How much life insurance?

[ms.conception]

My husband has finished his anesthesia residency and is now in fellowship.
His earnings this year will be about 250k, next year he will make 500-650k/yr as a minimum, if he takes the ICU fellowship, he will make about 1m/yr post fellowship training.
We currently own 3 houses - our house (worth about 425k, owing about 200k on mortgage), his moms house (worth about 300k, owing 180k in mortgage), and a rental that is free of mortgage that we garner about 1000$/m on.
We owe about 350k on our line of credit, credit cards, and other debts (Student loans). That debt should be completely paid off in 2 years.

We intend on building/purchasing a new home within the next year which will be worth about 750-1m

We have four children and have 1 more on the way.

How do we determine how much life insurance he needs.

While we don't live a "high risk" lifestyle, he will be getting motorcycle, and we do travel. He's 40yrs old and otherwise healthy.
I am a stay at home parent with no income.

We are meeting with insurance company tomorrow, would like to know what to purchase.

Help!

[SuzySunshine]

You need a policy for yourself as well. DH's is 5M and mine is 2M, I don't recall how we arrived at his number though...

[moonlight]

I would go with Suzy numbers. We are making way less than that and have 550K on DH. Please let us know what you ended up getting. I'm curious and need the info. Will your husband's work provide any coverage?

[Thirteen]

White coat investor recommends at least 1-3 Million, once you are finished.


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[ms.conception]

Thank you. I think that we'd h e to go with well over 2m. I think that the standard is to determine how much you need to cover debt repayment and then 5 years of living without a secondary income. I'd have to return to school for a minimum of five years to earn enough to support our family if anything happened to him, and pay off our debts, and still raise our kids.
I will let you know what they say. We would have some coverage with his work, via pension but it would be nominal.

[alison]

This is where we got some help from our financial advisor. They can look at your expenses and what your projected expenses will look like as your kids get older and give you a good idea on how much coverage to get.

[Mrs.Doctor305]

Hi! The short answer, as much as you can qualify for. As a Financial Advisor myself, the way I determine the amount is I take yearly salary and multiply that by the number of years my client is planning on working, so if my client is 35, making 500K a year and plans to retire at 65, it would take $15 million to replace his income. Now that sounds like a crazy number, but if you're doing the full income replacement plan, that's the number. For most insurance companies, to insure anyone over 5 million is a long underwriting process. Not to mention, you really don't want to put all your eggs in one basket. I would break it down between 3 different companies, preferably mutual companies with solid ratings (New York Life, Guardian, Mass Mutual) because the policy holders own the company, not stock holders so it's not publicly traded.

Term vs. Permanent
I can tell you right now that you will be pressured into buying Whole Life insurance as opposed to term. The difference is Term insurance only provides a death benefit. The premiums increase according to age until they are virtually impossible to pay. What they don't tell you is that less than 1% of all Term policies pay out. Yes the premiums are much less right now, but in 20 years, the premium for the same coverage will be an insane number. Whole Life is more expensive but it not only has a death benefit, it also accrues cash value that you can borrow against, or surrender without penalty. The bigger deal about this policy is that it is creditor/predator protected, meaning you can't be sued for the value of this policy.

Another tip, and hopefully your Advisor will bring this up as well, but do you have an Umbrella Policy? With owning homes, especially rental properties, you NEED to have an Umbrella policy. This is like a protective bubble in case you get sued and the coverage is not expensive.

Good Luck!

[SuzySunshine]

So are you saying whole life is better or not worth the fees, etc?

[Mrs.Doctor305]

It is, because you'll always have the coverage. Once you start paying the premiums, they never increase, the longer you have the policy the more cash value you have, you can use it for absolutely whatever you want without penalty, and it's asset protected. For most people, the amount of coverage needed isn't affordable with having only whole life. For us personally, we have both. We each have a term policy as well as a whole life policy. Once our financial situation changes, we'll be converting the term into whole life, but that's part of our plan for after fellowship. The difference in premium is pretty much like if you're paying $100 a month for term, you can expect to pay $1000 for whole life. The bottom line is the AMOUNT of coverage is much more important than the TYPE of coverage.

[SuzySunshine]

But 99% of books written for doctor finances say there are SO many other things you should do rather then whole life. I have to ask are you an independent adviser with a fiduciary responsibility or do you work for one of the insurance companies?

[Mrs.Doctor305]

I'm independent. I've read those books too, and I'm definitely not saying to use that as the only vehicle for planning. Also keep in mind that the market has really changed a lot since those books have been out. Also when you look at market performance over the last 30 years, the rate of return is 0%. I'm all for a well diverse plan, 401K contributions, IRA, 403b plans, this is just one of the things I've done for us personally. I really like knowing that even when the market takes a hit, there's no risk for the cash value because of the guaranteed rate of return. I also like knowing that I can take the cash value and use that money for a down payment on a house without having any penalties. Also since the premiums are paid with after tax dollars, there's no tax consequence.

I've also read in one of those books...I can't remember which off the top of my head, but it suggested that there's only a need for life insurance while your children are under the age of 18. I think that's poor advice. The real purpose behind life insurance (in my opinion) is to be certain that your family won't have a quality of life change if you're not around to provide. Like I've said, it's much more important to consider the amount of coverage than the type of plan.

[Mrs.Doctor305]

If you haven't, check out the book The Pirates of Manhattan.

[SuzySunshine]

I appreciate your honesty, it helps to hear opinions from a spouse and a financial person. We are just out of training and just sorting this all out, thankfully I think we have found a good independent planner who is a good fit for us. I'm also starting to think that maybe our NWM guy has been steering us wrong so I need to put on my insurance hat (from 13 years ago!) and read our policies cover to cover to actually see what we have. What a PAIN!

[Mrs.Doctor305]

Glad to help! Yep, there's a huge difference between a planner and an insurance sales person for sure! Good luck!

[weeniegeniewife]

We have whole life and love it for all the reasons MrsDoctor305 listed. We also have term, disability, 401k's, 403b's, IRA's, annuities, stocks, and real estate. And yep, an umbrella policy as well.