Life Insurance Is an Affordable Necessity

That One Caveman — Thu, 16 Apr 2009 12:30:29 +0000

One day, you will die. It’s an unfortunate fact, but the truth still remains. We’re not long for this earth and we don’t know when we’ll make our exit. Life insurance is one of those things that you need, but it’s hard to want to buy – it feels somewhat morbid to discuss your eventual death with a stranger.

Sure, life insurance is basically a bet against yourself; but it’s a bet you can’t afford to not make. When you eventually die, there will be a series of significant costs for the people you leave behind: funeral expenses, final bills, etc. And if you have a family, your death adds an extra burden of lost income. A good life insurance plan helps your family and other loved ones manage the expenses related to your death.

Yesterday, my wife and I made the uncomfortable trip to our insurance agent’s office to discuss our life insurance needs. I already had a good plan worked out in my head, but we wanted to discuss our options with her before we signed the papers and locked into the coverage we want. She brought up a few options I was familiar with and a few that were new to me. Most of it had to do with company-specific plans, but I’m sure most companies have similar arrangements.

Here are the standard life insurance products you’ll come across:

Whole Life

A whole life policy is just how it sounds – a policy that doesn’t end (until you do). As long as you keep paying your premium, your benefits never decrease. The payout is lower, but most whole life policies have the added benefit of a true cash value. As you pay your premiums, the cash value of your policy increases and can eventually start paying dividends back to you. If at some time down the road you need money, you can cash in your policy for its cash value – but that’s not really recommended. Whole life policies are great for known fixed end-of-life expenses and for guaranteed benefits.

Term Life

A term life policy is a policy with an end date to its coverage. Most term life policies run either 20 or 30 years and have payouts of at least a magnitude of order higher than whole life. The down side to most term life policies is that they have no cash value. (There are some term life policies – with higher rates – that give you back all the cash you paid in at the end of the term.) Term life insurance policies are great for providing long-term financial well-being for the loved ones you leave behind.

Life Insurance for Children

I’m a fan of getting whole life policies for children before they turn 1. Many of the popular plans have a fixed-for-life rate and double their coverage when the child turns 21. My parents purchased a $5,000 plan for $92/year when I was an infant that doubled to $10,000 when I turned 21 and gave me the guaranteed option of purchasing more coverage at ages 21 and 28. For my first daughter we purchased a Gerber Grow-Up plan and will likely do the same for our second. It’s not a great investment (and I believe insurance shouldn’t be seen as an investment vehicle), but it is a great start, piece of mind later if problems arise, and a good start for your child’s insurance plan when they reach adulthood.

How To Choose

I prefer blending whole life and term life policies into a larger insurance coverage plan. My personal insurance “standard” is to have enough whole life coverage to completely pay for the funeral and let the term coverage pay for other expenses, such as mortgages, auto loans, future child care expenses, and possibly college for the kids.

After meeting with our insurance agent yesterday, we opted for a $25,000 whole life policy for my wife and $300,000 20-year term life coverage for each of us. This amount should more than pay for any end-of-life expenses for my wife and the $300k will cover the house, our debt, and about 10 years’ worth of child care. We could have opted for more and also covered the kids’ college, but we’re leaning more toward helping them pay but encouraging them to find ways to pay for it themselves.

I expect our premiums to land somewhere between $75 and $110 per month (or somewhere around $24,000 over the life of the term policies). We’ll know our final price when the health assessments come back. That’s a good price for access to that much coverage. I don’t know if it includes any loyalty discounts (we also have our home and auto insurance through the same company), but sticking with a trusted company was worth it even if there aren’t any discounts.

Find the Right Plan For You

If you’re interested in researching life insurance plans for yourself, the following resources might help: