I’ve dropped the insurance ball

November 11, 2010 · 28 comments

life insurance

Marriage is an interesting dynamic. Gone are the days of staying up late while watching stupid YouTube videos, or eating spaghetti and a bowl of cereal for dinner. When I signed up for wedded bliss, I knew I’d be taking on some new responsibilities, one of which involves providing for Girl Ninja.

I’ve done a decent job tending to her short term needs. We have a fully funded emergency fund, health/dental insurance, and money saved for retirement. Ah yes, I can bask in my awesomeness, knowing I am a wonderful husband.

Oh wait, no I’m not. In fact, I’d say I’ve kind of sucked it up.

The majority of the ‘benefits’ I provide for our relationship are the direct result of me earning an income. But what if I die in a car accident tomorrow? What if I suffer a neck injury that paralyzes me from the waste down? I’ll tell ya what happens, Girl Ninja would be left in a very scary/vulnerable place. What kind of husband am I for not taking the necessary precautions to ensure my wife is cared for in all circumstances? (answer: a very crappy husband)

When I got my job back in ’07 I remember being shoved a whole bunch of HR paperwork. This is when I unintentionally made one of the best decisions of my life and began contributing to my 401K. I also decided to sign up for life insurance since it was so stinkin’ cheap. For like $2/month I could get a $10,000 life insurance policy. I figured signing up would be worth my while, so Mom and Dad Ninja would not have to pay for my funeral costs if I died (they were my beneficiaries).

The insurance I bought back then was sufficient for ’07 Ninja, but it’s not at all sufficient for 2010 Ninja. I need to pick up a good term life insurance policy that will pay out between $500,000 to $1,000,000 in the case that I die. Girl Ninja could then invest this lump sum, and ideally live on the interest earned, effectively replacing my income for life. Wanna know how much a $750,000 life insurance policy would cost me? About thirty bucks a month. That’s less than I spend on burritos, so I have no excuse for not stepping up to the plate and getting a good 20 year term policy.

Everyone knows what life insurance is. We hear about it all the time, but it’s rare that I hear a 20-something talk about disability insurance. After all, we are invincible right? Ha! Dave Ramsey says this about disability insurance “it protects your greatest asset — your income! It is a crucial part of any financial plan since it helps you pay your bills if you are unable to work due to injury or illness. It is just as important to have as life insurance” That’s right. Just getting life insurance is not enough. I need to protect my income in the case that I can no longer work. Disability insurance comes in all shapes and sizes, but a healthy 20-something should expect to pay between $30-$50/month for it (depending on how much you make, where you live, etc).

When I asked Girl Ninja’s dad for permission to marry his daughter, it also meant I was asking for permission to take care of her. I’ve kinda failed at that, and it’s time to do something about it. It’s time to get insured!

Do you have enough life insurance to replace your spouses income indefinitely? Am I the only one that has dropped the ball when it comes to disability insurance? Are there any other types of policies I need to know about and look in to?

p.s. I hate (and by hate, I mean I’m jealous of ) you single folks since pretty much nothing in this article applies to you :)

1 Victoria

Neither me nor my fiancee currently have life insurance, but then we both earn enough that if the other died we’d still manage OK on our own and I don’t see this changing once we get married. Once we buy a house however, that’s a whole different ball game. We will both be getting proper life insurance policies, so that in the event of one of us dying, the other person isn’t stuck with a mortgage they can’t pay off by themselves.
Hadn’t ever thought of disability insurance though!

2 undercoverkitty

Well, I’m single but I do have responsibilities towards my parents and family. Each month I still give my mom a set amount of money for her to do whatever with it and to my brothers who are still in school. Maybe it’s just filial piety/asian family or whatever but I’ve always had this impression that when I start working, I’m going to try and at least give sthg back to my family since they had done so much for me.

So for my insurance, everything is in my mom and dad’s names so in case sthg happens to my dad, my mom will get the benefits/insurance and same goes with if sthg happens to me. Life and disability insurance are 2 different things but they can also be the same. Like if u die u get x amount, but if u are just disabled, you get y amount.

A friend of mine lost her husband after they had just finalised the purchase of their first home. The insurance was in the husband’s name so she got the house for free (well, not really since her husband passed on). So might be sthg u wanna think abt when you buy a house later, Ninja!

3 Sarah W.

I’m in your same boat ninja.

I’ve been married for 2 years. In a house for 1 year.

i’m currently trying to sort out the disability insurance and term life insurance issue. Not really sure what company to go with (my aunt who is in the insurance industry recommended going with a company that has been around for a long time – especially in this uncertain economy)

I would LOVE if you followed this post up with some of your options/research into various companies – and how to go about initiating discussions about insurance with an agent or whatever, In my searches for life in surance i had a hard time finding like a number to call or whatever :(

I really need to figure this shit out soon – AHHHH

4 Ninja

I will definitely post up whatever I find out. Just emailed a friend of mind that sells insurance to see if he can get me some quotes. will post up soon.

5 brent

Hey Ninja,

i thought i would help you be more specific about the disability insurance. Your 3-6 month emergency fund allows you to self insure against short term disability so that is unnecessary. What you would really need is long term disability. My work happens to provide both of those but if i were left to my own devices to decide I would only choose long term since my 3-6 emergency fund would cover me for anything that would happen short term.

6 Ninja

that’s a good thing to keep in mind. I guess I do have a short term disability fund already :)

7 Kevin @ Thousandaire.com

I’m single and I still got long term disability insurance for the first time starting in 2011. I don’t have life insurance though because NOBODY CARES IF I DIE!

Okay actually nobody needs extra money when I die. But the first way sounded much more dramatic.

8 TwinsMama

We have long-term and short-term disability through my job. Life insurance (term) both at work and personal policies because you never know…end one job on Friday start a new one on Monday but you could (hopefully not) die on Sunday. So we like to keep our largest policies (which also have disability included in them) away from work.

Also of course once we buy the house I am thinking we may do some type of umbrella policy (for all the other insurances – car, home, etc.). I’ve heard many people say that is over-kill, however I have seen that work out for many people. I would rather be safe than sorry. And with young children, I’d like to think their God parents would not have to worry about financial hardship if they had to care for them should something happen to us.

9 psycharah

I think single folks need disability insurance, maybe even more than married couples, because there is no one else there to make an income and cover any bills if they are unable to work. I must say that when you look into disability insurance, make sure you consider “any occupation” versus “own occupation”. I took many years of training to become a highly skilled health professional, and I did not want disability insurance that would only pay me for 2 years (the typical policy) and then cut me off if I was able to do any type of employment (e.g., licking envelopes). I pay dearly for “own occupation” long term disability, because if I can’t do my own job for some reason, they pay me until I’m retirement age. This costs about $200/month to insure my income. It’s high, but it’s well worth it for me. I work with many people disabled by injuries, and having money trouble at that time is a huge stressor that you don’t need while you’re rehabilitating and rebuilding your life. I also assess people’s ability to work, and it is very difficult to convince an insurance company that someone is unable to do any kind of paid work. even if it’s clearly the case that a person would never get hired in the real world.

10 Spork

Make sure your auto coverage is sufficient. I used to work in auto claims and it was heartbreaking when the claim was larger than our insured’s limit. The legal minimum liability coverage usually isn’t enough. States haven’t updated those requirements in decades while the cost of car repairs/medical bills have increased substantially. If you were at fault in an accident, you would be liable for the other person’s damages. Your insurance policy would only pay up to your limits. If you have assets, then an attorney and/or insurance company for the other person would come after you for the rest.

Medical coverage varies from state to state. Ask your health insurance if they cover an airlift to the hospital (which can cost between $6,000 and $15,000). A lot of health plans don’t. If your health insurance doesn’t, then it would be a good idea to increase your auto medical coverage.

11 Jenn @ Paying Myself

I would look into critical illness insurance as well as disability insurance. Also make sure you have Wills and Powers of Attorney (legal terms might be different in the US) so that everything goes where it should when you pass away (Will) and Girl Ninja (or someone else you trust) can deal with your money if you’re still alive but unable to act (e.g. coma, stroke, etc.) (Power of Attorney). And make sure the right people are named as beneficiaries for everything (e.g. in Canada if you have an RRSP you can name a beneficiary to receive it when you pass away and then it doesn’t go through your estate, which saves some money).

I also have to say that everything you’re saying in that post still applies to single people. Many single people have obligations to family members or even children, and if nothing else they need disability insurance, critical illness and the things I mentioned above to ensure they are taken care of if they are sick or injured or when they pass away. I have had life insurance since I got my student loans, and B. is not the beneficiary – my parents are, because they are the ones who would be on the hook for repaying them should I pass away.

Bottom line – married or single, everyone has an obligation to somebody.

12 momninja

Wait, What…..no more mom and dad ninja Benefits? Good thing we love Wife Ninja!

Grandpa Ninja always said I hate insurance you are betting you are going to die or be hurt and they are betting you will live long and prosper, I don’t like betting against myself. While this is true, it is not a wise choice (sorry dad).

You need to step up to the plate…your dad has been covered since we said I do, to make my life ok financially if something happened to him. We actually will be decreasing the amount when this policy expires now that all the ninja babies are adults we will need less coverage.

Short Term disability is a definite must even if you have an efund because in the beginning you will have additional medical bills as well that your efund can provide for. I however cannot get short term disability because of pre existing conditions so you really want to get it while you are young and healthy. A big question to ask if you get it through your employer is “Is this transportable?” mine was not, so I lost short term disability coverage when I switched jobs and now I do not have it.
Insure away!

13 Frugal Midwest

This article is timely… I just enrolled for next years benefits and had the same line of thinking you do in your article. While I didn’t go for a cool million in insurance, I upped the amount to ensure my beautiful wife was covered.

We have always been careful when it comes to debt, and kept our cost of living to a point where we could survive off either one of our salaries. This actually paid off as my wife was accepted into a 3-year full time grad program and hasn’t been working for the past year. Had we not operated this way, we would be taking on significant loans to pull it off.

I’m still getting over the fact that we went from DINKS to SINKS! : (

14 Ninja

Haha. Sinks. It can be a good thing though right? Make the most of it, and Dinks will come again if you want!

15 Small Town Runner Karen

Wowsa! You said you agreed with Dave Ramsey! :)

16 Ninja

Dave’s got some good things to say. I’m definitely not anti-dave, just anti-some-of-daves-stuff :)

17 fromshoppingtosaving

Great post, this is something the BF and I need to discuss, especially when we get married in a few years. I never thought too much about life insurance but $30 a month is not bad.

18 retirebyforty

I agree with other posters. You need short and long term disability insurance. You’re young and invincible, but sometime shit happens. I had to take 2 months sick leave earlier this year and the short term disability paid 60% salary (tax free), that was indispensable.
I have term and AD&D life insurance through my work (paid extra for more coverage) and my wife should be taken care of for quite a few years if something happens.

19 Lindy Mint

Life insurance really is so cheap, it’s kind of crazy to not have it. If you’re not married, it might be a good idea to get it started now anyways. My understanding is that if you develop certain medical issues you might be denied life insurance if you apply for it. But once you have it, they can’t take it away from you. I could be wrong though, I like to pretend I know everything sometimes.

20 Peter

I bought $500,000 of term life a little while back and it was extremely cheap as you mentioned. Since it’s so cheap, there is really no reason not to! Insure yourself against un-needed risk – transfer that risk to the insurance company!

21 Ninja

you’re right. $30 to me is not a huge deal, but $500,000 to the wife is SIGNIFICANT! definitely seems worth it

22 PerkStreet Jen

I’ve been married nearly two weeks now, and it’s definitely on the list of things to take care of once we wrap up all the name-change paperwork. I have insurance through work, but we want to make sure we have a policy outside of jobs so we have something consistent even if the jobs change. We’re also going to tackle wills, power of attorney… all that good stuff. Looking forward to seeing how you get the process going – I feel a little bit like I’m not sure where to start.

23 Kim

Since you work for the U.S. government, isn’t short-term disability is included? http://www.opm.gov/retire/pre/fers/disability.asp In addition to legal power of attorney, you need a medical one – i.e. who can make decisions in the event of your incapacitation (think Terri Schiavo). Let’s see, also change the benefit information for unpaid wages.

Finally need a “Death Folder” (ugh, needs a better name) – info about how and where to access all accounts GN doesn’t share jointly, e.g. contact info of life insurance company, cemetery (for family burial plot), debts solely in your name (not you personally Ninja, but anyone else!!), etc.

24 shana

Based on your financial position, you’ll want to do a little research into life insurance. There are multiple different types: Term, Whole, and Variable Universal. Each type has different pros and cons. With term life insurance, you can set the amount and often lock in the rate you have at your current age (i.e. – I got $1M for $240/yr when I was 23 and the rate will remain the same). You do need to look at the exclusions in a term life policy to make sure that they make sense to you. Also, term life insurance (which is what most people have) typically stops covering you at age 65. Whole life insurance is more expensive but pays out upon death regardless of the age. Variable Universal Life (VUL) is like an investment type of life insurance that combines some of the feature of both term and whole life insurance. I’d say that your best option might be to look into VUL. When choosing life insurance, there are calculators all over the internet but you’ll want to think about having enough to cover: funeral expenses, living expenses, college expenses for any children, and for the rest of the world enough to cover your debts.

More important than life insurance is disability insurance – you are more likely to be disabled than die. So you’ll want to also make sure that you have adequate short term and long term disability insurance. In terms of long term disability insurance, you’ll want to look at the exclusions – this is significantly more important for disability insurance than life insurance. There are often 2 year limitations on any mental health issues and there is also a provisions that will define whether you will be covered if you are disabled from any occupation or your own occupation. Basically, you want coverage on long-term disability to cover you if you are disabled from your own occupation. (Otherwise, they come back and say you could work as a cashier or fold laundry and cut off your benefits). You’ll also want to look at how you pay for the coverage – with pre-tax or after tax dollars. If you get coverage through your employer and pay on a pre-tax basis then any payments you receive under the policy are taxable. If you pay on an after-tax basis, then the payments under the policy are tax-free.

I hope that helps a little with your decision making process. (Mandatory disclaimer: I am not a financial advisor or insurance broker nor do I play one on TV.)

25 Budgeting in the Fun Stuff

Mr. BFS and I have $100,000 policies each since we both make enough to live on, but $100,000 would pay off the house (less than $69,000) and leave enough for the funeral ($10,000) and 8 months of no work grieving ($20,000)…

26 Budgeting in the Fun Stuff

Oh, and yes, we both have short term and long term disability as well as minimal Accidental Death and Dismemberment policies as well.

27 Sara

How about accidental death & dismemberment insurance? I get mine through my employer for about $2/month, but it covers some big gaps in disability insurance. I wasn’t going to sign up, but then I started reading the details about what it covers and figured it’s better to be safe than sorry! hah. I agree with Kevin in that no one will be financially affected if I die, so I just have the small, free life insurance policy through my work but that’s it. Though I do see the point of getting in now, while I’m young and healthy, so I don’t have to pay so much later if I decide to get in on it.

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