Now that I have left my job, I no longer have any life insurance coverage. Here was my coverage from my previous employer.
Basic life insurance: $930,000
Business travel accident: $581,000
Accidental death and dismemberment: $814,000
So if I died a fiery crash when I was on a business trip, my family would have received nearly 2.5 million dollars in insurance payment. This would be enough to raise baby RB40 and pay for his education. Of course, I’m more valuable than $2.5 million and Mrs. RB40 would rather have me around instead of a pile of cash. In the end, I survived my job and retired early instead. Now, I have exactly $0 in life insurance coverage.
I never thought much about life insurance until we had a kid. Nobody was really dependent on me for their well being. Mrs. RB40 was (and is still) working and can take care of herself even if something were to happen to me. However, my whole outlook changed after we had a baby. Raising a child can cost nearly $300,000 and Mrs. RB40 would be hard pressed as a single parent. That’s why I increased my life insurance coverage to the maximum allowable in the employer sponsored program. The life insurance payment would have replaced my paycheck and at least my family would be provided for.
Usually when you are retired, you won’t need as much life insurance because your income is already greatly reduced. Your family should already be living comfortably without the need of life insurance payment. My case is a bit different because I am a stay at home dad. If something happened to me, baby RB40 would have to go back into daycare full-time which costs $15,000 per year. I’m also earning some income from various sources so that needs to be replaced too. This means I will need to purchase life insurance for a while longer. I think when our kid is out of college and working full time, then we will no longer need life insurance.
Your child can qualify to receive your social security benefit if you earned at least 6 credits. You can earn up to 4 credits each year that you pay into social security. Fortunately, I have accumulated over 40 credits and I’m qualified to receive social security benefits. If I passed away, my child can receive my social security benefit until he is 18 years old. I used this quick benefit calculator at the Social Security Administration’s website and it estimated that baby RB40 would receive around $1,800 per month. Mrs. RB40 would receive the same amount of benefit until our child is 16 years old. These two checks from social security will help tremendously, but there is a huge hole when he turns 18. College tuition is rising every day and the social security benefit will cut off right around the time for him to enter college. Higher education is extremely important to us and we want to make sure nothing will stop him from going to a university. That’s why I still need additional life insurance.
The first option is to get spousal life insurance from Mrs. RB40’s employer sponsored plan. We plan to add me in the next open enrollment in November. I’m not exactly sure what the coverage amount is. I think it’s much smaller at around $250,000 so I probably need a little more coverage.
I think term life insurance is the right choice for me because it is simpler and we are already invested in the stock market through our taxable account and retirement plans. I used the life insurance calculator at Genworth and it seems I would need about one million dollars in coverage. This amount will pay off the house, pay for college, cover funeral expenses, and replace my small post retirement income. The estimate is $35 per month. This is actually not bad and I will need to follow up on it.
I know some of our readers are retired or near retirement. Do you think life insurance is essential after you retire? I think if you have any children, you really need to have some life insurance.