Remaining bug in ESPlannerBasic life insurance suggestions?

What I have concluded is that the Basic version (at least) does not calculate life insurance correctly in situations in which credit constraints make it so that the standard of living cannot be fully smoothed over the lifetime (either in the actual results or in a survivor scenario).

I was getting recommendations of 0 life insurance that seemed counterintuitive but which I accepted at first. Then I tried to explicitly run a survivor scenario by setting up a new profile in which the spouse is single (and social security survivor benefits for her + kids are entered as other income). I could have gotten some details of the SS wrong and I realize that taxes on those benefits will be treated differently and so on, but my make-shift survivor scenario provided such a dramatically lower standard of living that I became convinced that life insurance is called for on the order of $300K in the scenario I was examining.

Could someone confirm whether this is a bug or else explain where my reasoning about the survivor scenario of the main earner's death goes wrong--that is, explain why zero life insurance is really the right answer? Here are the inputs that were resulting in zero life insurance:
Married
"Me" born in 1981
Spouse born in 1983
Four kids born in: 2012, 2015, 2017, 2020
Economics-based planning
"My" earnings constant at $71,700, spouse remain constant at $29,500
5% return on regular assets, with $12,000 initially
6% return on retirement accounts, with 12,000 in my and 20,000 in her Individual IRA.
1700 employer contribution for me, 800 for her. (1200 employee contribution for her, none for me.)
No reserve fund.
House value: $210K, mortgage remaining: $155K, years remaining: 28, monthly payment: $796, annual property tax: $5880, insurance: $125, expenses: $1200
College expenses of $20,000 per year for 2030-33, 2033-36, 2035-38, and 2037-40.
Other expenses of $2000/year for 2016-2019.
2% inflation.

Any feedback or assistance is most appreciated. I have spent many hours stuck on this..

Comments

I'm attaching the suggestions I got for this scenario (or one very close to it).

dan royer's picture

Tim, The BASIC program is not designed to do the contingency planning you need in order to really explore these questions about life insurance. In the download program, you can specify contingencies like the spouse changing special expenditures, going back to work or hiring a nanny, downsizing a home, etc. It's a more complex calculation than you imagine because each year needs to be evaluated against what is inherited from deceased spouse and future earnings for that individual.

I would use the download program, and if you want to make the switch, I would refund what you spent on BASIC--which does a nice job of illustrating principles but is not as good as the download program for serious planning.

Thank you, Dan. I'm actually just using ESPlanner Basic so far, so maybe I shouldn't complain. But I recommended it to a friend and now I feel concerned that it could give them a badly mistaken life insurance recommendation. Maybe you might consider putting a warning on the Basic about the life insurance recommendations if they do not work properly--or just blank them out when they are invalid?

I do plan to purchase the download version, though. I assume it will give the correct answer if given the same inputs, but I'll report back if not.

dan royer's picture

Let me know if you have questions going forward. In the download program, contingent planning can actually help create a very accurate appraisal of LI needs. But it's the contingencies that are the issue, which BASIC doesn't handle. But even in the download program there is not a simple way to adjust for insurance already owned--there are a few workarounds that are fine but not idea. I'm pushing for change on that one.

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