Should My Mom Get Life Insurance?

[moda0306]

I've got a somewhat unique case for you guys, and I'm wondering about your opinions.

My framework on how to measure a need for insurance is if there is a financial exposure of a high financial impact, with a low likelihood of occurrence.  Usually, I'd imagine most 60 year old grandma's don't need life insurance, but let me give you the following case.

- My Dad is 67, and had a small stroke about a year ago, and is uninsurable for long-term care purposes. He's only somewhat self-sufficient.  My mom helps him out quite a bit.
- My parents have $500,000 mostly in a Traditional IRA, and currently rent.
- My Mom is healthy and also helps take care of my 8-year-old nephew in the summer, and other times when my sister is working.



So here's my calculation of the likely financial exposure if my Mom were to die tomorrow (using financial calculator w/ 4% discount rate):

- My dad's expenses don't really go down at all... most of their expenses are joint, and if his condition got worse, her role in keeping him out of a long-term care scenario (home care being ideal) or my sister or myself would be huge if things got worse.

Finacial exposure: Somewhere between $0 if my dad has no further problems, and I'll estimate $100,000 overtime of value in avoiding long-term care needs.

Present Value: Somewhere between $0 and $100,000


- My sister would need more help with my nephew. 

Financial exposure:  Approximately $50 per week, or $200 per month, or $2,400 per year for next 5 years.

Present Value: $11,000


- My dad would incure far more taxes (calculated between his SS and RMD's applied to a Single vs MFJ).

Financial exposure: $2,500 per year for his life expectancy of 17 years

Present Value: $32,000


- My parents would lose my Mom's SS benefit as income in a couple years when she would otherwise claim it.

Financial exposure: About $8,000 per year starting @ 63 for 23 years of her life expectancy.

Present Value (est): $110,000


So in conclusion, the amount of exposure of my Mom's untimely death to my family would total $153,000-$253,000 in present value.  Of course, some of this is a bit ambiguous, and not all of it is direct exposure to my parents (my sister, for instance), but I think it's all pretty sound.  My parents consider it important to help my nephew (and me and my sister) out.  Even $150,000 seems like too much risk to retain with only $500,000 of assets.

I tend to think a 10 or more likely a 15 year policy would absorb a good chunk of that.  A 15 year policy at $250k in my Mom's likely health class is about $2,500 per year.  They can afford the premium and still live their lifestyle.  They can't, howeve, afford a $150k-$250k hit over time.

[Ad Orientem]

This sounds like a highly complex situation. And as much as I generally don't care for them when it comes to investments, this may be a rare case where I would advise consulting a certified financial planner (make sure he/she is a fiduciary). You might also want to talk with an estate and tax attorney.

[Libertarian666]

That doesn't sound very complex to me. In my opinion, it would be quite reasonable for her to get $250K of 15-year level term life insurance.
Not a financial expert, do your own diligence, etc.

[moda0306]

That doesn't sound very complex to me. In my opinion, it would be quite reasonable for her to get $250K of 15-year level term life insurance.
Not a financial expert, do your own diligence, etc.

Thanks, tech.


Ad,

Estate tax is not an issue, and I'm a Tax geek and understand social security so I'm sure about those figures.

I'm also quite sure I'm underestimating the exposure of the long term care event.  A planner might have more to say about that.

I've talked to a couple estate attorneys and they claim not to be true experts on measuring exposure and risk. 

[smurff]

Ad Orientem's advice is good.  If the certified financial planner is a fiduciary, s/he serves the clients needs first and foremost, rather than the planner's need for fees, or the backscratching often done between financial product vendors and the planners/advisors who sell them to individuals. 

Also, from what you described, there are a lot of issues--at age 60 your mom is more likely to become disabled than to die; she may have long-term care needs herself.  In some states there are insurance plans that address both.  I'm not advocating such plans, just mentioning them. 

If you do not have or know a CFP, go to your favorite big bank (Chase, HSBC, etc.) and have a chat with the Financial Advisor on the securities side of the bank.  The chat is free.  In some states the bank's financial advisors may also be licensed to sell insurance (in addition to securities) and can tell you what the possibilities are.  Some banks have programs for high net-worth individuals/couples (defined usually around $100K to $150K of investible assets) where they provide free basic legal, estate planning, and tax advice from a tax attorney.  The chat is just for information and guidance; you can make whatever use of it you like.

On the surface, if she can afford and feels good about spending $2500 per year on 10 - 15 years of level term insurance, I'd say go for it.  Is she also working outside the home?

[Libertarian666]

That doesn't sound very complex to me. In my opinion, it would be quite reasonable for her to get $250K of 15-year level term life insurance.
Not a financial expert, do your own diligence, etc.

Thanks, tech.


Ad,

Estate tax is not an issue, and I'm a Tax geek and understand social security so I'm sure about those figures.

I'm also quite sure I'm underestimating the exposure of the long term care event.  A planner might have more to say about that.

I've talked to a couple estate attorneys and they claim not to be true experts on measuring exposure and risk.

You're quite welcome. And I actually do know quite a bit about insurance, having passed a couple of actuarial exams in the distant past.

[moda0306]

I'm starting to rethink life insurance after the numbers on this.  If someone would have suggested a few years ago that my mom needed life insurance I would have laughed in their face.

[smurff]

There was a time when only the main breadwinner had life insurance.  Those were the days when the contributions of women who worked at home went unnoticed by economists. 

Every year, various organizations publish statistics about "women's work."  As in, "if you had to replace a stay-at-home mom, how much would her services cost on the open market per year?"  Here's an example that came out in May:

http://www.businessinsider.com/value-of ... oms-2013-5

The answer is $113,586 per year.  (The cost for a working mother is $67,436 per year.)

$250K in life insurance might not be enough.

[Libertarian666]

There was a time when only the main breadwinner had life insurance.  Those were the days when the contributions of women who worked at home went unnoticed by economists. 

Every year, various organizations publish statistics about "women's work."  As in, "if you had to replace a stay-at-home mom, how much would her services cost on the open market per year?"  Here's an example that came out in May:

http://www.businessinsider.com/value-of ... oms-2013-5

The answer is $113,586 per year.  (The cost for a working mother is $67,436 per year.)

$250K in life insurance might not be enough.

That $113K may be reasonable for a mother with young children, but seems quite irrelevant for a 60-year-old woman. I think the original $250K is a good place to start.

[moda0306]

There was a time when only the main breadwinner had life insurance.  Those were the days when the contributions of women who worked at home went unnoticed by economists. 

Every year, various organizations publish statistics about "women's work."  As in, "if you had to replace a stay-at-home mom, how much would her services cost on the open market per year?"  Here's an example that came out in May:

http://www.businessinsider.com/value-of ... oms-2013-5

The answer is $113,586 per year.  (The cost for a working mother is $67,436 per year.)

$250K in life insurance might not be enough.

That $113K may be reasonable for a mother with young children, but seems quite irrelevant for a 60-year-old woman. I think the original $250K is a good place to start.

Tech,

Do any of my numbers or categories of analysis seem unreasonable?  I mean I'm just trying to accurately measure exposure.  I know some of this stuff is a bit intangible, but if all you look at is the lost SS income and increased taxes we're still talking about $142,000.

[Libertarian666]

No, your numbers look reasonable, and of course there is no way that we can get precise numbers. I would go for it.