Wife pregnant for first time...

quote:

---

Do we need to up our coverage?

---

Yes, if you were me, especially if it only has 7 years left.

quote:

---

Should I assume that if I died my income would need to be replaced until our child is grown up?

---

To each their own here. There are a lot of generic calculations that can get you in the ball park of what you need, most say 10x salary, but that is just an easy way to avoid actual work.

Here is simple calculation. The concept is if I passed away tomorrow, what do I want taken care of: I want $30k to pay for funeral expense, replenish emergency fund, and give wife some money for some immediate unforeseen expenses.

Then, I want all my debt wiped away (car, house, credit cards, student loans if any, etc...). I also want money earmarked for kids education (I want to have 2 kids, so I am earmarking $150K for college education).

The final step is income replacement. When I pass away, I want my wife to have income coming in (besides what she earns) for 20 years, so I get that number, factoring in inflation and whatnot.

That is a pretty basic calculation you would go through if you meet with a financial adviser.

With all that said, to each his own on death benefit number. If I went by the 10x salary number, I'd be under insured. However, I know plenty that just want debt wiped out, and have no desire to provide income. So the 10x number would be too much.

That is a lot to factor in, thanks for the insight.

quote:

---

That is a lot to factor in, thanks for the insight.

---

Yep, I would recommend at least talking to an advisor. You aren't forced to buy anything from them, but at least go through their process. You will learn a lot.

I've got a $500,000 30 year term. If I die, my wife can pay her student loans, her car (my trucks paid off, sell that), house, use some for kids college, and funeral. We have plenty in emergency and she makes more than me so she'll manage. There's no one answer.

quote:

---

The final step is income replacement. When I pass away, I want my wife to have income coming in (besides what she earns) for 20 years, so I get that number, factoring in inflation and whatnot.

---

Thats nice of you to make sure she has a 3rd income after she remarries.

quote:

---

Wife pregnant for first time...

---

Same boat. Just found out. She's at 6 weeks, but we both have 500K 30yr term that we just started less than a year ago (less than $30/mo each), and I have a return of premium 20yr - 250K from state farm. I think were are set for the time being.

quote:

---

What do you mean here?

---

ROP is a rider you can purchase where you pay a little extra and if you don't cash in on the benefit during your term life insurance, the insurance company refunds all the premiums you paid over the lifetime of the policy. I promise you, it sounds a heck of a lot better deal than it is. For the extremely conservative it is a good deal. Someone on the sales side could tell you if that rider is even an option in your state (certain states require certain riders be available)



Long term insurance products that have projected benefit payouts in the more distant future do not make money on premiums alone. Simply put, when an insurance company collects premiums they split the premium into reserves and investments. The reserves are state mandated to protect against catastrophic loss. The other portion of the premium goes into investment. Insurance companies are betting that by the time they pay out your benefit or return the premium, they can invest your premium and earn a return that outpaces both inflation and your benefit amount (whter return of premium or payout). That benefit amount is the average of their pooled of insured not "you individually"

To add to that for perspective, if you bought a Whole Life Insurance policy from USAA at their advertised rate on their website (some $80 for 100k$ policy), you would have to live for 100 years after your policy was up for you USAA to collect 100k$ in premiums. Clearly, if there was no "inflation" and no opportunity cost in terms of investing that money, Whole Life would be the greatest bargain of all time

quote:

---

Thats nice of you to make sure she has a 3rd income after she remarries

---

k? I've also made it so she doesn't have to remarry to support our future kids.

quote:

---

Definitely possible. However, I always ask, just to play devil's advocate, what return difference would be worth zero capital exposure. I'm always curious, but what ROR on a WL policy would make it worth it to those who are against it (not saying this is you Chin, just in general).

---

More in theory here and there is a ton of math involved. Been awhile since I took the financial math actuarial exam

quote:

---

what return difference would be worth zero capital exposure.

---

This gets into a risk aversion utility function. Different for each person. If I gave you a 50-50 shot at winning megamillions or gave you 80:20 shot at winning 1 million, which would you choose? Depending on your risk aversion you choose differently. Hard to say what is the right amount of zero capital exposure. Sucks more that you personally have a hard time judging that for yourself (as in everyone). What people think is in their best interest and what is in their best interests aren't always in sync.


Essentially though, ROP investment is a depreciating asset. Inflation eats at it every year and the longer you live, the less valuable it becomes. What is interesting though, is that it has no initial value. It would be like putting money in a stock that you know drops every year by 2-3% minimum considering current FED target rates. You still have an asset you can sell off, you just know it loses money every year. For Whole Life, it gets interesting based on how you look at it. I guess technically you can look at it as an inflation adjuster for the benefit paid out as it increases the benefit every year. Pretty sure you can get an inflation rider though in most states

quote:

---

Yep, which is why comparing straight ROR's, even though the best have been comparable, isn't a great way to compare the two options.

---

Insurance is necessary for everyone in my opinion. Protecting assets/cashflows is just smart and insurance companies make money by pooling risks not necessarily at your expense. Since pooling risk is not available to an individual, insurance is a cheap way to get valuable protection. I can't see a scenario that is not a Bill Gates type individual, where the ROR exceeds the utility of decreased risk

Once you get into the riders though, that is where it gets interesting. A number of riders are very beneficial to people but not to others. With things like ROP, you are paying for a premium for that Zero Capital exposure. Good for some not for others.