return (though it does hedge the tail risk ie premature death that is of concern)

[Steve]

Life insurance purpose is to replace your income in case of death. So, think of sources of income that would be lost if you die and decide.

Inheritance is not the goal.

[Jasmine]

Do you have anyone who is financially dependent on you, and would be in extreme financial hardship without your income? If no, then I don’t see any need for life insurance.

You mention grandkids, so I’m assuming this means your kids are adults now, and not still living at home and relying on your income?

If you still have school age kids at home, or if one of you couldn’t survive without the other’s income, then term life may be something to look at.

[Sarah]

Term life insurance. Policy Genius is a great starting point to compare prices. It will probably be affordable for your wife at her age, but not yours since you’re 50.

I locked in the longest term possible when I was about her age.

[Lax]

First take whatever is available free via employer for you and your wife takes from her employer.

For example, we both get 3X of salary in AD&D and 2X of salary in life insurance from each of our employers.

Outside of that, getting term life is your call.

[Michelle]

The way I see it, life insurance is there for us if we could not pay the bills without the person being insured. Otherwise it’s completely unnecessary.

My children don’t need to have a windfall just because I die.

My husband and I both have term policies, but his is higher value, because we would not only lose his income, but also his insurance and other benefits.

I am a solo part time business and while I could pick up more clients, it would take a few months and I would lose a large percentage if I had to buy insurance for me and my kids on my own.

So, we have what we felt was enough to pay off the houses and be able to live at least a couple years without too much financial strain so we can figure out our new life without them.

We will let the policies expire and go with much lower ones once the kids are all out on their own, and drop all together once we have no mortgage

[Mia]

Insurance is meant to replace your income that others depend on. If they would already be able to live off your capital indefinitely you’re already self insured.

If it’s close, calculate the additional $ they’d need and get insurance for 10-20x that.

[Joel]

Consider:
* Life insurance is all about replacing some of the income your family depends on.

* If you buy life insurance it should be term life.

* It sounds like your kids are grown, so they don’t need you to buy life insurance.

* Your grandkids aren’t being supported by you.

* If you leave the grandkids money, it should be from saving and investing.

* You don’t create an inheritance by paying an insurance company boat loads of money.

* If your spouse passes, there might be a need there, however…

* You already have significant savings that should help you cover that gap.

Based on the limited information you’ve provided, I see no reason for you to buy life insurance. It doesn’t make much sense.

There might be a point to it if your wife doesn’t make enough money to maintain her standard of living with her income and your savings, but even there, it might not be reasonable for you to maintain her lifestyle indefinitely after you die.

For one thing, such a life insurance policy will come at the cost of your savings. And really it should be your savings that your wife will fall back on after you die.

As for inheritance, do you have a Will?

If you hope to leave something for your grandkids, it should be spelled out there or in your beneficiary designations.

[Helene]

Life insurance proceeds:
* Are 100% tax free.
* are available (nearly) immediately because they avoid probate.
There’s another thing that is a quasi-benefit that no insurance salesperson will tell you…

Each state has a minimum level of interest that must be paid on insurance proceeds from the date of death until distribution. An old insurance guy I knew outlived his wife unexpectedly.

His agent (the guy who bought his book of business when he retired) kept asking him, “when are you going to claim the proceeds on your wife’s insurance?”

Widower was making 8% and had nowhere to put it that could make as much (during housing crisis, when everything tanked and interest rates were crazy-low) so he kept waiting.

The delay was limited by another state law which says that “unclaimed property” goes to the state after a certain period.

So, he eventually made the claim on a couple million but knew that the 8% was giving him time to plan for the distribution without rushing.

[Author]

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