Life Insurance: Working Out the Numbers
With a little one on the way I decided to review our current insurance policies and am very close to pulling the trigger on a new life insurance policy for my husband. Our current policy was taken out three years ago. It’s a 20 year term for $500,000. At the time we owed very little on our primary home. In fact, we had nine years remaining on a fifteen year mortgage. We also didn’t have any children to consider.
Fast forward and our landscape is quite different. We are expecting a little one in October and now owe nearly double on our primary home. (We used a 15 year cash out refinance to purchase another property.) The additional property is now paid in full, but our primary mortgage is nearly double the amount it was three years ago when we applied for insurance.
Given the increased debt I would like to attain $1 million worth of coverage for at least the next fifteen years. We currently hold mortgages on two distinct properties in two different states. Since the mortgages will be paid off in fourteen years I would like to have enough insurance to pay for those properties outright if something happened to my husband. I would also need to think about his loss of income and child related costs including college.
At the end of fifteen years we may build another house on a piece a land we purchased using the cash-out refi. So I’d like to maintain a policy for at least $500,000 for fifteen to thirty years into the future.
Since we initially purchased insurance three years ago, when my husband was in better shape, our current policy costs just over $300 a year. I thought of canceling that policy in favor of purchasing a new $1 million 30 year term policy, but after thinking through the dates and expenses I’m now considering adding a new policy that would cover only $500,000 more.
In fifteen years the original policy will expire, but by that time our current houses will all be paid off. That means we would only need to consider paying off the new home, (if we build one), and paying for any child related expenses.
After reviewing my husband’s current weight/height ratio and looking over the various categories for coverage it seems that it is cheaper to purchase a new $500,000 30 year term policy while maintaining our current policy, then it is to purchase a new $1 million policy outright. (He weighs more now then he did three years ago and is no longer falling into the premier rate categories.)
So now I just have to rethink things and make sure my new plan makes sense. If our two homes will be paid off in fourteen years I see no reason we’ll need a $1 million policy after that. I think maintaining a $500,000 policy from years 15 through 30 should cover all our bases.
So tell me, in thinking through this am I missing or forgetting or not thinking about something important?
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