Life Insurance Idiot here -- what should I get, and when?

I freely admit it, I don't know much about life insurance. And while I've read a lot of the threads about VUL, UL, etc, I still walk away confused. So, let me just lay my cards on the table and ask for advice.

I'm 40, married with no kids (and will never have any). I'm a professor and my husband is a civil servant, so you have a good picture of our minimally middle class salaries. We have the usual debt of a couple our age -- about 8 years left on a mortgage, very minor credit card debt, two years left on a car, that sort of thing. We don't live a high-flying lifestyle, as we are homebodies who enjoy moderate diversions like local travel, gardening, etc. In short, our financial needs aren't great, and what insurance we need is really just to set up the other to afford our current lifestyle without the other's financial assistance.

I have life insurance through my employer (university), costing about $75 a year for $150,000 coverage. I'm guessing this is term, since there's nothing in my documentation about life insurance as an investment vehicle! This is enough to pay off all our debt (including mortgage) and still have almost half of that free and clear. Of course, I won't have this insurance when I retire, which will be at least age 60, and more likely around age 70 (what can I say? -- I like the work).

You hear all these horror stories about life insurance -- that you can get too old to find any, that you can be disqualified for a medical condition, that it costs a fortune when you get older, etc. Which, if any, of these horror stories are true? If true, should I be considering a whole life policy at some point? -- when is that point? -- just before I retire, or before I turn 60, or 50, or whatever? Bear in mind that as civil servants, we don't always have enough money to max out our IRAs, let alone buy insurance "as an investment".

I like my cheap insurance, and I think it's enough money to set up my husband to afford life and living without me. It's not at all about making him rich when I die! But what, logically, should a person at my age and in my situation in life, be thinking of when it comes to insurance?

Puck,

From what you are saying, your current insurance needs are being met if you are comfortable with the what is left behind. I mean, that is what term insurance is for (your employer insurance is employee group term). The younger you buy permanent insurnace, the better because the price is set based on age and cummulative premiums paid will always be lower for someone younger.

Not everyone has a critical need for permanent insurance. So, before considering permanent you have to indentify a need. Based on what you said, there are two needs that may not have crossed your mind that are specific to you and your DH.

As a professor and a civil servant, I would assume that you are both pensioned for retirement, yes? If you are, you will have to make a decision when you retire to either take a reduced pension for life (about 8-10%) in order to provide your spouse with a percentage of your pension in the event of your death OR receive full pension benefits while living and have the pension end with your passing. Usually this percentage can be chosen in 25% increments up to 100%. The default is usally 50%. The higher the percentage you choose to insure for your spouse, the higher the reduction in pension payments while living. Many people choose to forgo the reduction in current pension payments and instead earmark the reduction amount to permanent insurance premium. This way, if you outlive your spouse or live to a ripe old age, you have received your unreduced pension AND retained all of the monies that provided the insurance that would have mimicked the continuation of your pension to your spouse. In other words, if something bad did happen, your spouse will have the death benefit to replace your pension income. Your needs are met currently, because while you are working there is usually a spousal clause that will allow your DH to receive earned pension benefits. This changes after retirement though.

The other is the Social Security offset. While you are both living, you can choose either to each receive your own benefit at the level you earned, or if one spouse earned far less, then you can opt for 1.5x the higher spouse's benefit. Once a spouse passes away, the benefit is reduced to only one spouse which cuts the survivor's SSI by at least 50% and up to 100%.

Of course, both of these needs could be addressed with current retirement savings as well. However, long term care could erode those savings very quickly and if there is an instance of long term care, followed by the death of the institutionalized spouse, the survivor could be left destitute. Think about it; retirement savings nearly depleted (spouse can keep ~$90k and primary residence), pension ends, and social security is reduced to at least half.

On the other hand, you can opt for the reduced pensions to insure that either of you will continue to receive some pension benefit from your deceased spouse and mitigate the depletion of assets with Long Term Care policies.

These are just some of the things to think about...not an outright solution of recommendation at this point.

You hear all these horror stories about life insurance -- that you can get too old to find any, that you can be disqualified for a medical condition, that it costs a fortune when you get older, etc. Which, if any, of these horror stories are true?
All of 'em are true.

Here's a few things that are basically true about life insurance:

1. As you get older, it will cost you more to buy life insurance at that time, because rates usually increase with age.

2. Term life insurance is usually less expensive than whole life insurance. That's because term is temporary for 1-30 years (usually), and whole life is for your entire lifetime. And, whole life has cash value that may build up within the policy, unlike most term life insurance.

3. Generally, once you buy your life insurance, they cannot cancel it for health reasons if you pay your premiums, as long as you answered the life insurance application questions honestly.

I hope that helps. You can learn more about term life insurance at www.term-life-online.com

Here's a few things that are basically true about life insurance:

1. As you get older, it will cost you more to buy life insurance at that time, because rates usually increase with age. generally true

2. Term life insurance is usually less expensive than whole life insurance. That's because term is temporary for 1-30 years (usually), and whole life is for your entire lifetime. And, whole life has cash value that may build up within the policy, unlike most term life insurance. False. Term is usually the MOST expensive life insurance on the market. Certainly WL is the cheapest (risk normed).

3. Generally, once you buy your life insurance, they cannot cancel it for health reasons if you pay your premiums, as long as you answered the life insurance application questions honestly. Not "generally" but factually. "They" meaning the life insurance company cannot cancel NOR charge you more once it is in place. In fact, this is the PRIMARY reason for child policies!!!

2. Term life insurance is usually less expensive than whole life insurance. That's because term is temporary for 1-30 years (usually), and whole life is for your entire lifetime. And, whole life has cash value that may build up within the policy, unlike most term life insurance.

False. Term is usually the MOST expensive life insurance on the market. Certainly WL is the cheapest (risk normed).

I think Hadley was trying to say it is less expensive from a current cash flow perspective and not from a risk perspective. In which case that statement would be true. I have a $600,000, 20 year term policy at $420 annually while my $35,000 (death benefit) whole life policy is $624 annually.

I understand whole life can be less expensive when you consider it is there for life even after you've stopped paying premiums and you are gaining the cash value benefit.

What a weird debate. Talk about a bunch of opinions stated as facts.

Professor Puck, based on all that, you don't need any more life insurance. Mortgage will be paid off before you stop working. Hopefully your income will be sufficient to retire. You should be looking more at your disability coverage right now, and long term care insurance in about ten years (at the earliest). But your work insurance (it's 1 year term, by the way) is good enough....for you.

Child policies? Really? How did that get in this thread?

My financial advisor usually tells me "Start with a good Term Life Insurance first"

Maybe that's a start for you...