Life insurance not wanted for my situation.
My annual update of my retirement plan in ESP resulted in a recommendation for life insurance for myself from age 63 to 72. I'm currently 59.5. I don't understand the difference between the Total Spending chart which shows a total of $3345 in premiums over 10 years versus the Annual Consumption chart which shows a total of $233,354 over the 10 years. What does the $233,354 in the Consumption chart represent? Additionally, are these costs included in the overall consumption recommendations? If so, I would like to turn off the life insurance requirement (as I believe many others would, from the responses in this forum) and let ESP recommend a correspondingly lower standard of living for both my spouse and myself if that is what is needed to avoid purchasing life insurance. I believe this requirement skews the results if I do not plan to purchase it. Also it doesn't seem reasonable to me to have to make numerous runs with assumptions of a reduced living standard in the future just to get rid of this recommendation as has been suggested. If it could be turned off, wouldn't ESP modify the recommended living standard for both partners?
Thanks for any response,
Bob Weber
RSS
ESPlanner calculates life insurance in order to maintain your survivor's standard of living at the same level as when you are both alive. If you want to eliminate life insurance, lower the survivor standard of living (it's either in assumptions or you'll need to turn on contingent planning and look there) until you no longer require insurance. In effect, without the insurance if you die during the period of purchase, your survivor will take a hit in their standard of living, e.g., go from steak to dog food as an extreme example.
Best,
Dick Munroe
The dollar amount under "Life Insurance Premiums" that you see in the Total Spending Report is an estimate of the cost or annual premium you would pay based on our study of prevailing rates for term insurance. It's always listed in today's dollars.
The dollar amount you see under Life Insurance in the Annual Recommendation report is the actual amount of coverage needed. That's the amount needed to maintain the survivor's living standard in that year should the other person die.
The total spending report shows that this annual life insurance premium cost is being treated as an off the top expense just like Medicare Part B, Housing, etc. So it's not something you would pay out of the consumption number since consumption or discretionary spending is what's left over after that amount has been subtracted.
You "turn off" life insurance by asking the program to lower the survivor's standard of living in the event of death. You do this in the Estate folder. Note that you can say you want your standard of living to go up or go down in the event of your spouse's death (and the same for spouse).
You cannot ignore life insurance in this program because doing so would violate one of the very important features of the program which is to smooth consumption for the household and not ignore the implications for a survivor should one of the two persons in the household die.