I Suppose I Should Buy Life Insurance Now…

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Up until now, there are two reasons I don’t have any privately-bought life insurance. For one, as I’ve mentioned nobody is actually dependent on my income. Wife is doing fine, don’t have any kids yet. We also have 1x annual salary’s worth of life insurance as a benefit from our employers, and she’ll get all my retirement account funds if something happens to me. The other reason is that I know that life insurance is priced based on tiers of health, and I’ve been secretly thinking that I can back into my high-school swim team physique and get the absolute cheapest level of life insurance.

However, I’m starting to think both of these reasonings are flawed.

I used to think that there was no need for life insurance if nobody needs your income. But perhaps I should amend this – You need to weigh the chances that someone will eventually need your income. For example, if I fully plan on having kids within the next 2-5 years then my income will probably be needed at that time. And as someone else mentioned in a comment, life is a funny thing and you never know when my wife might just get pregnant unexpectedly.

So the question is, do I really gain anything by waiting until the last minute? The risk I take is that in the meantime my health deteriorates and I become uninsurable. You might find out you have cancer, fight bank and end up in remission, and lead a long life. You develop a heart condition have it under control, and be perfectly functional. But in either case, nobody will be issuing you an affordable policy.

(This argument has also been used by an insurance salesmen telling me to insure my kids starting at birth with a whole life policy, but I think that is stretching things a bit.)

What about trying to get healthier first? The fact is that if I’m young and even slightly healthy, term life insurance is still going to be relatively cheap, whether or not I manage to stamp out my love of ice cream. One easy-to-use site to do some quick comparisons on is Term4Sale.com. Currently, it says I can get $500,000 of 20-Year Term insurance (non-smoker) for about $25 for the highest Preferred Plus tier. But the lower Preferred tier is only $5 more, and the even lower Regular Plus/Select tier is only $10 more per month. The site estimates that I can have both elevated cholesterol and raised blood pressure and still land in one of these groups.

I would say if you’ve been harboring this desire to get healthy for more than 6 months or so and haven’t made significant progress, it’s time to give it up and pay the extra $5 per month. 🙂

Finally, the current cost of term life insurance is still historically low, so there is not much incentive to wait for better overall rates. Here is the general trend over the last 10 years for 30-year term (click to enlarge):

Yet another thing that reminds me that I’m not getting any younger…

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  1. I went ahead and “got healthier” for 6 months before I applied for my life insurance. I did get nearly the best rate, but don’t think that I somehow scammed the life insurance company.

    The truth is, most of the habits I started when prepping to get insurance were good habits that I have kept. I managed to improve my cholesterol a lot to get a good rate, but it has gotten better and better since then. So from their point of view, I am becoming a better and better investment (less risky).

    I’m currently weighing the notion of getting a second shorter term policy. Obviously the need for life insurance diminishes over time as you build assets, and I sort of expected inflation to accommodate that some for me. Right now I’m thinking a kind of “life insurance ladder” might make some sense.

    If you don’t have kids now, it might be reasonable to get your long-term policy now. As your life changes, you might consider some kind of laddering, i.e. adding more.

  2. Yes, you need insurance and you need a will and the related documents too. Now. I can’t believe that you are so *together* in your life, except for all of this. I’ve always thought you were the one of the most organized, detail-oriented PF bloggers.

    Life insurance is cheap. The estate documents are cheap and not that hard if you know a lawyer. After all those personal finance book reviews, these gaps are really pretty shocking.

  3. After getting married six years ago I realized that the life insurance is important because while my wife earns a good salary – death of a spouse is a life altering event. I felt that it is important to have a financial safety net there for the transition – maybe the stress forces my wife to take time off from work, she decides to relocate closer to other family members – all the unknowns.

    and we got policies for both that cost about 1000 per year combined. distressing to think about but comforting at the same time.

  4. We are in the same boat as you are and are evaluating options for Term LI. After a similar analysis we came to a conclusion that its going to be downhill from here on; so we started some insurance shopping and I must say this insurance shopping needs an online alternative. The sales agent are always pushy and just trying to eek out as high a commission out of you as possible.

    On a different note what are your thoughts on term life with the return of premium policy. They seem to run abt 50% more than the plain term life; but then you do get all your money back.

  5. I am not sure where the gap is – life insurance is clearly not necessary for the guy right now. We didn’t feel the importance of a will either, until we had kids. (Not that there is no importance, but I understand his decisions thus far).

    BUT I had to share we switched insurance in our 20s so we could lock in our rate for a couple of decades while so young. (Say 29?). I was pregnant and I felt really uncomfortable doing the medical tests then. Our broker was a friend and assured me it was fine, though I was skeptical. My health was obviously not 100% up to the snuff well into pregnancy (it just does so much to everything in your body and I had high sugar and blood pressure was rising, etc.). Anyway, we got the highest health rating at the time; our broker said few do. I think being young was our #1 advantage. We eat okay but aren’t health nuts and don’t think we were big on exercising at that time. So this is a long story to say I don’t think “swim team physique” will make any difference. Youth is certainly an advantage though.

  6. Allen @ Good Money Blog says

    My job comes with 1x life insurance, and I currently pay around $20/month for 5x.

    I know that’s still not enough and will get a term life outside when I have kids.

    As far as I know, life insurance rate stays flat for non-smokers under 40.

  7. My Husband and I just got out Life Insurance and Term policies added(both of us are in our 30’s) and given the fact that I travel so much for work and so does he, it just seems a great idea to have that protection. I wish I had done that a little earlier, probably would have gotten a better rate.

  8. once again, we are very in sync. i just had my medical exam 3 weeks ago and the results came in the other day..my cholesterol levels are pretty high, which i knew going in, and i ate very healthy (including less dairy) 2 weeks prior to the test but that didnt help much, should have exercised more. so i’m not eligible for the preferred plus, but rather just regular. so the insurance agent talked me down from 20 yr to 10 yr

    male, age 29, non-smoker, 500k
    quoted: preferred plus rate 20 yr ~$250/yr
    post medical exam:
    regular rate 20 yr ~$500
    regular rate 10 yr ~$250

    so i think i will go with 10 yr, and then before 35 or age 40, cancel that policy and get a new one and decide then where we are in life.

    i also currently pay $370/yr for life insurance through work’s fegli (i am a federal employee), which gives me 276k if death is accidental and some small dismemberment payouts and maybe some other benefits. i am considering canceling this altogether.

    sorry for the lengthy post, this actually helped motivate me to decide what to do (ie. i never calculated how much i was paying per yr via work)

  9. Mrs.ThePoint says

    I am also thinking about life insurance for my husband and I, but either of us know too much about it.
    I read that there are basic life insurance like what is described above.
    Pay around 25/month for maybe 20-30 years. When the term is up, nothing happen, the money goes to the life insurance company.

    But there are also investment kind life insurance out there.
    We might pay higher premium but at the end, there are some money as return.

    I am wondering, have anyone ever do some investigation into investment kind of life insurance? Are they worth of buying?

  10. Respectfully, I don’t think you need life insurance just on the remote possibility you will somehow get some health problem which will make it harder to buy life insurance later and then will die while your children are still being raised. That seems very unlikely for someone your age and health, as it would require two remote possibilities to both happen. Life insurance may be cheap, but that doesn’t mean its not a waste of money.

    If you are having kids in 2 years, and your networth continues to rise at about $13K a month, your networth will be north of $570K by the time you have kids, which should also provide quite a cushion.

    If I were you, I might get disability insurance, as that is the one possibility that might sink your household finance boat.

  11. Like you said, life is funny. You can be driving along just fine, then all of the sudden you run over that sharp object and have a blowout, metaphorically speaking.

    You’re health is fine now, but you don’t know how you’ll be 5 years from now when you’re getting ready for your first child. Getting a 30-year term policy now for less than $20/month could be better than waiting 5 years and paying more monthly for a 25-year policy. Any number of things could occur that would drive up the cost of coverage significantly in the coming years, and based on the premise that you buy term because it’s a relatively cheap way to cover ‘in-case-of’ scenarios, might as well get it cheaper now.

    And i would avoid settling for the absolute cheapest insurer. You definitely want reliability and stability from a company that is required to pay such significant amounts for the unforeseen occurrences. Good luck.

    I got my first term coverage when i bought my first property in 2004. My 1st daughter was already 3 at the time so i considered myself late in getting covered, but buying the house scared me straight. I wanted to make sure that there would be enough to payoff the mortgage, if that’s what my family decided to do if i died prematurely. I ended up selling that house 2 years later, but of course i kept the insurance…i even raised the coverage since then.

  12. BTW, my co-worker’s college friend just died last weekend from a fateful bout with lung cancer. The guy was a 26 year old medical student, who was physically fit and didn’t smoke. I don’t know what his upbringing was or if there were any definitive factors his family could point to that attributed to his cancer. I find that the older i get (i just turned 33 on the 4th of the month), the more i hear stories about otherwise healthy people my age passing from things like heart attacks or cancer. The point is, you NEVER know.

    BUT, Alex makes an excellent point, and if i were a financial planner it could easily be a recommendation i’d make for someone who has insurance from work and has a good net worth. Of course other factors would have to be considered in that case too. But the cheap cost of disability coverage is probably a more desirable way to go. As a Schedule C filer, you should have no problems getting adequate coverage.

  13. I agree with the person who said not to go with just the cheapest company around, but really the ratings on these companies are not inspiring. I still have the details of my orriginal search for life insurance and some of the companies that were cheaper but worse rated are now higher than the company that I eventually went with. I think the whole mortgage blowout really shook up some of the companies but that’s my personal oppinion.

    There are good reasons that those longer term insurance policies are more expensive, since their risk is more at the longer end of the age curve. Will you even be able to get insurance at the expiration of your policy? How about inflation? Will a policy bought 10 years ago really cover your expenses for those 25 years the policy covered?

    I am leaning more towards tiered policies, my orriginal policy that I bought years ago along with another from a different company to cover the next 15 years and getting another one in a few years to cover another 15 year term from a third company. This is as opposed to canceling a policy and getting a new one. Spreading out the risk that one company will go belly up and at the same time still increasing my coverage to cover the devaluation of the dollar.

  14. When I last called about insurance I was asked about the weight issue. They said that if you lose a significant amount of weight you can ask them to re-evaluate your health and then re-assess your rate.

    Just something to ask about if you are calling around.

  15. Susannah says

    We’ve decided not to do life insurance currently beyond what my husband is covered for at work. If you have the savings to support that as a decision, it is not necessarily an irresponsible decision.

  16. Dude, just get it. It is unbelieveably cheap. How will your significant other pay for the big house you just bought on her own? Certainly not a burden I would want to leave my spouse in case of my untimely demise. I got a 10 year, 500k policy in 2005, and pay only $17 / month. For the piece of mind it gives me, it is the best $17 I spend each month…

  17. Brice @ Business Financial News says

    I think that life insurance is a one of the least utilized assets a family can have. Not enough people have life insurance and need to in case of the that time we need it. Some people say you should get term and invest the difference that is difficult to do knowing that most people have a very difficult time saving the difference and investing it wisely.

    I am personally for whole life insurance which if you get really sick if you are younger (i.e cancer or some disease that can affect insurability) you don’t have to worry about being covered. Where as with term insurance it is cheaper and once the term ends its over and if you get really sick in that period of time you might be seriously up a creek.

  18. I just got 30yr term insurance. Married with 2 kids.
    Got 1M for $32/mo.
    I’m 35, non-smoker, perfect health records.

    When you decide to buy, do it online. Term4sale or selectquote are both good (I ended up using the second).
    I went to an Agent first, he tried to push hard for whole life, then tried to sell me those insurance that will invest your money, and you get your premium back…don’t waste your time.
    Online sites are the best. You’ll still deal with a live person, but they compare all different companies rates based on your profile, and you get the best deal. The companies are all AAA+ (AIG, Banner, Genworth, etc, etc, etc)

    The rate I got was $28/mo for 500K, and the agent suggested $1M for only $32/mo.

  19. I would spring for the insurance. You could always get sick and that could mean very costly medical bills. This would put a big strain on your wife. And then if you died she might not be able to work for a while etc. You just never know what could/might happen. Its just always good to be rather than sorry. I don’t think its too expensive.

  20. Maybe I’m too cynical here, but:

    1) just because you’re insurable now, what’s to keep the insurance company from finding some excuse to cancel your policy *after* you “become uninsurable”?

    2) what’s to keep the insurer from not holding up the payment to you forever on technicalities because it’s in their best interest to not pay out on claims, in aggregate? I’ve thought about looking for companies that are well capitalized, have a good history of payouts — but hey, the truth is that they have the sweet end of the stick. Steady, level income from you for decades, which they might have to pay back. Might.

    3) Don’t term insurance premiums rise with age? Does getting in at an earlier age mean that I would be paying a cheaper premium compared to a latecomer? For example, if I pay $10/month on term life at 30, and they raise it to say $25/month at 45, would a 45 year old coming in at the age of 45 not also get offered the rate of $25/month, all things being equal? If that’s true, then the risk you take is really one of whether or not you will die at a young age, but there won’t be any financial advantage to starting earlier.

    4) Doesn’t you and your wife’s employer pay for life insurance up to, say, 7x your income or something like that? How would your independent policy not be redundant? How would the payout work if you are “doubly insured” like that?

    Appreciate the blog!

  21. I would highly recommend that anyone with life insurance should thoroughly review the terms and conditions of the policy and call the issuer if you have any questions. Also, be aware that although you may take out a policy for a certain amount, let’s say 100,000 dollars; it doesn’t mean that your beneficiaries will get that amount. Some policies have a component that reduces the limit amount when the insured reaches a certain age. In addition, there may also be incrementental reductions to the policy limit as the insured continues to live after her certain age.

  22. Thank god you’ve made this decision! It’s the one thing that always worried me!

    What if your wife was so upset about your loss that she wasn’t able to function and lost her job?

    What if it was an auto accident that was your fault and you were killed, but your wife had some serious injury that prevented her from working, but didn’t quite get a large claim amount from the insurance company?

    And then the situation could always reverse.

    Personally, I got 250K insurance 5 days before we were married and plan to upgrade it to 750K with a different company now that I’m a little healthier than I was a couple of years ago.

  23. Couple of commments (for purposes of full disclosure – I am director of financial planning at a wealth managment firm, so may be biased but have seen when families do need this money),

    1) I am not interested in starting the term vs. perm life insurance debate BUT…As you said you are young if you get that wonderful cheap term for 20 bucks a month or what not – it’ll be up by your 50s! at this point you are likely to need the liquidity of insurance to pay any Federal or State (if you live in a decoupled state like NY) Estate Taxes. Not trying to start that fight, but its a good one…

    2) @K – you are a tad confused…The product you are talking about is called Annual Renewable Term (ART) that product rises every year. Most people purchase Level Term which stays ummm LEVEL for a period and then shoots up. If you were to get 30/mo Term for 20 years – It is guaranteed to stay there regardless of what happens for those 20 years. But after that! IT SKYROCKETS.

    Just a couple thoughts

  24. @Evan, I don’t think K was confused, I think you misread her statements, at least from how I interpreted the question.

    Say I’m 23 and buy a 10 yr term life product now at $10/month. when I hit 33 and the policy expires, they offer me a policy at $15/month.

    If I had instead waited until I was 33 to buy anything at all from them, would I still be charged only $15/month, or do I get a better deal because I’ve been with them?

    If I’ll pay the same either way, buying it at 23 is me betting that I’m going to die by 33. If I wait until 33, I’m just saving myself some money until I get that old.

    Now I just hope K is actually a “her”! 🙂

  25. I apologize if I misunderstood her comment (although I think she is describing ART). Regardless, I just ran the numbers for a 23 year old 10 year term…before I get back comments – note I pulled 1 quote from one company, that has been around since the civil war time lol and has a better credit rating than the state of NY so you could probably do better, final price wise, somewhere else:

    23 year old F 10 year term $100K policy – $125/yr (a little under $11/mo)
    23 year old F 10 year term $100k policy – at 11th year – $320/yr
    23 year old F 10 year term $100K policy – at 20th year – $538/yr

    If you buy level term and hit X year then your policy is more or less turned into an ART.

    33 year old F 10 year term 100K policy – $129/yr ONLY 4 dollars more!

    The point is that you are buying protection…if you feel that nothing will happen to you in the next 10 years, you can save your $11 bucks per month but if you compound that out at 7.2% for 10 years – you are looking 260ish! BEFORE TAXES EACH YEAR. Would you trade that for 100K coverage for your family? That’s a very personal decision.

  26. There’s also the issue of replacement value (not just your income). My professor’s wife just died one morning…no warning, no time to prepare…and he ended up paying a good bit for childcare and such. She was a SAHM and so he only had a small rider on his policy for her, to cover funeral arrangements (sensible, given how much they cost).

    I don’t know if that means you should buy it now, but it’s certainly a factor to consider when figuring out how much to buy and for whom. I hadn’t thought of the funeral one, for instance, before my friend died and her parents had no money to bury her. The borrowed and whatnot, but it made the situation even harder on them.

    Good luck figuring it out. I don’t think it’s right for me at this point, but I’m getting quite interested in disability insurance.

  27. Sarah, thanks for reading my mind! That’s exactly the interpretation I meant.

    And thanks to Evan for defining some life insurance terms for us. Certainly the whole system is confusing with very similar sounding jargon.

    I agree that if you have dependents now and the near future, and own a long-term liability (read mortgage), life insurance makes sense. What if both spice (plural of spouse 😉 ) are working professional jobs, have no mortagage or kids, and already are covered by employer life insurance and disability? If they save at over 33% of their gross salary and invest it wisely, isn’t that a form of self-insurance already? Which is not going to be held up by some bureaucratic whim at a time when one partner is least able to think clearly for themselves?

    I am extremely wary about generating an unnecessary income stream for an industry with potential conflicts of interest between their policyholders and their shareholders, as well as extremely opaque portfolio risk profiles and unknown levels of reserves, especially with the entanglement with re-insurers. I understand they need to keep their own risk management plans under wraps, but it is incredibly hard to assess which insurance companies are properly buffered to be able to pay out should disaster strike.

    I also have the experience of having to *pay* for a whole life insurance policy purchased when I was an infant that should theoretically have paid for itself after some number of years, due to the mis-estimate of the insurance company’s investment of the premiums over the years, and now I have to make up the difference. WTF?

    Having said all that, certainly I do believe that there is a place for personal insurance, but to some extent you are always merely trading one risk for another — never really eliminating risk. You risk throwing away $30/month and nothing ever happening (which you might have been a better investor of than the insurance company) vs. a catastrophe. And sure, the catastrophe is important to consider, but I am frankly disgusted with the scare tactics under which most insurance is over-sold. Remember, caveat emptor — it is *always* in the insurance salesman’s interest to sell you more insurance. So you are essentially buying a good night’s sleep for $30/month. That’s fine, but don’t kid yourself that it’s an investment. It’s not.

    Amusing to see the guesses on my gender…I wonder what sort of cues people pick up on in writing style to figure that out?

  28. I just went with K sounding like Kay, which is (at least in my neck of the woods) a feminine name.

    And, you know, girls are smarter than boys, so you MUST be female, right?? How else would we have ended up on the same side of the table? 😀

  29. I have life insurance through work — 100k — and an hemming and hawing about buying more, especially considering that my wife just pumped out two kids. I read threads like the above and feel guilty and maybe even a little foolish for not yet supplementing, but I’m not getting it. In my case, I’m just about to pay off the house (by the end of the year) and if I croak tomorrow my wife’s retirement nest egg will double considering that it’s no longer being divided by two but now by one (I know that’s oversimplifying the issue, but the fact is we have vastly more saved for retirement than the average for my age group…as I suspect most of you are). So she will still have to put money aside for retirement, but little, nowhere near as much as the next door neighbor. And if I’m reading the statement from Social Security correctly, the kids will get an okay payout from Social Security until they’re eighteen. In the end, her monthly expenses will be so minimal I don’t see how you couldn’t pick up a retail job and not only make ends meet but maintain about the same lifestyle. I don’t think it should be the lottery — I croak and she hits the jackpot.

  30. Im in the same boat Jonathon: since Im getting married I am thinking its time to pony up…but I want to make sure and be in really good shape first. Im not in bad shape, but I think I could definitely step it up a bit just to make sure Im in the top tier.

  31. Till 3 months ago we had no LI outside of work.
    3 months back my wife gave birth to our first and decided she wants to stay at home for 2 years. I instantly started shopping for LI and thankfully got (what I think is) a fairly good rate – 33 year non smoker, 500k, 30 year term for $440/year. (Can someone comment how good/bad that is).

    I was surprised by how simple the process is. Basically entered my data on the internet and had a slew of calls from agents (saying no to some of them was a little painful). Went with two of them and picked the best between the two. The other one kept pushing “term with money back” but I was dead set on keeping insurance and investments separate.

  32. Term insurance is cheap. But there is a reason. Ever heard of the phrase “Good things are seldom cheap and cheap things are seldom good.” Less than 1% of all policies ever pay the death benefit. Why? Either people cancel their policies or they don’t die in that term. I guess that’s a good thing.

    There is a time and place for term insurance, but my money goes to whole life policies. Picture this, the time you can get your greatest return on a term policy is if after you sign the document you are killed that day. Sorry, maybe too morbid. But everyday after it keeps getting more expensive. Not that the premiums go up, but you never see that money again. It’s a pure expense.

    Whole life, however, can be used as a living benefit. It velocitizes your money, doing several things as once. It acts as a savings vehicle, earns interest, and has a death benefit, along with other benefits as well. But if you truly learn how to utilize this product, you can create your own banking system and recapture all the interest you would have paid to other lending and banking institutions otherwise. It’s a powerful tool of production if used correctly.

    If you want to do more research, purchase a convertible term policy. That way, you’ll at least lock in the rate and will be able to convert it to a whole life policy later down the road when you’re more comfortable. Banks invest heavily in whole life insurance. They have departments named after them – BOLI (Bank Owned Life Insurance). We could all learn from the banks…they’ve been pretty profitable haven’t they?

  33. Great thinking! You’re right…there is no benefit to waiting. The older you get, the more expensive life insurance gets. And, you run the risk of having a health issue develop that will make life insurance more expensive or worse unobtainable.

  34. Don’t wait to “get healthier”. Apply for a policy…get approved and then get healthier. Once you do that you can reapply and possibly qualify for a lower rate even if you are a year older.

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