Life Insurance

I tried to set it up to tell me how much my wife and I can spend if we want to leave each of our 2 kids $1M each out of a current estate of $3m -- we would spend less to do that, live off of SSA and pensions, etc, to preserve the $2m. However, the program wants us to spend absurd amounts on term life insurance in our 80s, which no one would do, presumably in order to fund the bequest. Is there a way to keep the insurance recommendation out of the report?

Comments

The easiest way is a standard of living approach. Basically set your last few years to a very high SOL. This forces the program to reduce consumption in earlier years and preserves assets for late in life. Since you are spending less (and preserving assets) it should greatly reduce life insurance requirements. You can set the SOL in the assumptions tab.

Best,
Brian

dan royer's picture

Yes, I think Brian has a point there. But I wouldn't take the insurance number as a mere "rule of thumb" "maybe you should consider" kind of thing. The insurance is indicated there because without it there would be no way to fund that estate. So in other words, if one of you dies in one of those years, that insurance would be needed in order to keep the survivor's living standard what it was before the death.

You could look at contingent planning also. If you are willing the survivor to have a lower living standard after the other's death, then that will lower life insurance. That is set in the estate folder.

I haven't though this through, but what if, instead of estate, you simply indicate a special expenditure of two million in your last or second to last year of life? (and remove the estate, which provides that 2 million in every given year up to age 100).

There's definitely more than one way to do this. I'd try testing Dan's ideas along with the SOL approach to see what works best for you.

I created a simple test profile to try and match your situation and tested the SOL and special expenditure approaches. They were both very close and reduced LI to zero in these examples.

If you do go with the SOL approach, delete the estate fields and set the SOL index high (I used 750 for the last 4 years of life). This pushed ~$2.1M in consumption to those last 4 years which could be used for the estate.

Best,
Brian

dan royer's picture

Clever Brian. I like it!

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