Let’s talk about life insurance. I’ve been doing research into this area recently and contemplating if I should buy life insurance, or whole life insurance. I feel under time pressure to decide now because of my age–what I read is that once you pass 40 years of age the premiums for these insurance plans drastically increase. Long story short, the conclusion I came to is NO. I don’t see tremendous value in buying life insurance and allow me to explain how I came to that conclusion. If you’re considering life insurance, remember that your circumstances are your own and may not match mine and you need to make a decision based on your own situation. I’m not a financial advisor, so take everything I say with a grain of salt.
Why Get Life Insurance?
A recurring question always popped up as I searched around life insurance quotes: why is your objective (why) to get life insurance? Do you need the policy so those you leave behind can afford funeral expenses? Are you trying to pass on your wealth to your inheritors? Are you trying to set them up financially so they won’t be kicked out of their house and living under a bridge?
I was forced to contemplate these questions and answer them for myself, as should too if you’re in the search for life insurance. My reasoning was timing. I felt under pressure of time to lock in a good life insurance rate now while I’m relatively young and healthy instead of waiting until I have kids a few years from now. Other motivator for me was finding a new significant other and the future prospect of starting a family together–I want to make sure that future family is setup for financial success whether I’m bringing home income or not. For me in my situation, I’m not looking to make future family “rich” through a giant windfall if I die, but I do want to make sure that they are setup to live a financially independent life without me.
Term Life Insurance and Whole Life Insurance
The life insurance industry sure does make things hard to sort out their different plans. Like the tech industry, a lot of jargon and acronyms muddy the waters. I was specifically interested in Term life insurance or Whole life insurance. A term life is one with a fixed premium that you pay and where the money paid out to beneficiaries on death is also guaranteed and fixed. Whole life plans generally come with a “cash value” and they try to sell you on the ability to save money and take loans out against that cash value. The giant gotcha is that on death, that cash value DOES NOT get paid out to beneficiaries. Only the value of the policy gets paid out and that is DECREASED by the loan amount that you have taken out of your cash value. That is ridiculous!
The terms and conditions of every policy vary, but long story short these are the two types of insurance plans I was most interested in potentially buying now to lock in low rates while my age is young and health is good.
Employer’s Life Insurance
During my searching I was surprised to find out that my current employer provides a 1x term life insurance policy as part of my benefits package! This is specifically life insurance and separate from their small disability insurance.
A 1x payout to my family on my death seems absolutely reasonable to me. My beneficiaries get a runway of one year to get their financials in order after I die. That year is important because it’s time and space that my beneficiaries should not feel rushed into making quick financial decisions under time pressure while also having to deal with all the other things that happen following a loved ones death.
Conclusion: Go Self-Insured
I contemplated (obsessed) about life insurance for a good month. The final conclusion that I have come to is to go self-insured. I only need to make sure that my beneficiaries who will inherit from me if I die are setup on solid foundation financially. I don’t need to make them rich above and beyond my wealth.
If I were to die today, my beneficiaries would inherit my $1M+ portfolio of wealth, in addition to one year’s worth of my current salary. That’s a tremendous boost up the the wealth ladder and that’s without any money going out of my pocket every month to pay a premium on an insurance policy.
One area that I need to work on is education for my beneficiaries. It’s not enough to inherit wealth and stick it into a savings account and spend it. That’s recipe to depletion of the wealth and end up bankrupt. Instead, I want my inheritors to understand HOW I made that wealth and how I accumulated that wealth over time. My hope is that they do not squander the money. Too many times I’ve heard stories of someones spouse dying and leaving the surviving spouse in the dark about the true wealth that they have at their disposal and how to keep that wealth snowball growing bigger and bigger instead of smaller and smaller.
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