This was first written back in 2011 and, strangely, the older I get the more it makes sense. I thought I would dust it off and see if could have some rewritten value added for you. All the best.
Nothing Else Is The Same At 60 As It Was 30! Why Would Life Insurance Be Different?
Part of the premise that whole life insurance is the right thing to do is, well, that it will never change. It will be the same at age 30 as it is at age 60 or 70. That premise breaks down in a number of areas, but let’s just focus on one. Your needs at age 30 or 35 with a young family are completely different than they are at age 50 or 60 when those children are grown and starting families of their own.
Things are pretty clear when you first venture into the concept of life insurance to protect your family’s future. You have a lot of years of income replacement to consider. You have dependent children, often very young. Your mortgage is generally a long one. If you really consider the hardship that your premature death would cause, the conclusion is usually that you should carry a substantial amount of insurance. The math will vary depending on the age of your children (how long will they be dependent) and how long you plan to work (how much income and how long will it need to be replaced). Starting with the guideline of 10 to 20 times your annual income and a minimum of 20, or more prudently, 30 or even 40 years of a guaranteed level premium is prudent.
This is where the idea of layering your life insurance might be a good discussion with your agent. Think of it as custom fitting life insurance policies to match your needs individually. If your children are, say, 5 and older you might want to have a policy that is 15 times your annual income for 15 years so your largest policy matches your largest need.
What About When The Children Are Grown And No Longer Dependent?
After the children are on their own your spouse’s need to replace your income should be smaller (less mouths to feed), right? This would be the second layer in your life insurance plan. While it’s tough to do when raising children, if you’ve managed to save and have liquid assets, those assets can be used to offset the need for life insurance. You might want to consider the post-children layer at 10 times your income, or 5 times if you have the kind of career where you believe those assets will accrue in spite of the cost of raising children. Since this policy is really all about your spouse you should probably consider a term length that will take you close to retirement.
When I say needs are different, most of those changes point toward needing less insurance. For most of us the dependent children are, at least theoretically, no longer dependent which crosses them off of the “need” list. Even if they are still around, at least the amount of time they will have a presence on the need list should be a lot smaller. I know my philosophy on this doesn’t run the same route as all parents. Many consider carrying life insurance as a way to leave a legacy or inheritance that they might not otherwise leave behind. I don’t have an issue with that if it’s something you feel strongly about and you’re comfortable with the price, ie. it’s not a budget strain. But, for me, I don’t believe we owe it to them. We paid to raise them. I don’t believe we need to continue to pay to frost that cake.
The Change In Our 50’s And 60’s
One change in our favor over 50 is that our need for income replacement is in most cases a shorter need than it was at age 35. A need that required a 30 year or longer term at younger ages might only need a 15 year window of coverage. Because we’re older the amount of coverage it takes to replace our showing up missing at the dinner table is smaller. Three things can make the needs in our latter years more affordable. Often we have assets that can offset part, if not all, of the life insurance need. Put delicately, we simply have less years to cover when we are 60 or 70 than we would at age 50 or younger. In the past I have also used the idea that most of us have shorter mortgages in our later years. With a lot of refinancing with interest rates lower than we’ve ever seen, the length of the mortgage may be longer again, but hopefully the amount is still much lower.
From the very first time you consider life insurance, you should pick an agent that can help you keep track of how it’s working based on your original idea of future needs. Change happens and keeping your life insurance on track with changes is smart. If things don’t fit anymore, don’t be shy about tweaking your coverage to make them continue to cover your needs. If you need life insurance quotes or just need someone to review how your original choices are working, call or email me directly. My name is Ed Hinerman. Let’s talk.