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ZERO insurance? Really?


ESPlanner recommended a trival amount of life insurance for me (15k) for a couple of years, then none at all. My wife was recommended at $1.2 million for almost 20 years.

Granted, I only earn 40% of the wages, I'm several years older, and I was conservative about my income projections as I'm self-employed. But we have one very small child, another coming soon. It just doesn't seem to make sense. It also seems to suggest that I don't really need to work. As much as I'd love to lounge around at home all day, I'd be surprised if this were true!


Depending on your particular case, one of two things is likely:

(A) ESPlanner is right
(b) You've left something important out of your inputs.

For example, insurance will change if you plan a move in the future or another special expense. If you are not the major bread-winner, it makes sense your insurance will be less because less income is being replaced.

WRT to "not needing to work" if you have created a profile where you've left out your earnings, you should see a new suggested consumption number for that profile.



I have to say that your answer betrays an almost religious faith in this software. While I appreciate ESPlanner's potential, there might be a third option: That there is a flaw in the program. In any case, I don't see a problem in requesting an explanation for such an incredibly counterintuitive result.

I suppose the answer to whether or not my family's living standard would decline if I died tomorrow is in the survivor report, which I'm just now learning about. Th survivor report assumes that my wife would continue working after I died; a fair enough assumption but a one-income family by definition has a more insecure income base than a two-income one especially with two children to support

Now that I think of it, it's a different question if I were to stop working tomorrow, because I would still be alive to consume things!

I'm not sure where the input problem is; I make about 40% of what she does and have assumed my income would not grow in real terms, while hers would grow 1%/year in real terms. I'm considering shelling out for the one-on-one support to figure out this and a few other things.


I certainly wouldn't say religious, but within the [comparatively extremely well exposed] assumptions, correct. That is compared to other planning software, our willingness to tell you what those assumptions are compared to other planning companies and our justifications for those assumptions (analysis not guesswork within the constraint that economics really isn't a science or engineering discipline IMHO).

The insurance buys are there to maintain your standard of living should you or your wife croak. The amount is determined by your standard of living, not by anything else. So, given that your wife is the primary earner in the household, she has to buy lots of insurance in the event of her death to keep you in the style "to which you have become accustomed" and vice versa. This isn't faith, just mathematics.

And, yes, within the assumptions this says that you could cut your standard of living slightly and stop working. Not a good idea for reasons discussed at length in various places in this forum but to summarize: ESPlanner is an economic simulator and provides you with a ceiling for consumption. Spend less and you're protecting yourself against bad economic news, spend more and you're relying on good economic news. Any simulator, basically, assumes that tomorrow will more or less be like today and so ESPlanner, along with all other planning tools, didn't do all that well with it's predictions in the last couple of years.

But it's better than anything else you're likely to see.

Now if you object to the assumption that your wife continues to work or want to assume that she can't get work at her current pay, then you can always lower the survivor's standard of living to show that. You won't see the effects in the main reports other than as a side effect (your insurance amounts will go down or her's will if you lower your standard of living) but the survivor report will show larger differences.

In a perfect world, we would take earnings uncertainty as well as variance in inflation into account in the monte carlo (which is where you find out what happens if things don't happen at the mean rates of return) but for technical reasons we can't do much more than we already are in that domain.


Dick Munroe


Hi Dick,

Thanks very much for writing. I think I went off track by getting into a discussion of ESPlanner's transparency, so maybe you can help me get back on track...

I looked at my wife's survivor report and it does suggest she would have an equal or better per-adult living standard should I die tomorrow without any of my own life insurance. It just seems highly counterintuititive given that I make about 40% of the income and she would still have a mortgage to pay and two kids to get through childcare and college if I died. I would expect to need less life insurance than her, but none?

So, maybe someone can help me with one or two things: Either help walk me through the reports and show me where I can trace back this $0 recommendation (it's a lot to ask, I know!) or give a few more details as to how this could be. Is it because of our (relatively high) tax bracket, for example? Does the program make any assumptions I may be overlooking, or is there any particular input I may have got wrong?

(Another weird thing is my wife's survivor report appears to suggest she should have no life insurance after age 39, even though she would be a single parent with two young children at that age.)

It's a lot to ask, as I say. Maybe I need someone to look over my report, which means going one-on-one.


The calculation for determining the need for insurance isn't particularly straightforward, but basically, you take the net present value of consumption (all spending from now until the future) and the net present value of earnings (all income from now until the future) and subtract consumption from earnings. If the result is negative, insurance is needed. If the result is positive, no insurance is needed.

The present value calculation is (more or less):

Given today's year, T...
Given a future year, F...
Given a real rate of return on assets, R...
Given a value (consumption or income) in year F, VinF...

P = VinF / ( ( 1 + R ) ** ( F - T ) )

Where P is the present value of VinF.

You might be able to validate this stuff using Excel, but this is how (more or less) we generate the numbers.

As for your wife being better off, that's quite possible. We almost always see that the higher wage earner is better off with the lower wage earner dead, even considering the loss of income. From a logical standpoint, consider that the lower earner's income essentially goes into supporting their own consumption, possibly with some help from the higher wage earner. If the lower wage earner is subtracted from the equation, not much difference and, quite possibly, a substantial upside. In your case, your wife is also getting a 1% real increase in wages (by the way, that's about a 4% nominal raise, assuming 3% inflation, per year which is way over the average raises for earners for the last 15 years or so) which, over time, increases things substantially.

Basically once any member of the couple stops buying insurance, there are sufficient assets to support all of you at the calculated standard of living in the event of the death of the person who stopped buying insurance. If the person no longer buying insurance dies at this point the survivor has extra assets (including the extra cash from not having to insure the now dead spouse) available and the standard of living goes up. Counter-intuitive but its the way the math works.


Dick Munroe


Hi, Please call me at 617 834-2148. I'm in Hawaii right now, so the best time to call would be around 5 PM Hawaii time. Next week, starting on the 23rd, I'll be back in the East Coast. best, Larry


Dick: Thanks very much, let me chew this over.

Prof. Kotlikoff: It's so nice of you to offer to speak with me--especially as I'm guessing you're on vacation! There's really no reason to disrupt it, so if I still need to speak with you I'll reach out after you return to the East Coast.

Best regards,

Rick Sine


One of the little known things about the SSA is that surviving children get SSA benefits if their parent(s) dies while they are younger than 19. I'm assuming that with your wife age 39 the kids will receive SSA benefits (likely substantial) after she's dead. This is frequently the reason for not needing insurance to cover kids in the event of death.

One other thing you should know about ESPlanner is that we only plan on supporting the kids standard of living until the "age kids leave the home" so the need for insurance is limited to this age.

I think you're trying to figure out how much insurance to buy to provide a bequest to your family, specifically your children. If so, that's a guess on your part and beyond the scope of ESPlanner in the context of your own family.

You might be able to define your kids as individuals and use ESPlanner to plan out their future but you're piling assumption on assumption at this point with a very long time base and using a tool is just a way to feel good about the guess you'll have to make.


Dick Munroe