Should we increase our life insurance?
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Anonymous
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We are 37 and 39 and currently each have $600k in life insurance. We got the policy with our first child (5), but now that we have a second kid (3), I wonder if we need to increase it.
My income is about $105k and DH's is about $120k. We have a $350k mortgage remaining and DH has $30k in student debt. Other than that, no other debt (we own our 2 cars and have no credit card debt). If anything happened to us, the kids would go to my childless sister. When we initially took out the policy, the thinking was that it would be enough for her to pay off our house and then send the (at the time) one child to college. Currently, they're both in daycare and if something happened to either one or both of us, the surviving spouse or my sister would clearly need to continue working and therefore child care would be needed. Should we increase, and if so, to what? Or is $600k each sufficient? Thanks. |
Anonymous
| What are you paying now on insurance? |
Anonymous
I'm not 100% sure- DH pays that bill and we haven't discussed lately what it is. 
I do know that he is resistant to increasing the policy. |
Anonymous
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If you die, your kids will also get your 401K and house, so add that into the amount of money you would leave to them if you both go at once.
I would think that 1.2M plus 401K and proceeds from sale of your house would be enough. This is assuming you have equity in the house. I would put more into 401k instead -- they would still inherit it but it can be used for your retirement too. Or more into 529. Figuring that daycare for two kids is $20 per year, but only for the next couple of yers. Then they will be in school and the cost of aftercare is about half that. You will need that until middle school. So that's about $120K in childcare expenses that you need to allow for. Will your sister need to move to house them? Could she live in your current house? I think a lot depends on your retirement and 529 assets, how much you owe on your house, etc. |
Anonymous
| ^^ meant daycare is $20K per year |
Anonymous
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If you die, your kids will also get your 401K and house, so add that into the amount of money you would leave to them if you both go at once.
I would think that 1.2M plus 401K and proceeds from sale of your house would be enough. This is assuming you have equity in the house. We have TSPs (federal employees), I have a very small Roth IRA, and DH has a very small 401k- we only contribute to the TSP at this point. We do have equity- about $120k. I would put more into 401k instead -- they would still inherit it but it can be used for your retirement too. Or more into 529. [/b]Would you still recommend increasing the TSP then? Figuring that daycare for two kids is $20 per year, but only for the next couple of yers. Then they will be in school and the cost of aftercare is about half that. You will need that until middle school. So that's about $120K in childcare expenses that you need to allow for. Will your sister need to move to house them? Could she live in your current house? [b]It could work either way- she has a large (larger than our SFH!) townhouse, so there certainly would be enough room for the kids to live with her. However, though she lives 10 mins awway, she's not in our schooling zone, so once they start school, I would imagine she'd want to move to our place b/c it would keep the kids in their current school. It's a good reminder to discuss this with her, though. I think a lot depends on your retirement and 529 assets, how much you owe on your house, etc. Don't judge- but we don't have a 529 or any college savings for them yet. |
Anonymous
Not judging 
But if you have extra money, I would do the 529 instead |
Anonymous
| If you die, and assuming you have enough ss credits (you likely do), your surviving spouse (or in the case of you both dying, your kids' guardian), will also get social security survivors' benefits. It won't make anyone rich--you can go to ssa.gov and look up how much it will be--but it should be enough for food and clothes. |
Anonymous
| You didn't ask but I hope you have a will naming your sister legal guardian? And she's the legal beneficiary on all your accounts? (presumably after DH in the event you die first and DH lives). |
Anonymous
OP here. Yes, we do have a will and she is named as the legal guardian (with two other backups!). We actually adopted our first child and making a will, naming a legal guardian, and getting life insurance were requirements of the adoption. I'm not sure if she's named as the legal beneficiary- good point. Will ask. |
Anonymous
I think this is an unnecessary and a really bad idea. Of course taking legal advice from anonymous strangers on the internet might also be classified as a bad idea. If you want, you can name your sister as custodian under the UTMA for your daughters-- then she will have control over the money but she can only spend it for your daughters' benefit (vs. you giving her the money and hoping she spends it on your daughters). See this article for more information (and suggested wording for MD, but you could probably use the same wording for any state, as long as you specified that state). http://www.avvo.com/legal-guides/ugc/use-the-maryland-uniform-transfers-to-minors-act-to-provide-life-insurance-proceeds-for-children What happens if one of you dies prematurely? Have you looked at what your budget would be if you were down to one income? I can't say really whether you need more insurance, but if you do I'd probably prioritize that over putting a few hundred dollars into a 529. |
Anonymous
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Do not ever name someone as beneficiary if you expect that they will use the money for the benefit of someone else. You have NO WAY to ensure that will happen.
Even if you trust your sister, let me give an example. You leave a 1M life insurance policy to your sister, intending that she takes care of your child. She drops dead, and guess what-- her ne'er do well husband inherits all of it and tells your kid to pound sad--as he has every right to do. Or, she gets in an accident and is sued and loses it that way. really, there are tons of ways this could go bad. Don't do it. Set up a trust. |
Anonymous
| As others have pointed out, the contingency you should be planning for is one of you dying, not both. Have enough insurance so you or DH could maintain your lifestyle. I don't believe in the DCUM standard which says a parent's death should make their kid rich. |
Anonymous
OP here. I think people's replies seemed to focus on my sister, but we did choose the insurance amt based on only one of us dying. We figured that would be enough for the surviving spouse to pay off the house, and pay for college but regardless of whether it's only one of us dying or both, I'm still wondering if we need to increase insurance now that we have two kids. I guess that's my basic question...certainly not to make my kids or sister rich! |
Anonymous
| We are similar ages, have a comparable mortgage, and roughly comparable insurance amounts. Only one kid though. |