I know it seems dark, but do you ever think about dying earlier than expected? I do, but I know my husband could make it financially since we are prepared…finally.
Finally Thought About Life Insurance
In our early 20’s, our life insurance coverage was just one year’s income…and even that was just provided by our jobs. Bad Crystal – we lost our benefits the second we left our jobs and I could have been let go at any time since my industry was not recovering quickly after 2008.
But in our late 20’s, we noticed our accumulated assets. We had paid off our first home and bought a more expensive one, and my husband joined me in self-employment. We decided to take life insurance seriously.
I looked into two main options – whole life insurance and term life insurance.
Whole Life Insurance
Even though whole life insurance seemed enticing because it sells itself as an “investment”…it really isn’t a good one and it costs significantly more than term life insurance. The returns are low compared to the rates you can get from other retirement accounts like 401k’s and IRA’s. They also are not liquid and if you do use the option to take out tax free loans from your whole life policy, you will owe it back with interest starting on the day you make the withdrawal. That means that it’s accruing interest charges even if you took the loan specifically for retirement. And the terms are generally vague or confusing, which isn’t helpful when you are only taking advantage of the policy when you are already dealing with a major loss or life change.
In short, you end up paying higher premiums for the opportunity NOT to diversify your investment to take a chance to make comparably low returns that lose a lot of importance as you age since your dependents don’t need as much help. Compared to our short term investments with high returns this just wasn’t at enticing.
Term Life Insurance
Term life insurance was simpler and cheaper. Pay a (usually) low monthly premium for a set term and receive set coverage. SOLD!
Since we weren’t having children, and I was aiming to have enough saved not to need life insurance when we were looking at policies, we ended up buying a 10 year term life plan. Looking back on it, I should have gone with a 30 year plan just in case we changed our minds on kids (which we did and are now trying to have).
Our 10 year term policies are good for another 5 years, cost $14 a month for me and $16 a month for Mr. BFS, and will cover each of us for $250,000 for an accidental death or $37,500 for a natural one. $250,000 is enough to cover our funeral costs and paying off our current home (or about 4 years of our living expenses, whichever is a better option), which should buy enough time for whichever one of us is still alive to get back on his/her feet.
If we die naturally before age 38, $37,500 will at least cover our funeral and replenish the emergency savings that was probably drained from our out of pocket health insurance maximums.
When our policies are up in 5 years, I will most likely lock in another 20-30 year term with higher coverages if we do have a child. And that should be the last life insurance we will need.
How about you? Do you have life insurance squared away if the worst happens?