Life Insurance.
It seems everyone is getting some these days.
A friend of ours started selling life insurance and is now trying to convince us to purchase it.
His “recommended” insurance coverage for us would have run us $600 a month, to which I said:
He made the mistake of insisting that we need a $1 million policy on me, and a $1.2 million policy on Eric, even though:
- we don’t have a mortgage
- we don’t have kids
- we don’t have debt
- we’re both relatively young and healthy
- we both make decent incomes on our own
His recommendation was a combination of:
- term insurance: where you pay a small amount monthly for coverage but don’t get any money unless you die
- permanent life insurance (also known as whole or universal): where you pay a large sum of money monthly but it is invested and you get a chunk of it back after 20 years or so
- disability insurance: to cover the portion that wouldn’t be covered through work if you are disabled and can’t work for a period of time
Even term insurance for smaller amounts would run us about $80 a month. I don’t feel that’s a necessary expense right now.
Now, I’m not saying life insurance isn’t a good investment for some people. But right now, I definitely don’t think we need it, and we may never need it, actually.
The only argument for getting it now as opposed to in the future is that it would be cheaper for us to purchase while we’re younger rather than try and get in when we’re older.
In addition to the reasons I listed above, this is why Eric and I won’t be getting life insurance anytime soon:
- We’re covered through work. Should anything happen to me, Eric would get 4x my annual salary plus $50k and $25k per child (some day). If something should happen to Eric , I’d be well-covered.
- We both receive pensions through work. Should something happen to either of us, we would still receive the other’s pension.
Also, we both make decent incomes (we’re now at 50-50%!). If something happened to either of us right now (with no mortgage and no kids), the other one would be financially okay.
As for disability insurance, Eric and I are both covered through work for 60% of our pay. Because we also save 25% of our take-home income, if something were to happen, we would simply stop contributing to our savings until we could return to work again and cut down on some of our extra unnecessary expenses in the meantime, like doggie daycare for our furry child, and our fitness classes.
And if things really got dire, we may even let our house cleaner go. But, whoa, let’s not get too crazy.
Our friend tried to convince us that we would still need disability insurance so that we wouldn’t have to dip into our savings. But helloo!? Isn’t that what savings are for? Emergencies!
And I’ve just proven that we wouldn’t need to dip into our savings, we just wouldn’t be able to continue saving while one of us was on disability.
Our current mandatory expenses run about 40% of our take home pay, and that includes our $500 grocery budget, cleaning lady and gas budget. So, we’d be fine. We may have to stop purchasing organic eggs and chicken, but again, we’d be fine.
Perhaps our decision will change when we have a mortgage, or when we have children. But for now, it seems silly to spend so much money on the very small chance that something could happen to us.
I read somewhere that only about 6% of people actually receive the benefits of life insurance (I can’t seem to find that info now). It seems like a lot of money to spend on something you have only a 6% chance of actually needing.
That said you might be reading this posting because you are looking for life insurance. As you can tell we are pretty skeptical of the need for life insurance. However if you want a recommendation, consider going with USAA. Their rates are good and their customer service is great. So, USAA is a low hassle good value buy.
Do you have life insurance?
30 comments
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No one has mentioned an IUL. When you are considering having children, look into an IUL – Index Universal Life, other than Term and Whole and has been on the market for 20 years yet not well known. It compounds interest, tax free, less fees and you can take out before your 59 1/2 without having to return the loan yet also increases the policy amount. A variety of insurance companies are using this type of insurance (American General, ING, etc) Might be something to consider for a retirement vehicle also. This is a type of insurance wealthy people use that doesn’t go up and down with the market. You receive the gains and none of the declines like the stock market.
If the past decade is any reflection of what is to come, protecting your money with underlying guarantees can minimize the stresses connected with providing an education for your loved one. Unpredictability and uncertainty have been more prevalent over the last five years than any other time in US history. If this pattern continues, what guarantees do you have in regards to your loved one’s higher education needs? Utilizing an IUL for your college planning needs is definitely a great way to bring security into an insecure financial world.
This is a great article. There are some people that simply do not need life insurance, and anyone selling life insurance should know that. Good work on your financial stability.
It’s great to find sonmeoe so on the ball
“The only argument for getting it now as opposed to in the future is that it would be cheaper for us to purchase while we’re younger rather than try and get in when we’re older.”
I would add another argument for getting the coverage now – if your health changes you may be unable to qualify for life insurance when you need it most.
One more reason, if you lose your job, you lose your employer provided life insurance benefits, unless you convert it to a permanent life insurance policy which would cost you a lot more.
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I think if you plan to have kids, you should get it now. It is harder to get the preferred rates if you’re pregnant because you weigh more, have higher blood pressure, etc. You also never know what will happen to make yourselves uninsurable. If your husband would have had it in place before becoming a firefighter, he probably would have paid a lower rate. I think its a good idea to have it.
As the insurance agent here I cannot stress life insurance enough. However, what your friend is suggesting to you is a huge amount of $ a month. We each pay about $90 for our polcies which we each have a mix of term and permanent. There is enough for a funeral, pay off the mortgage and be able to take time off to deal with such death. We are very realistic about death as I have a heart problem that can kill me. We don’t feel like we are invincible by any means.
That being said everyone is different and if you feel that you would be okay (financially) if one was t-boned in an accident at an intersection and killed tomorrow, then you are fine. I think it is awesome that you actually know what you have through work. Unfortunately people just think they have a policy and it will be enough . However, most companies don’t even offer enough to bury someone. It isn’t about trying to get rich if a spouse dies but it is about being prepared for the unknown and helping you ease through the grief of a death.
Unfortunately I have seen the sad stories of people who didn’t think they needed it and oh did they. It can be heartbreaking. Fortunately I had a friend whose husband died and they had a 5 year old at home. To see what that policy did to save their futures was really eye opening and something I will forever keep in that back of my mind.
One more thing-someone made a comment about how much money an agent makes on the policy…some agents only get paid on the first year and they don’t get shit after that. They are fighting for a numbers game of sales normally. (horrible) Obviously you should always go with what you and Eric feel is best but I have written some pretty big policies but hardly any of them totally $1 million. Underwriters look at that a bit funny:)
I could go on:) sorry for the rant friend. End cap-I think you should get some one day but I would support you for saying your work policies are good for now without feeling like a bad friend. 🙂
My BF and I don’t have life insurance for the similar reasons you listed above. When we start having children is when I will look into having insurance I think
We just got policies for my wife and I. Several reasons:
1) My new employer lowered their coverage limits to where I was uncomfortable that either of us would be adequately covered in the event that one of us died.
2) We have young kids. Our coverage needs are based on having the means for taking care of the kids and the family. My wife is a stay at home mom, so her coverage is based on the fact that I would need to provide care that she currently offers. Since I’m the primary breadwinner, the policy covering me is much higher.
3) Age is a consideration. We got coverage while we are both in our 30’s. Every year you get older will cost you more because you have a greater chance of dying with each passing year.
We have a total of $1.25m in coverage and it costs us around $60 per month, for a 20-year term policy.
You don’t need it now. But you will when you have a kid or maybe with a mortgage. And don’t get whole life. Get term. It’s that simple. A million dollar 30 year term policy should cost each one of you less than $1000 a year. It’s dirt cheap for what it provides. Your disability is good enough. And I’m sure Erik’s is as good as it gets as a firefighter. I feel sorry for your friend because what he is selling is garbage. However, there are a lot of suckers out there so he might do well for himself.
I’m in a bit of a different situation than you (I have a 1 yr old son and a mortgage). However, when I got married I made sure to get some life insurance because if I am that 6% – I don’t want my wife to have to think or worry about money for some time.
Now – a $1 M policy is ludicrous for you guys – I only have $750k. But, try and realistically think how drastically your life would change should something unforeseen happen to Eric. It’s morbid to think about it – but it really hit me hard when we put our will together. How soon would I go back to work? Would I be able to work right away? A month after? I don’t know. Life insurance may ease that transition back to reality.
Just my two cents. I don’t think I’ve commented often on your blog, but enjoy your style. I’m not a life insurance salesman or guru, but protecting my family has been very important to me since I got married and had a child.
Right now, financially, my life wouldn’t change that much. However, it is something we will have to re-look at when we have children and/or get a mortgage.
A few things to consider (and no I don’t sell insurance). If you get sick now it can be difficult to get insurance later without paying high costs. It’s not just an age thing, it’s also an “oh you had cancer” thing. You never know if you’ll be struck with an unforeseen medical problem down the road so it’s wise to lock in rates when you are young and healthy. I’ve seen 30 year olds with brain cancer, high blood pressure and other diseases that cause insurance rates to soar.
Having your own life insurance and disability policies means you can go wherever you want whenever you want. You probably won’t be in the same job forever. What if you want to freelance more or work for a small company without big benefits. Locking in your insurance rates now ensures that you can go where you want without worrying that your next employer will carry insurance for you, when you may be sicker or at the very least older.
Another case could be staying home with a child. You won’t have a company insuring you if you choose to leave the work force. Many people say “I won’t stay home” but you never know if your circumstances (a sick child for example) could change these things.
I never gave these things much thought until I got sick at the ripe old age of 27.
There are many reasons to get insurance, but a pushy salesman shouldn’t be one of them. If you do decide to get coverage look closely at the details of what you are signing up for and make certain you understand all riders.
I can say with about 99% certainty that I will be at this job until I retire. Most people in my company stay until they retire because the benefits are so good. What other job do you know of that will guarantee you 75% of your income when you retire?
However, there are a variety of considerations for getting life insurance that we will have to re-look at when we do have more liabilities, like children or a mortgage. For now though, we’d both be financially okay
Wow, that is ridiculous! It’s sad that your friend is trying to mine his relationships to oversell them. I almost hope he doesn’t realize what he’s doing – that’s he’s been indoctrinated into this business. It might be reasonable for you to consider additional insurance (you definitely don’t NEED more at this point), but he apparently didn’t bother to have the “why” conversation with you, just the “here are our products!” one.
Well he did give us this whole spiel of how we would want to cover our children’s education, and our mortgage, etc, so a $1m policy would do all that, but seeing as we don’t have children or a mortgage right now, why would we be paying these rates now? I feel like it could be a few years and we would be paying hundreds of dollars in the meantime for something we don’t need.
I work in this field not sales but client servicing, with that being said your friend won’t go far if he doesn’t understand the needs of his client. I wouldn’t recommend a term life policy because you’re covered through work but if anything you could consider the whole life policy as a form of savings– depending what company you go with they give out yearly “dividends” which can be considered like an interest gain on the cash value of your policy. After about 20 years this cash value is available to “loan” out but honestly you will probably not have to pay back the loan if you keep it till death it will just reduce whatever you owe from your death benefit. I.e. you take out a 250k policy for about 50-70$ a month in 20 years you can loan out say 100k for retirement or whatever and when you die your beneficiaries receive 150k. Hope that makes sense just some info but def he needs to get in tune with his client before trying to sell!
yes I have heard that that’s why a lot of people get the whole life insurance, but everything I’ve read online says you shouldn’t be treating insurance as an investment. You should invest to have investments.
What your freind neglected to explain to you was that your life insurance policy could be used to start your very own banking business. Should you start paying big premiums to your policy and then in five years borrow money, your money, from your policy to purchase a car, lets say. Now you basically pay yourself back, make sure to pay yourself interest and you will not be losing any money to interest payments to a bank. You will also be getting paid dividends from your Life Insurance company paid to you. I use this system of banking for my own life and I am very thankful I do. Don’t be shortsighted, Whole Life insurance is the safest best savings plan in the world. The best part is that with the money I make by borrowing from myself. I am simply building up my tax free retirement income. Too bad your friend does not yet understand how to explain all of this to you.
Yeah, I’m not so sure how I feel about that. Everything I’ve read says you shouldn’t treat life insurance as an investment vehicle. Also, something just sounds fishy with a bunch of hidden fees. Everything I’ve read doesn’t make me comfortable signing up for whole life. Why wouldn’t you just invest in an actual investment tool?
I have life insurance through work. We don’t have individual policies because we are really young and if anything happened to either of us we would survive. I don’t believe in life insurance and actually think it’s a scam….is that bad?
I think the same thing!!! That’s why I’m not sure if we would ever really get life insurance…
I feel like if something were to happen and we DID have a mortgage, then we would just sell and downsize… right?
$600 a month?!!! What in the world is he selling you, a new house? $10.00 would get you each $100k. Like you said, you are both healthy and young. What is life insurance, anyway? It’s to protect your dependents and pay off from any ends you left undone. You have no kids, and each spouse is independently supported, so no, I completely disagree you need a $1M policy. I think he’s just recommending you what he wants to sell you, not what you’d realistically need…
You should ask your friend how much commission he’s getting from those policies he’s trying to sell you. And good for you guys for sticking to your guns and not being pressured into anything! For exactly those reasons you stated, you don’t need coverage at this time.
Quite possibly true. The commission on a 1+ million whole life policy is probably pretty high. Whole life is also a complete and total ripoff. A whole life policy is a worse ‘savings’ account than a basic passbook savings down the street.
My wife and I each have a 100k 20 year term policy. We’re mid 30s, no kids, no mortgage. Mine is $145 a year and my wife $125. If the inevitable were to happen sooner rather than later, 100k in the bank would definitely ease the transition.
I am starting to think that an additional 100K would be helpful enough just to “ease” the transition.
Those are some pretty ridiculous recommendations. We’re in a similar boat to you guys and we don’t have any additional coverage outside of our work policies. But those are generous and our savings rate and current savings pile is high enough that I’m not stressed about being able to cover expenses should one of us kick the bucket.