4/21/2015

Life Insurance - The Saga Continues

Note, this is not a sponsored post - just an ongoing commentary about our adventures with Life Insurance.

Before Christmas, I did an initial post on Life Insurance and my thoughts about what our needs are.  At that time, I thought we would need a 500K policy on myself and $400K on Jordan.

I reached out to Glenn Cooke of Life Insurance Canada who is strongly recommended by Gail Vaz Oxlade for some help.  He actually read my blog post, and challenged how I was calculating the financial loss of one of our incomes to the other.

I had worked out a 'gap' in our budget, by simply removing the income line and then making some adjustments to saving and other expense categories based on being a one person household.  Glenn suggested that rather than doing that approach, follow the general rule of thumb that suggests people need to replace about 60% of their income if it's a duel income family and 80% if it's a single income household.

When I do that, and I use the calculator on his website,   We need almost double - $602K for Jordan and $865K for myself based on 20 years to replace the income.

That just seems.....like sooo much money to me.

We don't have kids yet, but would like to soon - and even with kids factored in, I'm just not sure that it's the right way to approach this.  Glenn talked about enough money to replace lifestyle....am I wrong in thinking that some lifestyle changes are expected if a spouse passed away?

What do you guys think?
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5 comments:

  1. Interesting questions on both sides. I tend to err on the side of caution. You & your hubby are both young so you tend to think if you pass away it would be suddenly, an accident type death. What if there was a work related injury or illness, where one of you were sick quite a while and expenses added up, before death? A large settlement would be welcome and could be used to clear away debt that was incurred, and still provide that buffer of lost income. Hind sight is always 20/20, and if the cost isn't that more, I'd say go for the higher limit.

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  2. My take on life insurance is that you need enough to feel comfortable now knowing that just in case something happens you'll have some money to help out. When I was purchasing life insurance, our agent started adding up all the things that we would need the money for if one of us passed away. I stopped him right away. I just want enough coverage to feel comfortable knowing the money will be there if needed. But the reality is hopefully we won't need that money so I don't want to be paying large amounts in premiums each year.

    We ended up only purchasing policies for $250,000 for each of us. I basically just picked that number without doing any calculations. It's enough to pay off our mortgage ($68,000) and put a decent amount towards each of our daughter's education leaving about another $100,000 for the living adult to use to keep on their feet and get things figured out. But we live in an area with a lower cost of living, with no debts besides our mortgage and cars. If we had large student loans or other debts, I would want to make sure we had enough to pay that off too.

    We also have a small amount of free life insurance coverage through both our jobs and I have another small policy that I purchased through my work that's pretty reasonable. I don't know how much it's up to yet but every year I increase it to the limit I can take out without having to submit to the health screening again.

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  3. I am of the mind set that you have enough insurance to cover debt and the costs associated with the funeral...
    I don't expect my husband to quit work and stay at home if I die, I expect him to get back to normal as quickly as possible because the kids need a stable environment... My spouse and I both carry policies through work (to the tune of around 150000 - 200000) and we have another policy of Whole life which is 25000 and a term that is I believe around 50000 and Critical Life of 25000. It's enough to pay off any(ALL) debts and funeral costs, and provide a healthy cushion for the remaining spouse. Is it right? Providing we are comfortable with it, it is right.
    Good luck making your decision, but be sure it is the right decision for the two of you.

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  4. There will be some lifestyle changes expected when a spouse passes away, however, the surviving spouse and family needs enough money to still survive and have a similar standard of living. It's going to be stressful enough losing a spouse, you also don't want to have to worry how you're going to survive. Sometimes with the loss of a spouse the other spouse needs to be home and not working for a time, having enough insurance can help this happen. The idea of insurance is to replace income of the person passing away, so keep that in mind.

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  5. Your post made me realize that I have no idea what my life insurance is for myself or my spouse through work. We are getting to that age where these good questions you are thinking about, cannot be ignored. How much would this upped coverage cost per month (if that is not too nosy of a question :-)

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