I had a nurse ask me to review their hospital’s life insurance quote to see if she should have a policy. I thought this was a weird question because it’s absolutely important to have life insurance if you have people depending on your income. The reason she was unsure is that she is young and healthy with NO dependents. Upon reviewing it, she is paying $18 per month on a policy that “may have portability or a conversion option.” Wha?!? Either you can take it with you when you leave your employment or you can’t. That is incredibly important information to have at the front end before you start paying on a policy. If you are paying for life insurance it is imperative that it is separate from your employment, this is so you have it if you leave your job.
The worst-case scenario is you only have life insurance at your job, you get sick, can’t work and then die. Your family would get nothing if you leave your job before dying.
Term Life Insurance
One thing I didn’t like about my original 30-year life insurance policy is that I know in 10 years I won’t need a $500,000 policy. As our house is paid down and we save more money, my husband and kids will be more and more taken care of if I die without needing the full benefit. Unfortunately, with most policies, you have one option and then you have to stick with it or reapply.
I have a high-income friend that wanted to make sure that his wife was well taken care of. He is also saving a large portion of his income and projects that he won’t need much life insurance as he continues to build wealth. He bought 3 different life insurance policies. A $500,000, 30 year policy, A $500,000, 15 year policy and a $250,000, 10 year policy. This is a very complicated plan with the only variable being time. As he gets older and richer the policies will drop off every 5-15 years.
A Better Plan than the Tiered Option
I recently found a new option to this approach that can be changed based on how much you need as you build your savings. For example: if you have a mortgage now but know it will be paid off in 5 years you might start with a larger policy and then once the house is paid off drop it to a smaller policy thus paying a lower premium. Ladder is a company that I have found that allows you to decrease your coverage as you get older and have more money accumulated. I LOVE this concept. It kills me to think I’m paying a monthly premium for life insurance my family doesn’t actually need if I die.
Whole Life Insurance
This is something that I was almost convinced to buy 5 years ago. As I was getting encouraged to add it to my “diversified plan” I stopped when I couldn’t figure out the math. It’s a combination life insurance/ investment product that is often marketed to you by a financial advisor that is making a commission. I’m so happy I became so overwhelmed with the plan I was offered because I decided if I couldn’t understand the calculations it probably wasn’t a good fit for me. Looking back that would have been a HUGE mistake that I would have felt compelled to continue to pay into eventhough I would have been making way more money in the stock market.
Should you have life insurance if you have no dependents? That’s an interesting question. It would be a huge bummer if you had a preexisting condition pop up and you were no longer able to get a low life insurance premium due to a chronic condition. You could consider getting a small policy now, a healthy 20-year-old could get a $200,000 policy for 30 years for $19 a month. That’s $6,840 over 30 years. Then if you do have dependents you could buy a second policy to cover your family.
Less than 1% of insurance policies payout but the peace of mind for your family is priceless.
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