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Working Moms
cedenton
member
XP: $$ Savvy People Come In (tl;dr)
cedenton
member
in Working Moms
XP'd on Parenting
Title for mobile: $$ Savvy People Come In (tl;dr)
I'd post this on TN in Money Matters, but the boards over there aren't loading right for me.
So, DH and I each have a whole life insurance plan that we were duped into buying when we were younger. Pretty much no one with any financial savvy really thinks they are a good investment tool (now we know this).
After some research it appears we could cancel our plans and cash out for a total of 22k. I was told by my insurance company that there would be no taxable gain reported (presumably because I paid in more than I would be cashing out). DH is waiting on this info for his policy, but it's probably the same. Also, going over this with our accountant.
So, we could pay off a few bills and then put the bulk in savings since we don't currently have what I would consider an adequate emergency fund and this would more than do it.
The main reason we want to do this is to stop paying the premiums, not really the cash value. We want to take that $ an invest it better. We could put the $400/mo we were paying in premiums towards our house and pay it off 9 years early. So, despite the fact that we would have "lost" around 5k over the last 8 years on the whole life if we cashed out now, we would save $71k in interest on the house and it would be paid off when it was time for DS to go to college.
Pros:
- Have a good size emergency fund
- Pay off house by age 50
- Save 71K in interest on house
Cons
- Lose the possibility of taking out loan on policy if we kept it and needed it down the road
- Lose large life insurance policies (230k for me 285k for DH)
DH can up his life insurance at work and have around $240k benefit, I currently have 210k benefit at work (max possible). Of course we could add term policies, but DH might be a little difficult/harder to insure privately because he needs to lose some weight and is in a dangerous job.
So...questions are:
- Am I missing anything?
- What would you do?
- If you were contributing to retirement (Roth IRA, Roth 401K with match, pension that pays out to both you and spouse), had no CC debt, and had 6 months of expenses in savings would you stop adding to the emergency fund or just not add as much? Keep in mind I work for a company that has NEVER laid off a non-union employee (not saying it couldn't happen, just a consideration).
- Do you think over $200k each life insurance is enough or would you add term policies?
If you read all that, here's a cookie:
And here's a brownie for those who are going to take the time to respond.
This discussion has been closed.
Re: XP: $$ Savvy People Come In (tl;dr)
This is a lot of questions, so I'll hit on a few.
Is 200k of life enough? Depends. My DH and I both work and my goal is to have our life insurance be able to cover our mortgage and college for the kids. Without a mortgage or saving for college, we could easily live off of one salary without having to change anything. For us, we each have a 500k term policy (we have a 30 year term, so it will run out when we are around 60 - kids will be out of college and mortgage will be paid).
Warning about life insurance from work - it is great, but it does add some risk to rely on it. For instance, what happens if you are laid off or switch jobs (some are portable, but most are not)? Also, these policies are usually x times your salary. So what happens if you have cancer or some other terminal disease and can't work for the last 6-12 months of your life...well your life insurance just got zapped as well.
Your bash on whole life is not completely fair. WL is much more expensive than term, but it will also last your entire life. So before getting rid of it, just make sure that you are sure that it doesn't fit your needs.
If you think you are insured enough and comfortable with the risk about relying on life insurance from work, then your savings plan sounds good.
I like your idea, but I have another..
Can you convert the whole life policy to a combo policy? DH and I each have a policy that are a combination of whole/term ($350k each) but only $50k of it is whole life and $300k is term life (each). We have the option to convert the term portion to whole at any time without the need for a physical and the premium would be based on age, not medical history. The premiums are pretty low ($165 a month for both) and the term portion will end right after my youngest leaves for college and the whole will be paid off at that time as well. This way, if anything happens to either of you, the other is taken care of (in addition to social security assuming it still exists) and you're saving some $ each month. Basically, we're paying $39,600 over the term of 20 years for $100k total combined insurance if we both live that 20 years.
My brother in law is an insurance agent and he can not stress enough that you should never count on an employer paid policy. For 1, you could lose your job at any given time for any reason (worst case scenario, business goes bankrupt) and then the policy is gone. You may have worked at the same company for 20 years, and now you're in your 40's and have no insurance, thus needing to get a new policy at an older age than you are now. A lot of employer paid policies have a lot of loopholes that ensure the policy will not have to be paid out. A lot of employer paid policies take a long time to pay out, leaving you on the hook for any immediate expenses, where as a good private policy will cut you a small check immediately (our insurance company will overnight a $10k check the day we call to say the spouse has passed, without the need for a death certificate).
Also, I know this sounds awful, but do you have a policy on your child(ren)?
Can you find out the cost of a 20 or 25 yr term policy before cancelling your whole policy? I pay $45 for 1.2 mil and husband pays $48 for 1.1 mil. You need a lot of insurance for when your kids are small. Our reasoning is that if we both die our kids will be set. Once the policy expires in another 25 years or so our kids will be adults and can manage on their own.
Personally, I would cash out the policy and invest elsewhere and take out a much cheaper term policy (if you can get it).
Also sorry OP above but taking out life insurance on your kids i "usually" not a good idea and not necessary at all.
https://money.cnn.com/2005/09/27/pf/kids_insurance_0510/
http://balletandbabies.blogspot.com
I think it depends on the policy really. We have a $10k whole life policy on each of our kids. It will be paid in full in 15 years at $83 per year per policy. So, we're paying a total of $1245 for $10k that the kids can take with them until they're 100 at which point, if they're still alive at age 100, they'll get a check for $10k. After having a couple of friends have to come up with quite a bit in funeral costs and medical expenses from an unexpected death of a child, we felt this expense was worth it.
I would first get a term life insurance policy that is separate from work that has a term of at least as many years as the years you have left on your mortgage. You can usually buy up to 30 years. Yes it runs out in 30 years, but theoretically by then you won't have a mortgage and your kids won't live at home etc.
I would buy enough to cover your house and then some, I've heard the number of 7-10 times your income which I think is fair depending on how much you make.
For instance, we have more life insurance on me than we do on DH b/c I make more. It also happens to be cheaper to buy term for me b/c I'm younger and he has had some health problems.
I pay some where around 350 per year for more than 3x as much insurance as you have.
I would not rely on work life policies b/c, not to be morbid, but if you get cancer, and have to quit your job for treatment and then you die, you will loose your life insurance and then your family gets no insurance.
But I would get the term insurance FIRST, to make sure you can get it. Then I would cancel the policies.
If you find out you can't get term policies b/c of health issues, I would consider keeping this policy or some version of it to maintain the safety net function of it.
Thanks, I'm thinking this is what we're going to do as far as adding term policies.
Okay, so I have another q. My first instinct is to just take the cash and pay off the little debt we have then put the rest in a regular old savings account. Would it be bad idea to have 20k sitting in a regular old savings account? I want it to be liquid. Is there another option that would earn more interest, but still be easily accessible? The rates are so low on everything it doesn't seem like it would be worth the bother.
I don't think it's a bad idea to have some cash set aside that's liquid. We do. We have a money market account with Ally Bank that gets a pretty good amount of interest. We can access it at any time if we need to, but have the bulk of our cash in long term investments.
DH contributes to a 457 retirement account. I have a Roth IRA, a Roth 401k with match, and a pension. So, I'm thinking once we had this chunk of emergency fund $ in a more liquid account, since it covers 6 months bills, we wouldn't add to it except for my annual bonus.
As my salary increased (DH works for the city...nuff said) I would contribute more to the long-term investments. That's what I did this year with my raise, just increased my 401k contribution. Once I max out the match for the 401k (in just a couple of years), then I would start increasing my Roth IRA contribution.
Hey, I'm a bankruptcy lawyer so my first piece of advice is almost always to pay down high interest credit cards/loans first because you are actively losing money to interest by having balances on these accounts. If you can pay off ALL or most debt do that first then just put it in a money market account or something like that where you can pull it out w/out much penalties. I like to keep some in savings so it's liquid too.
http://balletandbabies.blogspot.com
This is exactly what we do. We actually just switched from ING savings (now capital 360) to Ally's MM account. We have enough to cover 6 months of expenses just sitting there, making me feel better : )
Another idea is to use the extra money to pay your mortgage down and then open a home equity line of credit. Then you have money easily available for emergencies but you are saving that mortgage interest. We have a had a 60K equity line open since we bought our house 8 years ago and while we have never had to use it for a real emergency it has been really handy a few times like when we buy a new car and need extra cash for a week or two until we sell the old car, etc. Most banks will let you open one for free or for a minimal annual fee as long as you have good credit and enough home equity.
Sorry, sounds like you have this all worked out already, but I work in finance and totally disagree with the comment that whole life is not a good investment. It isn't and shouldn't be your primary investment tool, but it is a very good, stable investment *if* you are already maxing your tax free retirement savings options.
Regardless, even if you keep it you should have term policies for both of you. Term is cheap and should cover mortgage expenses and ideally health and education costs for your kids. Typically 7-10x your income is good, although it depends on your cost of living and what educational expenses you plan to have for your kids. DH's policy is actually about 12x his income because we are in a med-high cost of living area and kids will be in private school k-12 plus college.
BFP #1: 10-25-11, MC: 11-1-11 @ 5w5d
BFP#2: 12-29-11, DS born September 2012
TFAS: July 2014, BFP#3: 12-29-14, EDD 9-9-15
What kind of finance work do you do?
I neglected to mention that DH can retire at 50 and would like to do so. So, if we took that 400/month towards whole life towards paying off our house, he'd be able to retire right around there because the house would be paid off. (I on the other hand probably won't retire until 60, 55 at the earliest.)
I'm still thinking that cashing out the whole life and paying off our CC and car and then banking the rest, which is around 6 months of "fixed expense" bills, is our best plan.
That 400/mo in premiums would go toward the house. I know some people say don't pay off the house early, but since DH wants to retire so early, I think it's the best idea for us.
We'd also need to start a college savings plan for DS and buy term life policies.
Before we do anything, though, I think we need to talk to a fee-only financial planner and he/she can help us figure our what to do with long-term investments as our incomes increase (or my income, anyway...DH works for the city. LOL) Probably focus on maxing out our contributions to my 401K (it has a Roth option) and/or my Roth IRA.
*** BFP #3 - angel baby at 8w2d - D&C 1.31.14 ***
*** BFP #4 - Chloe Grace, the 'C' to complete our 'A & B' - born Feb 25th, 2015 at 22w2d, lived for 2.5hrs ***
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