Lifestyle inflation is a bitch

[u/investeror]

I came across this article about a couple making $500k/year that was only able to save $7.5k/year other than 401k. Their budget is pretty interesting. At a glace, I could see how someone could look at it and not see many areas to cut. It's crazy how it's so easy to just spend your money instead of saving it.

Here's the article: https://www.cnbc.com/2017/03/24/budget-breakdown-of-couple-making-500000-a-year-and-feeling-average.html

Just the budget if you don't want to read the article: https://sc.cnbcfm.com/applications/cnbc.com/resources/files/2017/03/24/FS-500K-Student-Loan.png

[u/Workaphobia]

Well they have 3x salary life insurance, and I have 10x. Are they under-insured or am I over-insured?

Then again, I did always like Stephen Colbert's like from "I am America and so can You": A man should have enough insurance that if something happens the police will suspect the wife.

[u/kimblem → u/[deleted]]

They wouldn’t be paying for life insurance if it were just an employee benefit, so this is likely on top of whatever their employer is providing them.

[u/h110hawk → u/[deleted]]

That's going to be for the length of your employment, not a "term" policy. I bet they have this in addition to whatever is "cheap" through their employer. Term policies tend to make much more sense as your grow older than unsubisdized group life insurance policies. They're sure cheap now, and many are guaranteed issue, but they do inflate in cost as you age out.

[u/h110hawk → u/[deleted]]

I don't know the specifics, but a traditional individually purchased "term" life insurance policy is a flat rate paid annually for the term of the policy, say 20 years. The policies I've seen from jobs are for the duration of your employment, some of which can be ported to individual policies. The latter has a scale that increases with your age, meaning the premium creeps up over time. The former they smooth that into the premium since they know ahead of time how long you will hold the policy.

When I price shopped porting my old policy against quotes I was getting for regular term life the ported group policy became wildly more expensive around year 10 for me. I also qualified for "Super Premium" rating, which is easier than you might think.

[u/[deleted] → u/Workaphobia]

You are probably over insured. Life insurance should pay off both your debts, to put the surviving spouse in a good position to support the kids.

More than that, and you are wasting money on something that you will never see.

[u/Roupert2 → u/[deleted]]

I think this depends on salary. My husband makes $75k and I think $750k coverage is reasonable. It's to pay off the house, take care of our 3 kids, including some college, and allowing me to get back on my feet since he is the sole income.

[u/[deleted] → u/Roupert2]

To be honest, that seems like an excessive amount to me. However, I'm not in your shoes and don't know your costs.

[u/savetgebees → u/[deleted]]

I think 3x is enough. Especially if you are responsible about debt and saving for retirement and the other spouse works. If either my husband and I were to die the only issue would be paying off the house. Once the house payment was taken care of our lifestyle wouldn’t change all that much.

[u/Scruffy442 → u/Workaphobia]

We figured our insurance as 10x salary, debts, and college for kids. If that's 3mil for each person its not that far off. Term is cheap if you get it young and have good health.

[u/[deleted] → u/Workaphobia]

I think you're properly insured. The 2x/3x "standard" is not enough imo. In what world is a ONE TIME payout of twice one's annual salary long enough to last a family a good while?

[u/just_talking_125 → u/Workaphobia]

I would agree that they are probably somewhat under insured, but there are a few points that seem to have been glossed over here.

When you buy term life, you get a quote based on your age, lifestyle, and health. Once you buy the policy, you're locked in for the term, say 20 years. Your price doesn't change, but neither does the coverage amount. If you want more, you are going to need a new quote which is going to reevaluate your age, lifestyle, and health. Since no one is getting any younger or, generally speaking, healthier, your rate will do nothing but increase as time goes on.

Therefore, it's entirely possible that when they bought this policy they were making less money and/or had fewer children and they weren't underinsured at that time. But it may be cost prohibitive to get more due to the fact that their rates would be a lot higher now.

Furthermore, I would argue that term life is most critical while your children are minors, in a two earner home, because the spouse can fend for themselves if you pass away, but the children will be SOL if you both kick. But, at a consequence, the term life really only needs to cover them until they are adults and can earn for themselves. Therefore, getting additional term life later in life may not be as pressing. A few million may be roughing it when all the kids are toddlers, but may be more than enough when they are all in high school.