Do You Have Life Insurance?

The first time I considered buying life insurance was when we moved out to the rural area we live in now.  We were living below poverty level for so many years that life insurance was nowhere on my radar until that time.  The main thing that prompted me was my long commute.  At the time it seemed like hundreds of miles away, when it was in fact just less than 50 miles, and of course nowadays having made the drive for so many years it doesn’t seem like all that far.  But back then having lived in the city all my life, it was something I had to get used to.  I remember thinking how interesting it was that when we lived in the city there were more stop lights on my 3 mile drive to work than my 50 mile drive once we moved rural.  The nearest stop light to my home right now is about 17 miles away and most of my drive is highway miles.  At any rate, the long drive was a concern, I had never had to drive so many miles from home.  I did some research and found a policy that was less than $20 a month with $50,000 coverage.  At the time, Mr. A was the stay at home parent and our mortgage was $53,000.  We figured if I was in an accident while driving to or from work, at least most of the mortgage could be paid in full.

It was pretty easy to get the policy set up. I filled out the paperwork and sent it in, and a nurse came to my office at work one day to do a quick physical to verify that I was in good health.  A direct withdrawal was set up on my checking account, and that was the last I’ve heard of them.  Every month like clockwork they remove the money from my account.

According to this article: Life Insurance 101, it seems as if I have term life insurance: “Term life is the simplest and least expensive type, since it pays your beneficiaries only if you die while the policy is in force. Term periods usually range from 5 to 30 years. Premiums increase according to your age and overall health, but several other features can also affect the cost and benefits received.”  The “simple” and “least expensive” meet the bill, and I understood my policy was pay only if I died while it was still being paid, however, I didn’t realize that there was a time period for life insurance.  I have been going along all these years assuming that whenever I die, there will be a life insurance policy to be cashed out for my beneficiaries.  My premiums have not increased, and in fact my health has gotten better.  I am going to have to take a look into my policy and see exactly what I am paying for!

I was just telling Mr. A the other day that I am glad to have this insurance policy because at least there is some money that would come about if I were to die.  I would like my children to have something when I die.

I would like to have more money put aside, but first we have to get out of debt.  First things first.

Do you have life insurance?  Do you think it is something that only older people should have?

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6 thoughts on “Do You Have Life Insurance?

  1. Life insurance is for anyone who wants to protect their assets. For me, it protects against loss of income for the survivor.
    krantcents recently posted..Get Paid to Stay HealthyMy Profile

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    Mrs. Accountability Reply:

    Krantcents, so how exactly does that work? Let’s take my situation for example. I’m the main breadwinner and let’s say I want to protect against loss of income for my husband. I’m making around $40K a year. By loss of income you mean you want the surviving spouse to continue having that $40K each year, right? My life insurance is going to start costing me over $100/month for just one $50,000 lump sum. Wouldn’t it cost thousands of dollars each month to protect against loss of income for the survivor? Or maybe I am not understanding. Thanks.

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  2. The person who sold you the insurance really should have told you whether you were buying term of whole life. Your policy should state this pretty clearly.

    The reason why term policies are for a fixed number of years is because the risk of death begins to escalate sharply at a certain point. The odds of you dying in your 70s is far higher than the odds of you dying in your 20s, for example. Term policies are to protect against unexpected deaths. The death of a 28 year old is unexpected; the death of a 91 year old really isn’t that unexpected.

    Keep in mind the fact that life insurance is for the benefit of the survivors. what to the survivors needs when a love one passed away.

    Let’s run through some example:

    Example 1: Person is 80, spouse is 80, kids are 58 and 55.

    OK, let’s look at the financial impact on the survivors. First, let’s look at the kids. They are grown up and should be well set in their careers by now. An inheritance would be a nice bonus, but do they really need it? To spin this a different way – if you’re a few years away from retirement, should you still be depending on your parents for money?

    I’m 37 and my mom is 81 (my dad passed away a few years ago). Does my mom have life insurance? I honestly have no idea. I don’t expect an inheritance. I’m hoping mom enjoys life and spends down her assets so there’s just enough left to cover her funeral. It’s her money to spend.

    I’ll note that you’ve got an a special case with your oldest son. You very well may want to provide a nest egg to allow him to live as full a life as possible.

    Let’s look at the impact on the spouse. There’s the loss of companionship, which definitely is huge. However, what’s the financial impact? Is there a reduction in income (a pension you were receiving or a drop in social security benefits)? Now weigh this against the fact that they will also have reduced expenses. Lower food costs, lower entertainment costs, lower clothing costs, etc. I’m not saying the costs will cut in half, but there will be a substantial drop.

    This is going to sound really cold, but from a pure dollars and sense perspective, a surviving spouse might have more disposable income than the couple did.

    Example 2: Single person

    You’re single with no dependents. A lot of people will be sad if you die, but nobody is actually any worse off financially. As long as you have enough assets to cover your burial costs and any outstanding debts, there’s not a great need for insurance.

    Example 3: married with young kids

    You’re 28, spouse is 26, kids are 5 and 3. This is the situation where a death causes a huge financial impact for the survivor. There’s going to be the loss of a salary, and some household expenses (such as day care) may actually rise. This is a perfect candidate for life insurance.

    There’s also a situation where both parents would die (car accident) and leave the kids in the care of a family member or trusted friend (oh, yeah – if you have kids, make sure you have a will). Obviously, this creates a huge and unexpected financial burden for the caregiver (think about college, just for starters). Leaving behind insurance proceeds may allow the caregiver to provide more easily for your kids. You don’t want the caregivers – and your kids – living in poverty.

    In a nutshell – look at the actual dollars and cents impact of your death to determine your need.
    Kosmo recently posted..Derek Jeter’s Postseason LegacyMy Profile

    [Reply]

    Mrs. Accountability Reply:

    Kosmo, thank you for this comment. All good points. The person who sold me the policy probably did tell me but it’s been such a long time I forgot. I actually lost track of the policy for a while and didn’t even know how to contact the company! That was partly because they had changed ownership. I just posted a followup post today. Thanks again.

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