Dying sucks.

December 19, 2011 · 33 comments

Life insurance is arguably the most boring personal finance topic known to man. In fact, it’s so boring I’ve only talked about it once before. It’s time to try to make life insurance less miserable, and more tolerable. Are ya with me? (If you aren’t with me, this should be right up your alley).

Since Girl Ninja and I are both young, employed, and relatively healthy we have personally decided that life insurance is not at the top of our priority list. But just because we haven’t made it an uber-priority, that doesn’t mean we don’t have some protection.

Four years ago, when I started my first day of work, the human resources office shoved a bunch of paperwork my way. Without really knowing what I was doing, I ended up making some pretty responsible decisions. I began contributing 8% of my gross pay to my 401K and I signed up for not only the standard life insurance policy my agency offers, but also a little bit of additional life insurance coverage.

Ask me how much life insurance coverage I have? Wait, don’t ask me. I have no freakin’ clue what my coverage is. Ha! How’s that for staying on top of your finances? I’ve been paying for life insurance for the last four years and have no idea what I’m actually getting out of it. Let me go run the numbers.

………

Okay, I’m back. Apparently, if one of you crazy blog stalkers actually tracks me down and de-skins me, Girl Ninja will get a pay out to the tune of $162,000. Nobody tell her that, or I might end up missing tomorrow :)

Since we have no dependents and no financial obligations, we don’t plan on beefing up our life insurance coverage in the near future. Once Girl Ninja turns into a baby factory though, it’s time to man up and protect our household (literally, since we will probably own a house by that time). It’s not like I’m familiar with
Insurance Jobs UK . Insurance confuses me :)

We would likely go with a 20 year level term life insurance policy to cover myself (I don’t like whole life insurance at all). I’m thinking $1,000,000 to $2,000,000 in coverage should ensure my families well-being in the event I pay an early visit to the big man upstairs. A quick quote says a million dollar policy would cost us $35/month and a $2MM policy runs $66/month.

If I die while Girl Ninja is a stay at home mom, that puts a lot of stress on her. But if she has a few million in the bank she should easily be able to sustain the Ninja house until she finds herself a new suitor (this whole conversation is kind of morbid isn’t it?). I’d be a pretty happy person if I was able to still take care of my family even after I was gone.

We will likely take out a $500,000  to $1,000,000 policy on GN. That way, if something happens to her, we can use this money to subsidize the new childcare expenses we’d incur as I continued to work.

Okay, enough about talking about hypothetical death. It’s depressing. BUT HOLY COW! A million dollar term policy is pretty stinkin’ cheap. I think I’m paying something like $22 a month for that $162,000 policy, so I should probably cancel it next open season and just buy my own million dollar policy for ten extra bucks. Time to quit being lazy, and start protecting my family.

Do you have life insurance on anyone in your household? If yes, how much. If no, why not?

If you like whole life insurance over term, tell me why.

Why is life insurance such an incredibly UN-sexy topic?

{ 32 comments }

1 Kate Kashman

Love this post, even though I find life insurance so incredibly frustrating. My husband has $400,000K via his employment, and we have $300,000K on me. (Though now that the kiddos are getting older, I’m not sure we need that much.) However, keep in mind that because he’s in the military, we have income protection that most other people don’t have in the form of monthly payments to the kids and I if he were to die. If he were in a traditional, civilian job, we’d definitely be looking in the $1-2M range.

Of course, because I am mean, I never figured the cost of college for four into my calculations. If something happens to Daddy-o or me, they’re going to have to figure something out on their own.

I want to add that one of the reasons that I hate figuring out life insurance is because the calculators all make me batty. I can put in the exact same imputs, and come out with three dramatically different results using three different calculators.

2 Jessica

My husband is in the military, so he has $400,000 life insurance policy through the government. We pay (yes we pay many people think military just get it for free but that is NOT the case) $27/month. Being in the military is a little tricky when it comes to life insurance, would we love more life insurance Heck Yes, but most life insurance companies will NOT cover active duty military members (because of that little tiny print that says it doesn’t cover ‘acts of war’). So for now we just have him covered with $400,000. Is that enough for me if my husband were to not be here anymore? Yes it is. We own a home back in Nebraska (currently have renters, until their lease was up I could live in my parents extra room or rent an apartment), once the renters moved out I would have our home. I could easily pay off the mortgage and have more than enough money to live on.
For myself we have a $100,000 life insurance policy. We pay $5/month for this. If I were to die this would pay off our mortgage and my husband would still have money leftover. My husband is the sole breadwinner in our house. So really the life insurance money on me would just be a ‘bonus’ (that sounds awful). We could take out an extra life insurance policy on me since I am not going off to war anytime soon, but we don’t see a need in it. Once we have children we probably won’t buy one either. Because my husband’s salary is more than enough to pay the bills, with added daycare, etc.

3 StackingCash

I bought whole life insurance many years ago, gasp! Granted I always hear that it is the worst thing to buy and it probably is, it has worked out for me. It’s for 100k and it is “paid up,” meaning that I have contributed 10k into it and the interest it earns, currently 4%, pays the premiums so I don’t have to think about it ever again. Anything can happen like a lower interest rate or higher premiums but so far so good. I know it’s not a good investment but I want to reiterate, it works for me. The wife was terrified to take a blood test so it wasn’t until she got a new job that just offered life insurance to her without a test that she bought it. It is for 250k. She got it for that much because we anticipate a higher need for life insurance for the future. I will probably get another 200k in term life soon to somewhat equal her level. The reason why we don’t have a great deal of insurance is because we are debt free and have a nice size emergency fund that would supplement our life insurance. Hopefully, we will be able to truly self insure ourselves with a two million dollar emergency fund :) Although, according to my ultra conservative calculations I would probably be 90 years old just to have one million, maybe I should invest in the stock market…nah!

4 @nnabelle

Life insurance is to typically replace the income of the spouse who passes away. If you’re single, you don’t need to have life insurance because you’re the only one who needs your income, and if you die, any debts (except cosigned debts) would be paid out of your estate and if there’s not enough money, well that’s a risk your creditor has taken. As a single person, I would even say that you don’t need to have life insurance on your mortgage because your house would just be sold when you pass and that would pay off the mortgage (normally anyway!). If you’re married and going to have children, definitely get life insurance. I’ve heard arguments for getting some life insurance on your children, if only to allow you to have a small cushion of cash that you can draw on in the event that you’re not mentally able to go back to work quickly enough after your child dies (and aren’t getting paid til you go back).

5 Harmlessbait

You should have roughly 10 to 15 times your current salary in level term life insurance.(Level meaning the price the 1st year is the same price every year after assuming you do not change the policy by increase the amount of insurance you have). It should be enough to cover the remaining mortgage on your house, any outstanding debts, and/ or your children’s college education. Not speaking from experience, but supposedly it prevents your spouse from having to drastically change their lifestyle. Be careful receiving all of your insurance needs from your employer, in some circumstances if you lose your job you lose your insurance and/or insurance eligibility and have to re-qualify for insurance with a different employer/insurance company at an older age and higher rate. Of course health care reforms might change this in the near future. Suze Orman and Dave Ramsey both recommend level term life insurance and claim that whole life is outrageously expensive, you pay more into it than it is worth, the fees are exorbitant, and that the value of whole life can fluctuate wildly depending on how the company invests your money. 20 to 30 years is the amount generally suggested which should be long enough to get the kids through college and the mortgage paid off. From that point on you should self insure, meaning you ought to have enough assets and money in the bank that you don’t need term life insurance. Family history, being a smoker, height weight proportion, age, and current health conditions affect the monthly price as well as eligibility. As in the longer you wait to sign up for it, the more expensive it gets and the more likely you are to be diagnosed with a “health condition” or disqualified by your family history (speaking with experience here). It is generally recommend you wait no later than your early 30s to sign up for term life insurance, but of course situations and needs vary. Other insurance products you should consider in your late 20s to 30s include long term disability insurance; most employers’ disability insurance will only provide you with 60% of your pay; and long term care insurance (nursing home insurance) for your parents beginning at age 60. My aunt’s current middle class religious-we-don’t-kick-you-out-if-you-run-out-of-money-if-you’ve-been-with-us-5-years nursing home monthly costs are in access of $5,000 a month which is a reasonable rate believe it or not.

6 Daisy

Uck, life insurance. As terrible as it sounds, I don’t think we’ll be getting LI until either our employer offers it up, or we get pregnant, which is a few years off. However.. just a warning.

As an HR person, I’ve been told a few times that this is something people don’t really think about which screws them over hugely when/if they die.

People frequently use thier children as their beneficiaries. Makes sense, right? Because you want to make sure that your kiddo is well taken care of if you pass away? Except they can’t touch it until they’re 18 (or in the states it might be 21), and if you have 6 years olds, you just screwed them over to a life of foster care.

So, no matter who you are, even if you don’t think you’ll die, put your life insurance beneficiary into somebody you know and trust that is already an adult. Ensure that it’s somebody that will use the money to take care of your kids – like a spouse or a sibling if you’re a single parents.

My two cents.

7 StackingCash

Suze Orman talks about the importance of getting a livable revocable trust all the time. Might be a good idea since we are on the subject of life insurance, although I have been way to lazy to set one up myself…

8 Angie

Hubby is 3 years into a 20 year term 1 million policy (His policy ends about the time the kids graduate college). That will pay off the house and allow me to continue staying at home homeschooling the kids as long as I want to. His work provides 2x his annual income in free life insurance, and that is earmarked for them to go to college if he bites it.

I am 3 years into a 15 year term (which will end just before they start college) with a 500k policy. This will allow my hubby to pay off the house and have enough left for college, freeing up cash flow from his income to pay for things like maid service, childcare, and all the extra expenses of eating out!

And life insurance is un-sexy because death isn’t sexy. Unless you’re a real freak, in which case I don’t even want to speak to you.

9 Larry

Yes, I can just see her now, flashing those glossy white horse teeth and flapping her arms up and down like a demented flamingo: “You don’t have a will, you don’t have a trust, you don’t have a this, you don’t have a that – DENIED!!!!”

A living revocable trust is part of an estate plan that goes beyond life insurance. Personally, I have not paid much attention to life insurance since I am single without dependents. But I have some understanding of estate planning, and this is where you might consider having a will, a financial power of attorney, a health care proxy, and a living will. I would spend the money to have these drawn up by a legitimate attorney specializing in estate planning and not one of these cut-rate Internet services where the documents could be created incorrectly. Is DN too young for all of these? Well, I didn’t get them done until recently myself, but this is one case where you might think of doing as I say and not as I did.

You’ll notice I did not include a living trust. A living recovable trust bypasses probate and ensures some privacy (vs. a will which is public), but this is just more case where Suze Orman is flat wrong, and I’ll take my lawyer’s opinion over hers any time. A LRT is generally superfluous for most simple estates unless you have property in multiple states. And it’s also expensive to set up. The other documents are probably worth having for anyone over 18 years old.

10 Evan

Hell yeah Larry!
“A living recovable trust bypasses probate and ensures some privacy (vs. a will which is public), but this is just more case where Suze Orman is flat wrong, and I’ll take my lawyer’s opinion over hers any time. A LRT is generally superfluous for most simple estates unless you have property in multiple states”

Exactly why I don’t like Revocable Living Trusts. It is amazing how many times I have to fight with people just to end up being right.

http://www.myjourneytomillions.com/articles/why-i-am-not-big-proponent-of-revocable-living-trusts/

11 Larry

Hey, Evan!

And your link brings up yet another problem with LRT that I didn’t emphasize – the difficulty of maintaining them and ensuring all your assets are properly added to the trust.

I see you are based on Long Island (as am I). Who knows, maybe we know the same estate attorney!

12 Evan

I am my own Estate Attorney but I probably know yours LOL!

13 kim

I’m my own estate attorney too, and we don’t use a LRT because most of our assets bypass probate anyhow – joint accounts, financial accounts with beneficiaries, life insurance with beneficiaries, and in my state the furniture & cars go directly to the surviving spouse. There would be precious little cash to go through probate. So a LRT would indeed be superfluous.

14 Midwest

My wife and I only have what my employer provides in terms of life insurance, which is two times my annual salary. We have no dependents, so that amount will allow her to at the least, pay off our mortgage. Things will be different when we have children though. So a term life policy is likely in the picture in the next two years.

15 Brian

The old lady has some life insurance from her job (they pay the premium). I have zero life insurance at the moment. We don’t really need it at the moment. We have zero debt (house is paid for) and plenty of assets that she could live on if I were to pass. So we will just continue to “self insure.”

16 Emily

Before cancelling your old policy, make sure the new policy is in place and effective (or you could end up dying in a spot where neither policy is valid).

17 Mo D.

We have life insurance through our employers; don’t quote me, but I think both are 3 times our annual salaries… I should really check that. Our mortgage insurance will pay off the mortgage should one of us pass away; since that is our largest fixed expense, it would certainly ease the strain should one of us die suddenly. We don’t have (nor will we ever have) children, so I think we’re prety much set as far as life insurance goes.

18 ParatrooperJJ

You might check out SAMBA, they provice Feds with insurance that is going to be cheaper then the standare fed plan.

19 krantcents

Life insurance should replace income for 10 years or some period so the beneficiary has time to make up for the loss. I have term insurance and both my wife and I have policies. the value of the policies is roughly 10 times or annual incomes.

20 Erica

This kind of talk is more realistic than depressing. My husband has a 100,000 dollar policy from his job. We are sticking to that right now. Although, you made a good point about additional childcare expenses should GN move on.

What’s REALLY depressing is life insurance for babies. I’m NOT a fan. After my kid’s birth we received several mailers. And my mom totally crossed the line too. She called to say she wanted to open savings accounts in the girls names and needed their ss #’s and my signature. That didn’t make sense but whatever…see you later. Then she shows up with life insurance policies-one for each baby-all ready to go, just sign here. Could not believe it! What her insurance agent had written up seemed more like a scam than a real thing. Put X amount in the policy each month until they are 18. They can then either keep paying for the life insurance or cash it out and have X amount of money for college (or whatever). I worked the numbers just trying to get her to drop the subject – the money ‘saved’ would have done just as well in a regular savings account or bond. Babies don’t need life insurance. To be perfectly morbid they do not contribute a salary to the household; they are income suckers. And the point of life insurance is to replace income you’ve lost.

Okay, rant done.

I enjoyed your article, Ninja.

21 Evan

Erica,

I couldn’t disagree with you more. I bought life insurance on my child a couple months after he was born for two main reasons:

1) Guaranteed Insurability – The policy I bought allows him to increase the death benefit 3 times the current amount, so if he were eventually suffer an event which makes uninsurable or VERY costly I can transfer to him this policy and his eventual children will have a policy at a very cheap price.

2) You have to replace income because I am sure as hell not working if my child died. How long would I have to take off? Who knows? Sure there is the argument that getting back to life is a good thing but that should be my choice. At the current death benefit The Wife and I could literally take off from work for way over a couple years and not have to worry about an income.

22 Honey

I have a whole-life policy because there is a 50% chance that I will have a rare degenerative neurological disorder that killed my mother at age 46 and I want my husband to not have to worry about the cost of my care while I am alive (i.e., be able to go into debt for my care) knowing that it would be paid back after I was gone. That is to say, if I did end up getting sick, I would be uninsurable at that point under a term policy, whereas the blood test for the whole life policy I have now did not screen for this disorder because it’s really rare (I did put its name on my application for the policy so it’s not like I failed to disclose that information). I also have long-term care insurance for this reason, and a monster disability policy. I am the most insured 32 year old ever!

23 Jeffrey Mitchell

Ninja,

I’m glad you decided to write about life insurance after the last post I made talking about my whole life policy. My wife and I do not have any dependants and the amount of $250,000 is all that we needed at this time. We selected whole life insurance because it made sense as a part of our overall investment strategy. It is a low risk and low return investment; but it will pay out over $200,000+ dollars than we pay in once I hit retirement age. I had to go get blood tested and fill out a 17 page application to get this policy, but the rates I pay in never change, regardless of inflation or future health issues.

Term life insurance never made sense to me at all, though it would if I had kids and needed a higher dollar value policy. The whole “rent” vs. “own” argument, only with a different product. What I find to be a real head scratcher is the fact thtat the same people who buy a house because they believe renting is a waste of money go take out term life policies because they believe whole life is a waste of money.

24 cashflowmantra

I have enough term life insurance that my wife could pay off all debts and never have to work a day in her life. That is why I am worth more dead than alive. Stay away all you stalkers!

25 C

This is indeed a depressing, morbid topic.

And was it really necessary to refer to your wife as becoming a “baby factory”? Could have done without that.

26 Larry

Dying may suck, but consider the alternative.

27 Kris

We have a term life policy for me at half a million, and a whole life policy for my husband for half a million. We have 1 child and one on the way, so in case something happens to us our kids should be ok for a little while.
Hate the whole life policy. My in-laws had their insurance guy come talk to us after we got married and I had no idea what it was. He spun it as a retirement savings vehicle, so we signed up for it. Now we’re out $7000 every year for this damn thing…if we stop now we lose a giant chunk of what we put in (because fees are taken out at the beginning)…we won’t break even until we hit the 20 year mark. I’m still salty at my in-laws for doing that, but they still believe in it and are using theirs as a retirement vehicle, so what do I know, right?

28 Joe

You will definitely thank your in-laws at the mark. As with any investment it will take some time before you make money off the investment. But a whole-life policy creates cash in which you could borrow on in the event of an emergency or anything for that matter. There are also benefits to this as well, because many wealthy people are limited by income levels to invest in their retirement. So life insurance (whole life) allows for them to be able to save but also defend their family against the loss of the insured. Typically you have to think, what if I die and my spouse needs time away from work? That’s typically why you get the “inflated” amount. You should also always get insurance outside of work due to insurability, once you get a test once, you’ll always be guaranteed insurable (considering you pay premiums on time).. Something like 1 in 5 people become disabled early on, and this even more reiterates the need for your insurance coverage (life, disability, long term care).. Why would you have car insurance but not salary insurance or life insurance? You should definitely find a local insurance professional and sit down with GN and the agent to talk about your defense. A team is only as good as it’s offense and defense. And if you only have “offense” (investments) and no defense (insurances), you won’t win the game……

29 Donna Freedman

I have a $250,000 term life policy with my daughter as beneficiary. She has a chronic illness and although currently has a job she can do from home, I worry about her future — especially since her husband is also disabled.

30 Joe

Ninja,

When you think about your savings % of your income, your insurances (defensive strategy) should be factored in. Otherwise you are at a loss if something bad should happen to you. Should you need skilled nursing care or anything like that, the 8% you save in your 401K won’t be enough. Spending 10,000 a month OR MORE depending on where you live, will severely deplete your savings. If you don’t have insurance to protect yourself then you’re risking your assets that you think would pass to GN in the event of a tragedy or sickness… Is that something you really want? Even though you have minimal possessions, and you needed to pay medical bills, you could run through your money in a matter of months/less than a year… I don’t think you’d want GN having to move out of your place just because you were sick/unable to provide for her. Many people don’t think about that, they think LI is just for dying, but it’s not.. And most companies provide a premium waiver (should you get disabled, the company will pay your premiums for you). Thats a valuable rider. Many others too. But not enough space in a comment. If you ever have any questions, let me know!

31 Weirdo

Life insurance is kind of my forte in the fiance world. (Is that bad to say?)

My wife and I both have level term life insurance. We have $250K on both of us. Now my wife has a baby in her belly so we will be adding a child rider on pretty soon. The reason the child rider is important is because if something were to happen to our child (in Jesus’ Name it will not) then we would at least have that $5,000 to $10,000 for funerals costs. That way it is not eating away at our savings that we have spent so long beefing up.

In the case of life insurance, Dave Ramsey and Suze Orman are 100% correct on getting term insurance and ONLY TERM INSURANCE. Anything other than term insurance is a complete rip-off. I hope I can plug this, but I wrote a nice long blog post about why you do NOT want to have any type of cash value insurance.

http://solongstatusquo.com/2011/12/23/what-we-should-have-learned-in-school-life-insurance/

Life insurance in un-sexy because nobody wants to think about the end… we want to think about right now. I have my own financial services business where I market term insurance 100% of the time and you have no idea the kinds of excuses I get from people who need the insurance. It’s crazy.

Let me know what you think of the post. It pretty much explains why I don’t market cash value insurance.

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