Archive for November 2, 2006
I took a look at the open enrollment options on Monday and quickly decided upon the easy questions, like what type of health and dental insurance I want, the percentage of long term disability I’m willing to pay for (66.6%), whether or not I’d like to pay for legal advice (I wouldn’t) or save to an HSA (I won’t). But there is one option that has me stumped. That option: life insurance.
Here’s a little background. I am 29 and married to an exceptionally lovable 30 year old man. We currently do not have any children, credit card debt, or student loans. We do have two outstanding mortgages totaling about $680,000.
A lot of people have suggested that we should wait to purchase life insurance until after we have children. Personally, I think this logic is flawed for two main reasons. First, you or your spouse could get sick before you have children. A year and half ago I had a medical trauma that now renders me ‘uninsurable.’ I have had surgery to correct the problem, and should never encounter the medical complications again, but the insurers seem incapable of looking past the incident. Had I purchased the insurance prior to getting sick, I would already have insurance, and thus have no worries. Second, a married couple often depends on both incomes to pay their daily/monthly expenses. With $680,000 of mortgage debt my husband and I pay almost $5000 in mortgage payments alone.
Figuring out the payout and term of insurance policies is tricky. Most of the widgety life insurance calculators don’t account for complexities. For example, our primary home has only 12 years left of a 15 year mortgage. We are also currently overpaying our second mortgage, (I can debate the merits of this decision elsewhere), so in 12 years that mortgage will be down to a little over $230,000.
Due to the medical conditions mentioned earlier I can only qualify for a $100,000 policy. But my husband is currently without any coverage. Given our current plan to pay off our mortgages should I purchase a large 10-15 year policy for my husband? If he dies during that time period the insurance would cover our two mortgages. After 15 years with our homes primarily paid off, and a decent amount of non-real-estate related assets in the bank, there would be no need to carry insurance. Also do I need a policy that would cover 100% of the mortgages? After all, I would continue to work.
For a general idea of just how much the prices of homes have risen in the past 26 years take a look at Fannie Mae’s historical loan limits from 1980 – 2006. Interestingly between 1980 and 1990 home prices more than doubled. Between 1990 and 1996 prices remained relatively stagnant. And between 1996 and 2006 they doubled again.
It looks like the loan limit for last year was set in November. Since home prices are leveling off it’ll be interesting to see what happens this year.