Life insurance for stay-at-home mom. High income, low expenses

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jimf
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Life insurance for stay-at-home mom. High income, low expenses

Post by jimf »

Hi all, I've read several previous threads and also a White Coat Investor article, but I wanted to ask specifically about our situation: High income, high net worth for our age, relatively low spending.

Our details:

Age: DW and I are both 30

My Income: $200k base, $100k in bonuses and RSUs (average over the last 3 years), likely to increase
DW Income: $100k

My retirement accounts: $650k
DW retirement accounts: $50k
Joint non-retirement accounts: $900k
Cash: $30k
Home: $110k equity (paid $250k four years ago, with $140k remaining on the mortgage)

Total net worth: About $1.75MM

Annual spending: $60k

No children, but planning to have 2, maybe 3, starting soon. DW will leave her job when the first baby is born. We're unsure when (or whether) she will return to work but her career would make it feasible, with comparable income, even after several years.

I used Policygenius to quote term life insurance. I asked for a two-policy ladder: $2MM for 20 years, and $1MM for 10 years. The estimate is $650/yr + $230/yr = $880/yr.

Unknowns:
1. How much our spending will go up with kids or other factors.
2. Retirement age - at current spending, we're nearly FIREd at a 3% withdrawal rate. That said, I enjoy my job and career growth, and I'd like room to increase spending, so I expect to work for another 10-20 years.

Questions:
1. Does $2MM/20yr + $1MM/10yr sound about right?
2. How should we think about insurance for DW, assuming she'll be a nonworking spouse for most of the term? Previous threads have suggested that nonworking spouse life insurance should be enough to cover childcare replacement - on the order of $500k. I could cashflow childcare, but I might want to retire early and raise the kids full-time if DW died.
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Stinky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Stinky »

I think that the plan for your life insurance is just fine.

For DW, I think $500k makes sense if you plan to keep working after her death. But if you’re thinking of retiring to raise kids if she died, then you’ll need a lot more than $500k to replace your income.
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Minty
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Minty »

Sounds good to me. But with your candor about possibly increasing your lifestyle and then retiring, I might price a 3MM, 20 year policy; perhaps it is not much more. Probably no need to go out to a 30 year term; the kids would be graduating from high school around the time the life insurance runs out, but you should have plenty available for college, and would not need to retire to raise small children.
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BreadandButter
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by BreadandButter »

You and your future children would probably get Social security survivor benefits if your wife died. For us that was enough to fund possible daycare so we did not insure the stay at home mom. Check your wife’s potential benefits on Social security website.
J295
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by J295 »

I have a cognitive bias because we had term on me when I was working, and also on my stay at home spouse. We wanted me to have the option to leave the work force and raise the kids if something happened to my spouse.

I would carry more on your spouse than $500 K.

When the kids were fully launched we discontinued the term on the stay at home spouse. Even though I retired at 53 and we had no need for additional funds, we kept the term on me because it was so cheap until it ran out at age 60.

Ymmv
Last edited by J295 on Fri Oct 22, 2021 5:12 pm, edited 1 time in total.
Figaro
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Figaro »

I'm a little bit more liberal with Life insurance since social security does provide "some" life insurance to the surviving spouse/children till age 16 or so. Find out how much from ssa.gov in both your situations. Factor that in to offset your incidental costs. The thing is, after the kids are fully in school - will you still resort to just being a stay at home parent? You'd probably be able to bring in some additional income especially in the teen years. Maybe you'd want to be sure that your mortgage is wiped out if a parent dies early so that worry is less and thus reducing your overall annual expenses.

Overall it comes down to your expenses that you're budgeting for. Kids don't HAVE to cost alot extra when a parent is watching them in their younger years. I tend to think parents sometimes go overboard in getting the kids everything they would ever ask for, with fomo, and then also topping it with constantly being busy with activities. If you're staying at home, you don't have to resort to convenience foods for meals - it's your life though and your own choices cannot be told by stranger on the internet. With loss, it's the initial year I think that is transition - people and families are resilient and will be able to adapt to change.
DoubleComma
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by DoubleComma »

Like many types of insurance the value of it is derived from the annual premium vs benefit.

I would have life insurance on a SHM. How much depends on on the value. $500k is probably good, but I be more comfortable with $1m, and if the next level is just slightly more then why not. You get to make the choice after the underwriters rate you and price the policies.

I would also not mess with anything less than 20 year term when you are looking at a young family. Like the amount, if 30 year was only slightly more I would have it. You can always abandon term life insurance later if you need it, its unlikely to be cheaper as you get older...but it could and then you simply cancel the existing policy and buy a new one.

The interesting thing about life insurance is you probably need it most the day you buy it or shortly there after and it become less critical as your reserves grow. However its hard to project today if your having 1, 2, 3 or 4+ kids. Its equally hard to project if you will buy a different house or a second house. With things like luxury items (second home, boats, cars, etc) you can always sell them if your in a pinch, but lets face it if you lose a spouse the last thing you want is more disruption to the family my selling things they may want, make them comfortable or associate fond memories of deceased.
gotlucky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by gotlucky »

You have $1.75MM and your annual expenses are $60k. Based on your reported income, you sound financially disciplined if you earned and saved that money yourselves, ie. not an inheritance or windfall.

If one of you were to prematurely die tomorrow, the other would be financially fine for the rest of their lives. They wouldn't live a lavish life, but that's not the point of life insurance. So I wouldn't worry about life insurance until you actually have children. Even once you have children and one (or both) of you dies prematurely, you have enough money to raise them and provide their basic needs. An extra $1 or $2MM on top of what you have won't give them a better life; one's goal shouldn't be trying to "set them up" for life. Personally, I'd take that $880/yr and invest it in better exercise and quality food to increase the probability of not dying prematurely.

You should probably be more concerned about long-term disability. But since you guys have done well so far, you can probably save a bit more and self-insure for that too.
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Watty
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Watty »

gotlucky wrote: Fri Oct 22, 2021 5:23 pm You should probably be more concerned about long-term disability. But since you guys have done well so far, you can probably save a bit more and self-insure for that too.
I was going to mention the importance of disability insurance too, but you need to keep in mind that if you are disabled then there may all sorts of additional expenses that insurance will not cover. It would be good to look at what sort of disability insurance you get through your job and social security but the details are critical.
huzen
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by huzen »

1. Yes, sounds good. You may have life insurance through your work, too, but don't want to rely on it since job changes happen. Your survivors would also get social security survivor's benefits, but I think it's best to also purchase insurance since it is such a huge safety net for a low cost. You can be sure that your kids could go to college. You could be sure that your wife could work if she wants but could stay home if she needs to to take care of everything.
2. If you have children and then your wife dies there's more that money can do for you than just cover childcare expenses. You will be suddenly solely responsible for doing everything that was previously handled by two energetic adults. Working a job, managing the finances, taking care of any kids under 5 full time and kids over 5 before and after school and when they're sick, keeping up the house, yard, car, coordinating shopping, activities, etc. It's a lot, and you would be happy to be able to make decisions based on what would be best for you and the kids rather than on financial constraints.
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Stinky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Stinky »

gotlucky wrote: Fri Oct 22, 2021 5:23 pm An extra $1 or $2MM on top of what you have won't give them a better life; one's goal shouldn't be trying to "set them up" for life. Personally, I'd take that $880/yr and invest it in better exercise and quality food to increase the probability of not dying prematurely.

You should probably be more concerned about long-term disability. But since you guys have done well so far, you can probably save a bit more and self-insure for that too.
I disagree with a pair of 30 year olds self insuring their life insurance and disability income needs.

Either a death or a disability would be financially burdensome for this family, especially once children arrive. Insurance is an inexpensive way to lay off that risk.

The $75 per month for life insurance is probably less than this family’s cell phone or internet bills. Definitely a small price to pay.
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gotlucky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by gotlucky »

Stinky wrote: Fri Oct 22, 2021 5:57 pm
The $75 per month for life insurance is probably less than this family’s cell phone or internet bills. Definitely a small price to pay.
The couple has almost 30x their annual living expenses. At what multiple would you feel a couple could self-insure for life insurance?.
SnowBog
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by SnowBog »

gotlucky wrote: Fri Oct 22, 2021 7:11 pm
Stinky wrote: Fri Oct 22, 2021 5:57 pm
The $75 per month for life insurance is probably less than this family’s cell phone or internet bills. Definitely a small price to pay.
The couple has almost 30x their annual living expenses. At what multiple would you feel a couple could self-insure for life insurance?.
I figure when one is comfortably Financially Independent (aka no longer "need" to work for money), then they no longer need life insurance.

But OPs annual living expenses don't include the higher costs of kids, health insurance through the open marketplace, and at 30 they have decades to go. They are getting close, but don't think they are quite too FI yet...
SnowBog
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by SnowBog »

OP it may be hard for you to guage now without kids, and without knowing what the kids are going to need in terms of parental time...

When our child was young, they had a lot of doctor appointments, physical therapy, etc. They also needed more attention than a "normal" day care center could provide. We couldn't have foreseen this.

Spouse was making significantly less then me, and had opportunity to switch to part time. Not quite stay at home parent, but their income was actually less than the daycare costs for the few days they worked (they wanted to stay employed, so it just was it was).

Initially, they just had a basic life insurance plan through employer. My initial thinking was that they really weren't contributing anything to family finances, so I didn't need anything more than their basic employer plan.

Eventually someone asked me if I'd be able to continue my current job (and thus income) if my spouse wasn't around. The reality was no! I would have had to drastically change my job and earned less income as a result. Thus we ramped up insurance on [effectively] stay at home spouse.

Now that child is older, no longer has doctor / therapy sessions, and should be able to take care of themselves (no day care/after school care required anymore) - the need for the extra insurance has lessened again.
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Stinky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Stinky »

SnowBog wrote: Fri Oct 22, 2021 7:21 pm
gotlucky wrote: Fri Oct 22, 2021 7:11 pm
Stinky wrote: Fri Oct 22, 2021 5:57 pm
The $75 per month for life insurance is probably less than this family’s cell phone or internet bills. Definitely a small price to pay.
The couple has almost 30x their annual living expenses. At what multiple would you feel a couple could self-insure for life insurance?.
I figure when one is comfortably Financially Independent (aka no longer "need" to work for money), then they no longer need life insurance.

But OPs annual living expenses don't include the higher costs of kids, health insurance through the open marketplace, and at 30 they have decades to go. They are getting close, but don't think they are quite too FI yet...
I also note that a good part of OPs assets are in retirement accounts. I don’t believe these are accessible without penalty at the current time.
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gr7070
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by gr7070 »

jimf wrote: Fri Oct 22, 2021 2:58 pm
Retirement age - at current spending, we're nearly FIREd at a 3% withdrawal rate.
Most consider life insurance unnecessary once one reaches financial independence.

There's zero chance I'm buying $3M coverage at FI.

$1M, 20-year maybe. At most. Frankly, that is excessive at FI, but you have future unknowns with kids and potential college savings, remaining mortgage, etc.

And if you are getting life insurance your SAH spouse needs some.
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jimf
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by jimf »

Thank you, everyone, for the thoughtful replies. My takeaways:

1. Will pursue insurance for DW, with the goal of mitigating possible income drop as well as paying for childcare. Probably $1-2MM.
2. Will factor Social Security survivor benefits into the insurance amounts.
3. Will look into long-term disability insurance as well.

A few extra details:
I do have a small amount of life insurance through work: 1.5x salary, at no cost to me. I have the option to buy more at a reasonable price, but the insurance ends on separation from the company. I've seen it cautioned that this can be catastrophic, e.g. if serious illness forces me to leave my job before causing my death. Therefore, I ignore this insurance for planning purposes, and I won't pay for extra insurance through work.

Multiple replies wonder why we need life insurance when we're nearly FI at current spending. It's a fair question. It comes down to the fact that I expect to continue working for another 10+ years, because I'm not comfortable with retiring in my 30s. Our spending will increase with kids. Should we insure my future earning potential even if we don't "need" it? You could make a reasonable argument not to, but we've decided that it's worth it.
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Stinky
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by Stinky »

jimf wrote: Sun Oct 24, 2021 10:25 am Thank you, everyone, for the thoughtful replies. My takeaways:

1. Will pursue insurance for DW, with the goal of mitigating possible income drop as well as paying for childcare. Probably $1-2MM.
2. Will factor Social Security survivor benefits into the insurance amounts.
3. Will look into long-term disability insurance as well.

A few extra details:
I do have a small amount of life insurance through work: 1.5x salary, at no cost to me. I have the option to buy more at a reasonable price, but the insurance ends on separation from the company. I've seen it cautioned that this can be catastrophic, e.g. if serious illness forces me to leave my job before causing my death. Therefore, I ignore this insurance for planning purposes, and I won't pay for extra insurance through work.

Multiple replies wonder why we need life insurance when we're nearly FI at current spending. It's a fair question. It comes down to the fact that I expect to continue working for another 10+ years, because I'm not comfortable with retiring in my 30s. Our spending will increase with kids. Should we insure my future earning potential even if we don't "need" it? You could make a reasonable argument not to, but we've decided that it's worth it.
This sounds like a solid plan to me.

Please post back if you have questions as you go through the process.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by angelescrest »

I used Policygenius and was happy with the results.

Some thoughts (echoed above):
1. You don’t have any kids yet so while planning ahead is good, there is only so much you can predict. We increased life insurance progressively over the past 10 years, particularly as number of children increased, and even as recently as last year (we are older than you). Unless you both are unfit, our costs didn’t change much even in 10 years time (we are very healthy). We always had just the right amount.
2. I’d also be more strategic about laddering in your case. In 10 years you will have put away well over $1M in deposits alone, maybe even getting to a $3M+ portfolio. So a policy of $2M for 20 years for me, in your shoes, would be very excessive and a total waste of :moneybag . I’d at minimum flip your ladder to get a 10 year quote at $2M to compare, and then consider a separate $1M for 20 years.
3. I’d do more than $500k for DW once first child arrives. Maybe $500k for 15 years and separate $500k for 10 years. (All these are estimates, I’d crunch the numbers a lot harder)
4. SS survivor benefits will cover your childcare needs.
5. As you pointed out you are nearly FI, so adjust LI needs accordingly. If I were spending $60k a year (or even 90k), and with your mortgage, I’d never buy a $2M policy at your net worth. By the time you have your first child you will have potentially saved hundreds of thousands more, maybe passing $2M. If you had a $1M policy and died within your child’s first year, your wife would have at least $3.5M and also SS. What you said about insuring your future earning potential beyond your family’s needs makes very little sense to me.
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cchrissyy
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Re: Life insurance for stay-at-home mom. High income, low expenses

Post by cchrissyy »

jimf wrote: Fri Oct 22, 2021 2:58 pm No children, but planning to have 2, maybe 3, starting soon. DW will leave her job when the first baby is born. We're unsure when (or whether) she will return to work but her career would make it feasible, with comparable income, even after several years.

I used Policygenius to quote term life insurance. I asked for a two-policy ladder: $2MM for 20 years, and $1MM for 10 years. The estimate is $650/yr + $230/yr = $880/yr.

Unknowns:
1. How much our spending will go up with kids or other factors.
2. Retirement age - at current spending, we're nearly FIREd at a 3% withdrawal rate. That said, I enjoy my job and career growth, and I'd like room to increase spending, so I expect to work for another 10-20 years.

Questions:
1. Does $2MM/20yr + $1MM/10yr sound about right?
2. How should we think about insurance for DW, assuming she'll be a nonworking spouse for most of the term? Previous threads have suggested that nonworking spouse life insurance should be enough to cover childcare replacement - on the order of $500k. I could cashflow childcare, but I might want to retire early and raise the kids full-time if DW died.
Please notice that pregnancy and postpartum is a high risk time and it may be difficult to get insurance, or more expensive, compared to if you start her policy sooner

Regarding your proposed amounts
I think yours is more than it needs to be. I would suggest say, $1m or $1.5 in total, and I would have it equally distributed on a 10 and 20 year policy so that over time as your circumstances become clearer you might choose to cancel either one.
I think hers should be higher, maybe equal. My thinking is not just about the cost of running the household, it's that your family priorities might change such that you need to go part time or take entire years off, and there could be expensive therapy or other educational or medical costs in those years, we don't know, so therefore in the terrible event that she passed away in the next 10 years there should be so much insurance that every option is on the table.
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