New Professor: Accept Supplemental Life Insurance?

[coolswimmer800]

I am entering my first year as a tenure-track assistant professor at a US university, which offers a basic life insurance package of $200K at no cost. My Benefits Office informed me I can also sign up for up to $200K additional supplemental life insurance.

I am hoping to get some opinions on whether I should sign up for any supplemental life insurance, especially since I do not plan to stay long-term at my current university. I was thinking of maybe transferring in 3-4 years, or after I get tenure since it is easier at my current university. I am completely new to life insurance, and my Benefits Office told me that when I leave the university, the insurance provider would convert my university plan to an individual plan, which would have a different rate (much higher I assume).

Thoughts please? I am especially confused by what happens to my supplemental after I leave the university, but I was thinking maybe this is the same as the 401K (which is immediately vested for me).

Some context about me:

• In my late 20s, so the initial rate is low and my monthly premium if I took the max supplement is around $15
• I am grateful to have a good credit and savings, so I do not anticipate issues with paying the premium for the rest of my life 
• Unmarried and single, but I would like to have a family in the near future

Thank you in advance!

[spork]

No one depends on your income, so there is no need to buy life insurance out of your own pocket.

[AJ_Katz]

People frequently make the mistake of buying life insurance when disability is more likely.  And as Spork said, life insurance is to be able to provide support for dependents / spouse upon your death.

Here's a good primer that would include that type of advice:
https://www.amazon.com/Everything-Personal-Finance-Your-20s/dp/B002YX0B1E

[polly_mer]

No one depends on your income, so there is no need to buy life insurance out of your own pocket.

This.  Life insurance for normal people is to replace enough years of your salary to help your dependents get to a new good enough life.  Usually, the recommendation is 3-5 years of income or paying off the house and similar debts so the other income goes farther.

[coolswimmer800]

Thank you all so much!

I am shocked by the unanimous feedback to decline out-of-pocket supplemental life. When I talked to my parents and my close friends, all non-academic, they strongly encouraged me to consider paying for at least some supplemental.

Yes, I do not have any dependents now, but my thinking was, this would be a long-term investment / security for my future spouse and kid(s). With this consideration, it sounds like I should still decline the supplemental?

I already maxed out my IRA for the year, so I was thinking maybe supplemental would be a good parking space for some excess income.

[Hibush]

Thank you all so much!

I am shocked by the unanimous feedback to decline out-of-pocket supplemental life. When I talked to my parents and my close friends, all non-academic, they strongly encouraged me to consider paying for at least some supplemental.

Yes, I do not have any dependents now, but my thinking was, this would be a long-term investment / security for my future spouse and kid(s). With this consideration, it sounds like I should still decline the supplemental?

I already maxed out my IRA for the year, so I was thinking maybe supplemental would be a good parking space for some excess income.

Life insurance is not a long term investment. The idea that it is comes from something called "whole life insurance" that was a savings plan wiht a poor return plus an insurance premiums. I'm not sure they are around any more; their main advantage is the hefty commission to the sales person. I hope that is not what your university is offering, an the rate would be a lot higher. The regular insurance policy is like any other insurance. You pay a yearly premium, and if you have an insured event during the year, you collect. Or in this case, your surviving beneficiaries collect. Once you have people who depend on you financially, it is worth considering, but there is no benefit to doing so sooner.

By all means, start a sensible long-term investing plan. Life insurance is not it. Start wtht retirement savings, or even college savings for theoretical children. (Private college tuition in 2045 will be $350 thousand a year at the current rate of increase!)

[Vkw10]

You probably do not need the supplemental life insurance from your employer.

Most life insurance bought through employer is term life. Term life is an inexpensive way to provide for dependents (spouse, children, elderly parents, etc.). Term life expires, usually when you reach age 70 or leave employer. Term life frequently can be converted to permanent life or whole lifewhen you leave employer. Permanent/whole life does not expire, as long as you pay premiums, but is much more expensive. For most people, converting is not a good idea as long as they are in good health. For most people in good health, buying more term insurance directly from insurance company if you need it is a better idea than converting a policy when you change employers. The "in good health" is important, because buying direct from insurance company requires a medical exam.

When you are ready to start a family, you should consider whether to buy more insurance. You can usually buy more insurance through employer once a year, but may have to pass medical exam.

People frequently make the mistake of buying life insurance when disability is more likely.  And as Spork said, life insurance is to be able to provide support for dependents / spouse upon your death.

I agree with AJ_Katz. In the USA, buying disability is very important. Disability replaces part of your income if you are no longer able to work due to serious illness or accident. It protects you and your family while you are alive. The USA has limited government support for the disabled. It's hard to qualify for government disability and the monthly payments are very low.

Yes, I do not have any dependents now, but my thinking was, this would be a long-term investment / security for my future spouse and kid(s). With this consideration, it sounds like I should still decline the supplemental?

Term life insurance is not an investment, because it expires. Permanent life insurance is often sold as an investment, but it's really an insurance policy with a savings feature. Put your extra money in something that's just an investment, not an insurance product with a savings feature.

In addition to maxing your IRA, you should consider a 403b, 401k, 457. These are all retirement investment accounts named for the sections of US tax law that defer taxes until you take money out. Ask benefits about them.

You might also consider opening a taxable investment account outside work, with Vanguard or another company. You have to pay taxes on that money, but there are no restrictions on when you withdraw it, so it's a good way to invest for a house or early retirement.

[Vkw10]

Sorry for the double post, but I want to pass along a tip I received when starting my career.

Start reading about personal finance. Start now and read more regularly for the rest of your life.

AJ suggested a book. I'll add a website. https://humbledollar.com/money-guide/your-financial-plan/.

[arcturus]

Congratulations on your new job! You have received good advice regarding your initial question regarding life insurance. I am, however, concerned by something else that you wrote:

[...] since I do not plan to stay long-term at my current university. I was thinking of maybe transferring in 3-4 years, or after I get tenure since it is easier at my current university.
[...]

If tenure is easier to get at your current university than the type of school that you would like to work at, you are unlikely to be able to "transfer" as a tenured (associate) professor.  Hiring with tenure is an extremely risky proposition for the school doing the hiring, as there is little recourse if it turns out that the newly hired faculty member does not live up to the expectations of the new institution. Even hiring someone on the tenure track, before tenure is awarded, has some risk if the faculty member negotiates for a shortened tenure clock. In general, it is best to think of your current job as a job you may hold (if you meet the tenure requirements) for a long time. I strongly recommend going into your current position with a positive attitude and a desire to make the best of what your school has to offer. Starting a job with a plan to leave it soon may result in an unexpected invitation to leave on their timescale, not yours. At the same time, working hard to make yourself competitive for other jobs is likely to be beneficial for your career, even if you end up staying at your current place. So, work hard, be collegial, and remember to breathe - the first year at any place can be much more challenging than any of us expect.

[Parasaurolophus]

Chiming on disability. Even I have that, and I'm in Canada (which, to be fair, is not the greatest on that front). In my case, what I got privately was a lot better (and cheaper) than what I could have gotten through the university. You have to compare the plans pretty carefully. Although it's possible (I have no idea) that if you have certain pre-existing conditions it's easier and cheaper for you to do that through the university than it would be on your own.

But yeah... with no dependents, supplemental life insurance doesn't make a lot of sense IMO.

[coolswimmer800]

Thank you all again for sharing your wisdom! I hope you don't mind if I trouble you some more as I navigate my first year, it is so stressful.

I have already bookmarked tabs and downloaded ebooks of the resources that were shared here. I've actually watched all financial planning videos from Khan Academy, and I read the majority of daily MarketWatch emails (for my IRA and 401K) that appear in my inbox, and I'm still overwhelmed by how much I need to catch up! Off topic, but I would really welcome any additional financial planning resources to review during my downtime. This is my first time hearing about the importance of disability insurance.


@arcturu: You are absolutely right, tenure transfer appears to be difficult given my experiences at my PhD institution. Even multiple prolific tenured faculty from comparable R1s were put back on the tenure-track, which shocked me! I am so fortunate my university exceeded my offer expectations despite their very public financial strains, so I am 100% loyal to my current university and I have full intention of maximizing my time. At the back of my mind though, I have been open to transferring in the future since I did my undergrad at my current university, and I don't think I can get past some bad memories I had here.

[Vkw10]

This is my first time hearing about the importance of disability insurance.

Even multiple prolific tenured faculty from comparable R1s were put back on the tenure-track, which shocked me!

My father didn't have disability insurance. He became disabled at age 58. My mother took unpaid leave for months to care for him while my brother and I paid the bills during the waiting period for Social Security disability. That experience convinced me that both a substantial emergency fund and disability insurance are essential for anyone who isn't independently wealthy.

Once a university hires someone with tenure, then discovers that the prolific researcher they hired is also an obnoxious jerk who offends students and donors, that university becomes very reluctant to hire with tenure.

[AJ_Katz]

I like the website Vwk10 posted.  It's a nice set of steps to follow.  Here are some other websites that I like:

https://www.getrichslowly.org/ 
https://www.mrmoneymustache.com/
https://www.bogleheads.org/

You mentioned you are maxing out your IRA and 401k.  Do you have options to make Roth contributions?  Do you have the option to establish an Health Savings Account (HSA)?  Do you know your annual budget and how much money you need to save for retirement?  What about your net worth?  Are you interested in retiring early?  Relatives are not always the best place to go for financial advice. 

[dr_codex]

Even multiple prolific tenured faculty from comparable R1s were put back on the tenure-track, which shocked me!

Others on the board have much better knowledge of personal finance, so I can only echo their advice to think very carefully what kinds of insurance are worth paying for.

As for the ease of transferring tenure-track jobs, well ... almost nobody gets to do this. It's generally hard to land any job, and it's even rarer to not have to earn tenure at the new place. Often, there's a shorter clock, which can be valuable. Otherwise, unless you are a superstar, you really need to show why tenure is essential in order for you do your job. That usually means that you are also taking on an administrative role (Chair, Dean, Provost, etc.), or running a huge lab with tons of external money.

But if the place to which you hope to move has higher standards for tenure, your chances of being tenured on arrival will be greatly reduced.

Congratulations on the job, and good luck!

[Hibush]

At the back of my mind though, I have been open to transferring in the future since I did my undergrad at my current university, and I don't think I can get past some bad memories I had here.

When I read "transferring", I think of some administrative action. But what you seem to be contemplating is to get a different job somewhere else. That seems like a much bigger proposition.

Given the relative challenge of changing jobs, what about addressing the source of the bad memories? You may find yourself in a position to make similar instances less common in the future. You are very likely to have the opportunity to make undergraduates have good memories of the times they interacted with you, or participated in programs you helped make happen.