r2i forum

Some questions about life insurance for a stay-at-home-parent (SAHP) and about life insurance in general:

1. Article How to compare life insurance plans: Does this apply to comparing plans in the U.S. too? If not, what would be a good website or article on how to compare plans in the U.S.

2. Life Insurance Calculator: Would the info in the article and the calculator developed by Pelican Insurance also be useful to calculate coverage needed for SAHP, or would a different one be needed?

3. Insurance from employer vs buying own: Once the insurance required (for working spouse or SAHP) is calculated, it can be got from company (group) insurance and from other outside providers. If the company provides it free or at minimal cost to employee, is it a no-brainer to take as much as possible from company/group insurance and the rest of required insurance amount from elsewhere? Or, does one have to compare the group insurance in detail with the insurance available from other providers? I found a thread on this, but not many inputs.

4. How much shopping around does term life insurance typically need? If looking for a 15 year term life policy, is it enough to compare the offerings from well-known companies like AAA, Geico, State Farm, Farmers and one’s bank/credit union?

5. I’ve read in forum and elsewhere that insurance is to replace the wages of wage-earner, or to meet the difference between income available from assets and income actually needed by wage-earner’s survivors, and in the case of SAHP insurance replaces the services she was providing, and that insurance is not a way of saving or investing. Got that.

I have this somewhat unusual idea when calculating how much insurance I (SAHP) need – after calculating obvious things like afterschool care, cooking, housekeeping etc . I also want there to be a little extra $$. To sort of make up for young kids not having mom around. For example, I want there to be around $10-20K extra per year so the 7-10 days school vacations like spring break, Xmas, are used to go to India/elsewhere, and major part of summer vacation is spent in residential camps which are often expensive. This obviously means paying a higher premium. How crazy is this? : ) I think not too crazy… for the price of one eat out dinner a month, one gets some peace of mind. But, then, insurance is not for peace of mind when living, it is to cover expenses when one is gone... Thoughts?

6. What would be a good website to get a general education on this life insurance thing. Most of the ones I found are from companies that provide insurance; what is a good neutral website? I have some knowledge of the basic fundas, looking for a bit more, like how to compare, typical problems faced, fine print to look out for.

All the above questions are w.r.t. only insurance coverage for me till kids are of college-age, which is about 10-15 years, not beyond that. Inputs on some or all questions much appreciated. Is a decidedly depressing topic to be researching. Didn't find any existing thread suitable to post all this, hence new thread.


Thanks.

modus_vivendi;425452
3. Insurance from employer vs buying own: Once the insurance required (for working spouse or SAHP) is calculated, it can be got from company (group) insurance and from other outside providers. If the company provides it free or at minimal cost to employee, is it a no-brainer to take as much as possible from company/group insurance and the rest of required insurance amount from elsewhere? Or, does one have to compare the group insurance in detail with the insurance available from other providers?

In my experience (free) life insurance coverage from employer typically does not have very high level of coverage for the spouse of the employee. One can purchase extra life insurance coverage for the spouse from the employer. However, last time I checked the cost of the extra coverage for the spouse through the employer was not competitive at all with what (term-life) policy could have been purchased on the open market. This assumes that that spouse is in reasonably good health. Perhaps purchasing through the employer may make sense if there is no medical test involved and the spouse is in poor health. (If buying life insurance in open market, you will almost always have to go through a medical test.)

modus_vivendi;425452
5. I’ve read in forum and elsewhere that insurance is to replace the wages of wage-earner, or to meet the difference between income available from assets and income actually needed by wage-earner’s survivors, and in the case of SAHP insurance replaces the services she was providing, and that insurance is not a way of saving or investing. Got that.

I and my (currently non-working) wife have same level of life insurance coverage. My simplistic rationale for that was that, if she passed away, I will need to sit home and take care of kids so my income will be lost completely. Thus I will need the same level of insurance that she would have needed to replace my income if I were to pass away (if not higher..). You can perhaps reduce that by a small amount arguing that kids will not stay home forever. But then I will not be able to go back to workforce with my existing level of income either...

On the bright side, the premium for term-life for women is usually smaller than men.

Thanks for the response, samv. I am in a bit of a time crunch to decide what coverage to get from employer, and this helps.

samv;425476In my experience (free) life insurance coverage from employer typically does not have very high level of coverage for the spouse of the employee. One can purchase extra life insurance coverage for the spouse from the employer. However, last time I checked the cost of the extra coverage for the spouse through the employer was not competitive at all with what (term-life) policy could have been purchased on the open market. This assumes that that spouse is in reasonably good health. Perhaps purchasing through the employer may make sense if there is no medical test involved and the spouse is in poor health. (If buying life insurance in open market, you will almost always have to go through a medical test.)

Medical test shouldn't be a problem in my case. I was thinking that one advantage of getting it from the employer is that every year one can decide whether to continue it or not (during open enrollment time).

[quote]I and my (currently non-working) wife have same level of life insurance coverage. My simplistic rationale for that was that, if she passed away, I will need to sit home and take care of kids so my income will be lost completely. Thus I will need the same level of insurance that she would have needed to replace my income if I were to pass away (if not higher..). You can perhaps reduce that by a small amount arguing that kids will not stay home forever. But then I will not be able to go back to workforce with my existing level of income either...[/quote]
After going through a few calculators and unable to decide, I am tempted to calculate in a similar simple manner! It is indeed very hard to calculate financial cost of SAHP's job. One website said the SAHP also serves as a "counselor" to the family, so factor in costs for counselor when SAHP is gone! That made about as much sense as the silly "salary" figures for SAHP that parenting websites suggest- ranging from $132k to 250k per year.

I don't think its a good idea to go with the employer-based insurance.
Employment can be temporary/short-term whereas insurance is for the long-term.
Premium goes up with age - so if you exit the employer at a later date and want to buy insurance on your own you would end up paying a higher premium.

Go with a Term-Life insurance plan on your own and take the maximum number of years permitted (20 or 30 years term). Premium is paid annually and you can cancel at any point in time.