Is Life Insurance Needed? (expenses, debt, mortgage, buy)

[kimchee]

Not sure if this is the best place to post this question.

My DH and my own life insurance policies are up for renewal this year and am wondering if my DH and I should renew it. It's about 700/year for us both.

We are not rich but have a decent retirement fund and a year's worth of emergency fund in the event that something were to happen to one of us.

Would you recommend renewing in this case?

[NJGOAT]

Life insurance is one of those areas that routinely generates a lot of debate, particularly among those who sell it.

In general life insurance is a very poor investment, but has its uses in a particular case. Generally the financial guru's would recommend that you carry a term policy when you are younger and just starting a family that will provide enough benefit to cover all expenses for some time. This is the time period your family is most vulnerable to a tragedy and when you need a safety net. When you are older and have established savings and investments, the life insurance is no longer needed.

In the case of cash-out investment life policies, they are considered the absolute worst from a financial perspective and the advice I have seen recommends that you purchase term coverage and invest the difference as you will come out far ahead.

I think a lot of it boils down to your personal situation. Do you have young kids? Do you carry a mortgage on your home? Can you survive with the loss of one of your salaries?

In my case, I am the only earner and I have three young kids and a mortage. I carry a term 30-year term policy that will provide enough for my wife to pay off the mortgage if she chooses and have enough money left over to hold off working until the kids are much older. For my wife I carry a much smaller term policy that would provide enough money to pay for child care services for my kids if something was to happen to her. When the terms expire we don't plan on renewing them as the kids should be on their own, our mortgage will be paid off and our investments and savings should provide plenty if one of us were to die early.

[chet everett]

30 year level term coverage is nearly as expensive to underwrite as whole life, the big price difference comes when comparing 10 year level term to other products.

That said the key is understanding your INDIVIDUAL situation and all its aspects: taxes, family needs, value of business, items that could be liquidated or generate income, lifestyle, likelihood of spouse working, family help, etc.

My gut says that $700 is not going to really improve you life this year in any meaningful way. Heck $7000 over 10 years probably would not pay for the kind of used car that you could count on!

If you are not at the point where the loss of income and all the time / money factors that are handled by your spouse can easily come out of a huge pile of investments I think it would be imprudent to cancel the insurance.

I would certainly "shop around" and get quotes from a variety of reputable sources to be sure that I was not paying more than needed for the kind of coverage. It would be reckless to drop the coverage based on feedback from people that do not have all the details of your situation...

[Nayabone]

How old are you? Do you have children?
Insurance is a terrible investment vehicle, but If you have children and a husband/wife that would need the money should you pass, then it's a good idea.
I canceled mine when I retired. I have considerable assets so my wife will do fine should anything happen to me, and our child is long gone from home...

[CosmicWizard]

kimchee wrote:

Is Life Insurance Needed?

If the life insurance industry has been watching their health insurance brethren in crime, and spends enough money to bribe congress, it is likely to become a mandatory purchase in the not too distant future.

[elamigo]

Originally Posted by kimchee

Not sure if this is the best place to post this question.

My DH and my own life insurance policies are up for renewal this year and am wondering if my DH and I should renew it. It's about 700/year for us both.

We are not rich but have a decent retirement fund and a year's worth of emergency fund in the event that something were to happen to one of us.

Would you recommend renewing in this case?

This is what I was briefed when I attended my Army retirement classes regarding insurance. Granted there is more to it but I will share the basic point.

People are supposed to save, invest, or do something through the years to have enough money or funds to keep a lifestyle and security for the senior years of your life.

By that time hopefully you have paid for your house for your retirement years. Besides that you should have enough money to support you. You may have Social Security money coming in and that is augmented with the money you saved or invested along the way. Depending on Social Security is not enough unless you are willing to live way below the living standards you have lived your previous years.

Now, if you buy life insurance you may do so to probably cover some expenses after you die.
In my case I will have my Army retirement pay for the rest of my life and later that will add to my Social Security payments. In other words I invested for my wife and my later years spending 32 years in the Army and earning my retirement pay.

The next point they told us what is the intent for a life insurance. Generally speaking they told us that we can buy insurance in some cases for the surviving spouse to help pay whatever is left on the house so he or she does not have to worry about it so there is not more major debt.

In other words, if you have saved or invested enough money to have your retirement life covered in essence you do not have to buy life insurance since you have a paid home and money that will add to your social security payments.
This is not something that you will get rich with. It is the basic to have somewhat comfortable life without grave financial problems.
If you are still paying for a home you may want to at least pay for insurance premium for the surviving spouse to pay for the home. As time goes by and the house is being paid you may want to reduce the premium and when the home is paid then no need for more insurance.

Now, if you want to depend on insurance to pay for your senior years may not be a good idea. If I understand it correctly as you grow older insurances will pay less as you grow old and you die.

More research has to be done on this. However, the main point is this. It is better YOU build your retirement funds, not let some other source do it for you. The question for you is, are you disciplined enough to save or invest money for your senior years? You may say in todays economy you cannot afford to save money. From my standpoint I say you can. It is a matter or discipline, good money management, and an efficient way to prioritize things in life when you determine whether something you really need and something you just want.

Do you have to have a flat screen TV when the old type works just fine? Do you have to have the latest iPod or the latest electronic gadget when in reality you can be without?
How about a car? Does the car you now have still work fine or you want to have one that is nicer because the one you have looks to old? Do you eat out a lot because it is more convenient than cooking at home?
Those things and a lot of other things do add up in how much you spend. The more wasteful you are the less you will have. This does not mean you cannot have fun and enjoy life along the way if you are wise in spending your money. Example, I now can afford to go and see a movie that just got released. However, depending on the movie I may choose to the movie theater where they show movies that have been out a couple of months and the theaters where newly released movies do not show them anymore. The difference? I now pay $1.50 instead of $7. I do on ocassion I may go to the expensive theaters but I can afford that this time in my life. I notice that many people that are in the poor economic bracket go to the newly released movies instead of the $1.50 movie theaters. I do have the luxury to go to the cheaper movie theaters and yet those that do not go to the expensive ones. They are the one complaining how bad it is and how they are the forgotten and destitute.
That is just one way to save money and still enjoy life.
It is the little things in life that will add up either negatively or positively in our life, not just insurance. People do not save much anymore. They tend to try to live life well beyond their means.
You have a great day.
El Amigo