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Question for the Money Doctors

Question submitted on Jan 7, 2012.

Question

Thank you for taking my question, it is in regards to life insurance.
I am a single father 47 years of age and for the most part healthy. I am employeed by the same company since 1985. I own my home (well the bank ownes it) and I have about $80K in equity at the moment, the home is now worth about $380K. I have $100K company paid life insurance. I have about $135K in a cash value pension fund. I have about $275K in my 401k, and I have about 20K cash in the bank. Currently I am fine with my income and meet all debts. Other than Mortgage and a car loan, I have no other debt. Not even credit card.
My child is 13 and in 7th grade. I figure including a 4 year college I am financially responsible for about 10 more years.
In addition to all of this I own a term life and a whole life policy. The term is for $200K and the whole is $300K but will grow as I continue to live. I don''t think I need this. It cost me about $1,100 a year in premiums and they are coming due next month. Do you see a need to keep those as well? My child gets everything so if I died today my child would have a nice start. If I continue to live, in theory, my 401 and cash value pension will grow, my principle will be paid down on the house giving more equity and dare I say home prices should be worth more.
What do you think?

Answer

hmmm. If you die the following occurs:

1. No income.

2. pension and 401K=410K fully taxable if you withdraw so college is paid. assumes no decline in balance . some growth.

3. house is sold as kids will have to live with new guardian= 65k after fees....that goes to raise the kids

Looks good on paper that you can do without this. HOWEVER..... since you need only until the kids do college why keep the more expensive whole life? Maybe just the term for a few more years...lower cost the extra 200K cant hurt ( and it''s tax free).

My larger concern is that you have a will with guardians for the children, a power of attorney (in case of incapacitation..accident, and a living will.

Also think about when the children can get all that money if you die in a car accident tomorrow. ALL at age 18? hmmm. maybe some restrictions?

Overall you seem to have done and continue to do a great financial job.


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