When is life insurance unnecessary?

Dear Dave,

I’m 63 years old and work part-time. My wife, at 59, works full-time, and earns $140,000 a year. We’re both self-employed. At what point do we stop buying term life insurance? I have a $250,000 policy, and we have $500,000 in savings. We’re completely out of debt, except for a couple of car loans that total $30,000.

Herschel

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Dear Herschel,

First, let’s clean up those car loans. With your income, and the money you guys have in savings, there absolutely no reason to have car payments hanging around your necks. Otherwise, you’re in great shape!

When it comes to life insurance, ask yourself why you’re buying it. Who are you trying to help, and how much will they need? It’s really about taking care of the people you leave behind.

From where I’m sitting, you’ve already done a great job of taking care of your wife. If you passed away she’d have the insurance money plus an income of $140,000 a year, a half-million already in the bank and a paid-for house. She wouldn’t exactly have to struggle. If she passed away first, you’d still have $500,000 in savings, plus a house that’s paid for, and your part-time income. Way to go! You two have done a good job. At this point you’re very close to being self-insured!

On the other hand, if you want to spend a little money on a term policy for her over the next few years, and you can do so and still continue to build your nest egg, that’s OK. The savings you guys have accumulated would allow you to live on about $40,000 a year. The proceeds from a term policy could supplement that, assuming you can easily afford it.

Dave

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Eating turkey with your lender

Dear Dave,

My father-in-law wants to help us with our mortgage. We currently owe $50,000, and he wants to pay it off and let us pay him back over time. We’ve borrowed money from him in the past and paid it back with no problem.

Bob

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Dear Bob,

I wouldn’t do that in a million years. Don’t get me wrong – that’s a very nice thing to do for someone. I’m sure it seems like a winning proposition for you both. But a spiritual issue has been left out of the equation. The borrower is always slave to the lender, and nowhere is that more true than in a family. You’d bring instant discomfort into your relationship. The money issue will hover over you like a shroud. Trust me, Thanksgiving dinner will taste kind of funny when you’re sitting there with your lender instead of good old dad.

I understand that you have a solid track record with this kind of thing, but you’re playing with fire. I simply would not do this! The downside is just too risky. I assume your father-in-law is doing pretty well, since he can afford to make this offer. If I were in his shoes, I might offer to pay off the mortgage as a gift to my daughter and son-in-law. There are no strings attached to a gift that comes from the heart.

If you come from a nice, stable family – and it sounds to me like your in-laws are very nice folks – this debt will always be there in the back of your mind. If you come from a dysfunctional, screwed-up, control-freak kind of family, it’s going to be right there in front of you constantly! Either way, it’s not worth the risk.

Dave