I called a local financial advisor last year and in our conversation he mentioned a few things he always wants to make sure his clients have. The things he suggested always having were life insurance and a will/trust, especially if you have children and/or assets.
Here is my journey in the arena of life insurance. Since my profession is a popular one and I belong to a national professional group, the national professional group offered cheap term insurance, and I decided to pay the premium monthly amount for $100,000 coverage. The same year I married, we also purchased our home. After getting married, we went to the same insurance agency that we purchased our home insurance through, but weren’t sure how much coverage we needed. At this point we had no kids and our largest expense was our mortgage. I have heard suggestions of getting 10x your annual income, or variations of what amount of $ you would need to cover if your spouse passed. We ultimately decided to have enough coverage to pay our home mortgage off, so we wouldn’t have that worry on our plate. Our insurance person asked if we wanted term or whole life insurance. Not knowing, we ended up choosing a mixture of term and whole life. It took me 10 years to come to my senses and cancel the whole life, which was 6x more expensive than a similar amount term life insurance we eventually signed up for. When each of our children were born we reevaluated if we had enough life insurance. We ended up sticking with the amount $250,000 and my employers also had $50,000 coverage. Our mortgage amount owed was decreasing, and my husband’s social security would give some benefits to the children if he passed.
I have heard other experiences with those with whole life. A close family friend’s wife had a failing organ sickness and wasn’t able to be covered under most insurances as she had a preexisting condition. Mony Insurance company was willing to have a dual whole life policy on the husband and wife that would pay out after the death of both. As the death of his wife was thought to be soon, they took this policy out for a million dollars with the beneficiaries being their five children. The yearly premium for this policy has been between $8,000 and $9,000 every year. The couple’s understanding originally was that the dividends on the invested money in this policy would potentially cover the yearly premium, so far the yearly dividends have been a couple hundred dollars. This couple, thank fully are both still alive after 28 years. They are still paying upwards of $8,000 a year on this policy and all their children are older than 30. Those who sell whole life insurance would emphasize the cash value of this policy, as it is now over $300,000 that the couple could tap as a low interest loan. Whole life policies are a blend of insurance and investments, but I don’t think those two should be mixed. Whole life policies tend to have high commissions to the seller of the policy. Be careful.
Another friend I have lost her husband when their children were very young. He did not have life insurance as he had high risk factors in his life which made life insurance very expensive. He had social security and those benefits are paid to his children a little bit each month. As the sole provider of her family of four, this friend wants to be assured the guardians of her children will not be monetarily burdened by inheriting her children if she passes, will be able to upgrade their home if needed, and that some money for college will be available if her children go that route. This friend has a $1,000,000 policy.
If you don’t have insurance I would suggest going to a brokerage like policy genius to get quotes from multiple agencies. If you have an expensive whole life policy and want to change to term life insurance, make sure to get a term life policy before cancelling your whole life policy, in case something comes up and you end up having an uninsurable condition you didn’t know about. Do not lie about preexisting conditions when getting a policy. Do not commit suicide ever, but especially not within two years of first signing up for a policy, as most policies will not pay out. When you have reached your FI number and especially if your kids are grown up, you can choose to drop your term life insurance. We insure for the unlikely and catastrophic events. We insure to help care for those we leave behind. Get your house in order.
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