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This post is part of the Life Insurance Movement put on by Jeff Rose at Good Financial Cents. This movement is part of a large campaign to help raise awareness about the importance of life insurance. If you want more information about this movement, just click the links above. Thank you for reading.
There is one personal finance topic that may be too personal. It’s the topic no one wants to write about because reading about it leaves you feeling down. That topic is death. Death is the one thing we all have in common. No matter how much time we spend reading about all the ways to ensure you have a healthy financial future, you can’t have a full-proof plan until you address the inevitable.
Why Do You Need Life Insurance?
Unfortunately, the best way I can explain this is to tell you about those who did not have life insurance.
Today, I was sent a Facebook invitation to help a family in need. They have a wonderful story, filled with hardship, but also with great joy. A husband and wife had a heart for foster children, and went through the process of taking in twins who had been put through the foster system and placed with horrible, abusive caretakers the previous two times. This time, they were put with a caring family who would do whatever it took to give these kids a permanent home. The kids had a very difficult time adjusting, but after a few years of relentless pursuit, the parents loving them as their own, the kids finally felt part of a family for the first time. They were adopted into the family, a family that was now theirs forever.
A few months later, the husband went to the doctor because of some alarming symptoms, and it was found out that he had a terminal brain tumor that was inoperable. Within a year, he died, leaving his wife and two newly adopted children behind. As sad as this story is, what is more heartbreaking is that they spent all their savings fighting the cancer, and were left with no other money. There was no life insurance policy in place to cover the cost of his wife having to raise two children on her own with no income. They have set up a donation page (which is the best way to help a family in this position), I only wish this story could have had the financial burden lifted with a life insurance policy, but sadly, this is not the case.
When I was 5 years old, my father passed away from melanoma skin cancer. He was only 31 years old. By the time they found the cancer, it was already stage 5, meaning it had metastasized, entered his blood stream and was planting itself all over his body. His terminal cancer diagnosis put our family in a whirlwind, especially my mother. She had 3 kids under age 8 and her husband, the main breadwinner in the family, was about to die.
Luckily, my father was a life insurance salesman who knew the value of getting a good term life policy in case something devastating should happen. Unfortunately, he also underestimated when he would leave this earth, and only signed up for a $75,000 policy. My mother was able to pay for medical bills and the funeral with the money, and didn’t have much left to live on. As I’ve mentioned before, the doctor’s made a mistake on his diagnosis some years prior, and called a mole “benign”, when in reality it was stage 3 melanoma. Some sort of law suit arose, and my mother was awarded with money that ended up taking care of us for years to come (I even received an inheritance from it and blew it all). But if that law suit never came, the money to care for us would not be there, and my mother would be in dire straits financially. We would most likely have lost everything and moved in with her parents or a relative who could assist while she tried to get back on her feet.
Why Don’t More People Have Life Insurance?
According to an article on USA Today, in 2010, “Only 44% of households have an individual life insurance policy, and 30% have no individual or employer-provided life insurance…” They stated that there were 11 million households with children under the age of 18 who had no life insurance policy in place. The common refrain from those who chose not to buy a life insurance policy was that it was not their top financial priority. Whether it’s the downed economy, lack of knowledge, not wanting to face their mortality or just plain procrastination, it’s clear that people don’t feel that life insurance is enough of a priority to throw a few dollars at a month.
What Did We Do?
I’ll be the first to tell you that I have not done years of research and comparisons on the whole “term vs. whole life” debate. I can tell you that I have thought through why we made a term life insurance purchase, and why I recommend it for most families. And I say “families” on purpose, because I do not believe that you “need” life insurance unless you have someone else depending on your income (or family contribution). If you are single and are getting married or starting a family in the future, it may be wise to look into term life insurance rates at a young age when you are healthiest and the rates will be lowest. You may save yourself some money by getting into a policy now vs. waiting until you are older.
I recommend getting a term-life policy for a few reasons. Term life insurance is cheap to buy for a large amount of coverage, you can select your term depending on when you feel you won’t need the insurance anymore (i.e. kids move out) and it frees up any other income to invest anywhere you choose, so you can work toward becoming self-insured (financially independent).
We ended up signing me up for a 25-year term-life policy at $1,000,000 for $43 a month. I came up with this number by calculating how much my wife would need to life off of indefinitely at a 4% interest rate. She would first pay off the house, and then invest the rest, being able to live off the interest alone and leaving the principal there to provide the passive income. After tithe, her monthly income would be $2100 a month at that 4% interest rate. Based on our budget, this would cover every line item in our budget, with some wiggle room as she gets adjusted to life without me. And trust me, just typing that sentence makes me feel sick to my stomach, but reinforces that we made the right decision in getting this policy.
This Is Important
You are going to die. That sentence should make you uncomfortable. I hope that it makes you uncomfortable enough to get off your butt and look into getting a life insurance policy. It is one of the ways you can tell your family you love them, and can continue to love them even if the worst thing imaginable happens. Please don’t wait like my dad did, and don’t ignore it, as 30% of American households do. Set aside $30-$50 a month and give your family one more reason to sleep well at night.
Comments: Do you have life insurance? Why or why not? Do you know anyone who died without a life insurance policy in place? How were they able to cope without the insurance to help pay for their major life adjustment?
Here are some great resources for those who want to learn more about life insurance:
- Life Insurance Needs Calculator: www.lifehappens.org/howmuch
- Life Insurance Product Decision Guide: www.lifehappens.org/whatkind
- Life Insurance 101 Guide: www.lifehappens.org/lifeinsurance
- Insurance Agent Locator Tool: www.lifehappens.org/agentlocator
- Life insurance basics: http://www.insure.com/articles/lifeinsurance/basics.html
- Common questions about life insurance: http://www.insure.com/articles/lifeinsurance/questions.html
- Who’s who on a life insurance policy: http://www.insure.com/articles/lifeinsurance/life-insurance-policy-roles.html