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Over the past five years of writing this blog, I’ve examined whether I should have life insurance a few times. The first time I asked this question was when I got married. At that time I didn’t have any dependents or money to speak of, so I determined that life insurance wasn’t necessary yet.
The second time I reassessed my life insurance was in after I moved back to Halifax. My expenses were much higher in Halifax, and I was spending much more on rent. Because my expenses were higher, my standard of living would have been affected if my (now ex) husband were to pass away. But since we both had small life insurance policies through our employers, and that was sufficient to bridge the gap for at least a year. Again, I decided it wasn’t time for life insurance yet.
For those five years, I belonged to the more than 55% of millennials who did not have life insurance, according to a study by TD. Not only was it not necessary, but it wasn’t a priority. My biggest priorities, like most millennials, were paying off debt (21%) and saving for a house (25%).
Then I Became a Homeowner
Everything changed for me when I became a homeowner. For the first time in my life, I had a debt that I couldn’t easily pay off, and my husband was shackled to that debt too. If something happened to either of us, I didn’t want the other person to be saddled with a mortgage they couldn’t pay, or be forced to sell and move out right after a traumatic event like one of us dying. I knew that mortgage insurance was not right for me, and that life insurance was a better fit.
Finally, after many years of assessing and holding off, it was finally important that we both got life insurance. I don’t know about you, but life insurance has never been a very interesting topic for me, so when the time came to obtain it, it was an “Ugh, fine!” type of moment.
Choosing How Much Insurance to Buy
I want insurance that will pay out when I die, the end. I don’t need an investment portion (I’ve got a handle on my investing), and I don’t need a cash value (ditto). I just need money to cover my husband if I die, and only while we still have a mortgage and our investments aren’t substantial enough to support him. For these simple requirements, term way the way to go.
The next question I asked myself is: how much life insurance do I need?
The answer to this question will be different for everyone because it depends on what you want your life insurance to do for you. I don’t have dependents, so I don’t have to worry about funding their college education. For me, I wanted my life insurance to do the following:
- Pay off my $240,000ish mortgage
- Provide income replacement for my husband for five years so he can emotionally recover from my death
Based on this assessment, I determined that I’ll need about $500,000 worth of insurance. To double check my assessment, I took TD’s Right Fit Coverage Assessment which gave me approximately the same number – huzzah! My husband’s income was a little less, but we opted for the same $500,000 worth of insurance for him as well, in the name of simplicity.
Getting Insurance While I’m Young and It’s Cheap
There was another reason I was suddenly motivated to buy life insurance. I knew that the older I got, the more expensive my insurance would be, so I wanted to buy it now while it was still affordable. Term life insurance is notoriously affordable if you acquire it while you are young, and I love a good deal.
In the end, after shopping around, I opted for 20-year Term insurance with $500,000 worth of coverage each. I knew it was going to be cheap, but I was still surprised at how affordable it was. It ended up costing less than a cup of coffee per day, which was a nice surprise. Considering how much peace of mind it provided, that is a good price.
Do you have life insurance? Why/why not? What kind? I want to know!
#adulting!
You did it!
I still don’t have life insurance. At 37, with a (small) mortgage, it’s time. I guess I’ve been putting it off because I still feel like it’s one. more. payment.
My personal life is bit upside down right now, but I think life insurance has made it on to my to do list for 2018.
Looking forward to your next post.
So many people put off life insurance but it’s really not as painful as you think! I highly recommend getting that little bit of your life sorted out.
I have had pretty much every insurance possible since a young age due to my dad being involved in the insurance field himself. So I didn’t even think about the possibility of not having insurance till recently. It’s been so ingrained!
That’s a unique situation to be in but a good one!
Hi Jordann, great post about a necessary evil. We only see life insurance as money out the door each month and none of us live to see the benefit. How many times have you heard a story about someone passing early on in life, leaving their family, a mortgage and a small savings account behind? The funeral expenses, alone, could put the family in financial ruin – right out of the gate.
I, personally, am a whole life guy and not because I sell it. I have used it as a diversification piece within my portfolio. I realize it is a very sore subject for most people, but when well understood and structured, you can leverage the cash value to finance your life (investments, college, cars…). See my post about Simple Interest Loans if you’d like to learn more. It keeps me liquid.
Anyway, just my humble two-cents. Thanks again for sharing.
Whole life might work for some people, but it’s definitely not a good choice for me. I’d rather have a lot of cash in the bank to draw from, and handle my own investments. I think that’s probably the majority of people, but I’m sure there are unique situations where whole life is the right option.
Absolutely, agree, everyone’s situation is different when weighing Term vs. Whole.
In the US, a lot of jobs include life insurance with the benefits package (if benefits are offered). I currently have 1.5 times my annual salary in life insurance. I would like to get a supplemental life insurance policy with a 25 year term so I can lock in a decent rate. My unsolicited advice—I personally think that insurance amounts over $500,000 are unnecessary for folks who are good with their finances and/or have reasonable mortgage debt. I wouldn’t buy a plan over $250,000 since our mortgage debt is small and that would be more than enough for my husband and son to live on since he has a job. But even in a situation where one spouse is without work, if a family has low debt (including a small mortgage) and is used to living on a $75,000 salary pre-tax, then a $250,000-$500,000 would be enough to live on until the previously-jobless-widow/er can get a job and/or training/education to get a decent job. While I understand the need to a prolonged grieving process, I imagine working and getting one’s mind off of the grief can sometimes help a person heal so I don’t see needing to be unemployed for 5 years in either of our lives. Million dollar and up policies seem so unnecessary to me for that reason–while it sounds harsh, if someone is living in a $750,000 mortgage debt house, they can always sell it if they can’t afford the bill and move some place more affordable. Plus, unless you establish a trust with the insurance policy for the kids that they can’t access until a certain age (like 25 or 30), it’s not a smart idea to have such a large policy. I had a friend in high school who at age 18 was driving a brand-new BMW she purchased from her deceased parent’s life insurance proceeds. That money probable would have been better served a few years later for a home down payment.
It’s the same in Canada, most jobs have a year of salary as part of their benefits package, but if there is a mortgage or children involved, that’s often not enough.
You’d also be surprised how quickly insurance needs can add up, even for people who have a good income and no debt. For example, I just ran an insurance needs analysis for a friend of mine who is the sole breadwinner for her family of five, with a mortgage of around $200,000. After income replacement was considered, the mortgage, school for the children and final expenses, the total insurance needs for just her was well north of $500,000.
Every situation is unique, which is why it’s good to do a needs analysis instead of doing a one-size fits all solution.
Thank you for your post! I’m also a (late) millennial and I’ve been thinking of life insurance for years now. Nice to hear a logical voice on the matter.
I think the reason many people hate buying insurance is because the people you have to buy it from make money off you, so it can be difficult to get a straight answer sometimes. That’s why I like talking about it – I’m not selling anything, so I can be unbiased.
I was seriously inquiring and collecting quotes from many different banks and insurance providers to get these exact answers this past winter and spring. Honestly, I found it very difficult because they were trying to push way more life insurance/disability insurance then what my fiance and I were planning on receiving (no wasn’t a good enough answer for them). We are both 27, healthy, non-smokers, no dependents, debt free but no mortgage yet (so I’m in the same boat of maybe waiting a little longer needing life insurance). After we politely said we will think about the quotes or no thank you not right now, the banks and insurance providers were harassing us at home and work trying to follow up with us and push their life insurance packages on us. It was not a positive experience at all, and actually turned me off of looking to purchase life insurance for awhile.
Ugh, that sucks, Jenna! I had a bad experience with one broker (I will write about that soon) which led me to get additional quotes and I finally found a provider who was not sketchy at all and that’s the one I ended up going with.
My husband and I just got term life insurance last year some time. I can’t remember the exact amounts right now, but I might look them up before your next post comes out… We also each have whole life insurance that we had before we met each other. His is pretty small and is meant to help out his daughter (my step-daughter) should he pass away, and my whole life was bought by my dad when I was a kid (when it was SUPER cheap). It’s not huge, but it’s just always been there… My whole life policy has an investment portion as well, but that’s really small and I don’t really pay attention to it at all… Maybe I should… I should ask my dad what his reasoning was when he bought that policy for me…
Anyway, I really appreciate how you have walked us through your thought process. It makes it all seem so logical!
It sounds like you are well set up for your insurance needs, and I’d be very interested in what you find out about your whole life policy, it might have more value than you realize.
I will ask my dad this week and see what he has to say… And I’ll dig up the papers (might be easier said than done with the state of my house – mid-renovations)…
So glad I put this in place when I was younger (26, I think). Through the Canadian Bar Association lawyers get a big discount on life insurance so I only pay $16/month for the coverage I need, which increases by 10% annually for 10 years at the same premium I qualified for when I was 26. Those annual increases cost me about $1/month. It’s a great deal. Good for you guys getting on this while you’re still in your 20’s!!!
That’s awesome Bria! $16/month is pretty great!
I’m locked into a 20 year PAR accumulator – the monthly payments are a bit higher, but I like that it pays dividends and I can withdraw a guaranteed cash value once my mortgage is paid off