Why We Don’t Have Life Insurance and When We’ll Buy It
Kyle and I don’t have life insurance – Kyle and I don’t believe we need life insurance right now.
We view life insurance as a means to provide for dependents in the event of an early demise – specifically, to replace the income of the deceased. My mother, a former insurance agent, views life insurance as an investment vehicle, which I think she really had to believe in to be able to sell the product. But my understanding from 95% of the PF coverage of this topic is that term insurance plus investing on your own will produce better outcomes than whole life insurance on a dollar-per-dollar basis. So when we buy life insurance, we will buy term.
Kyle and I don’t need life insurance at this time because we both work and one of us dying won’t leave the other with an inordinate burden of debt or ongoing expenses.
We will buy life insurance if/when:
- we decide to try to get pregnant
- we take on major debt (a mortgage)
- our incomes become radically and sustainably unequal (but only on the higher earner)
I have read that “life insurance is sold, not bought” but since we’ve already made this set of decisions I’m sure we will seek out the product when we’re ready for it.
If we live our whole lives with no kids as renters with roughly equal incomes I don’t see a need for life insurance at all! With no dependents we would have more ability to build up saving without wasting money on insurance. Of course we don’t want our life to play out that way, but there’s also no sense in buying the insurance prematurely in case those events don’t come about.
Do you own life insurance and if so what kind? At what point did you buy it or do you plan to?
photo from Free Digital Photos
Filed under: insurance · Tags: life insurance, term life insurance, whole life insurance
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I thought about this a lot – I don’t have kids or a mortgage, etc… But I went ahead and bought term life insurance for 1.5x my annual salary. If I died unexpectedly, it should be enough for my family to cover all the expenses of a funeral (thousands), pay off my car loan and take care of traveling here and arranging everything.
Not a likely scenario, but it’s <$20 per year, so I figure it's worth it at least for the short term so I wouldn't burden them with extra cost, even though I have some savings.
That is considerate for your family and certainly not much of a cost. If Kyle died I guess I would pay funeral expenses out of our savings, which would be a big hit. He would just use my student loan money, I guess.
I completely agree. We don’t have life insurance (YET) either. Health, Disability, and Long term care are probably more important anyway, as these insure against more likely causes of bankrupting your degree-holding spouse than your death.
I agree on those more important types of coverage. I wouldn’t go without health insurance but we’re going to wait until we graduate to get disability.
I would agree that anything beyond term, for many, is simply a waste of money. Insurance really should not be an investment vehicle, even though it’s often sold that way. We have term and bought it soon after we were married. I can understand your argument, though buying it now can really benefit you in the long term by locking in (sometimes) considerably lower rates.
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Do you think that there is really going to be a big difference in rates for 27 y-os vs. 30 y-os? Maybe I’ll get some quotes. That also means that we’ll be covered in years we don’t need the insurance and the coverage will end when we probably still do need it and we’ll have to re-up earlier… Wouldn’t that cost more on the back end?
I think the third point isn’t quite right. I don’t think the relative distribution of income is important. Instead, I would look at income vs expenses. Are you living on the equivalent of only one income? Then insurance isn’t necessary. But if it takes both incomes to pay the bills, and one of those incomes goes away, there is going to be a problem.
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I totally agree with you. I think I had that point in the post originally and edited it out.
We don’t have life insurance either, and I don’t feel the urgency to get life insurance. We do need disability insurance, however, and will get on that as soon as I graduate.
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We’re planning to get disability insurance when we get our first real jobs. It’s a really important type of coverage!
I have an insurance policy my grandfather got for me a long time ago. It makes 4% a year and the gains more than pay the premiums. It is a variable/universal type insurance. He was not happy about how it turned out because the agent who sold it to him pretty much lied about what it was and how it could be used to my benefit in the future. It all ended pretty nasty and that agent is no longer allowed to sell insurance….
My wife and I are self insuring at this point. We do have a child, but since we own the house free and clear and losing one income wouldn’t destory either’s finances we just don’t see the point.
Wow, that is a crazy story. Why did you keep the policy if the agent misled you. I guess it’s all about the opportunity cost.
I’m glad to hear from someone who is self-insuring. I’ve obviously thought about when to buy insurance but less about when it’s no longer necessary.
We bought ours the week after our first was born. We have term for 25 years, which is when we figured that a hypothetical second child would no longer need it. We’ve since learned that you can get a product that only turns on when both parents die, and we probably should have done that since either of us alone can support the family, and our main worry was if we both died in a car crash and our kids had to be taken in by family. We also have a will, disability insurance, and umbrella insurance.
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Thanks for the info about the double-death product – that may be something we’re interested in.
I am in the same position as well. I am not thinking of buying life insurance until I get married and have kids.
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Makes sense to us!
I do have life insurance, at some X times my annual base pay. It’s a benefit provided to me for “free” by my employer and I can’t opt out of it. I say “free” because my employer adds the group insurance premiums onto my W-2 and I have to pay regular taxes on it.
If my employer gave me a choice, I would opt out of the life insurance and I wouldn’t buy any on my own. I would consider buying life insurance only if I had a kid before I was financially independent. I’m hoping to be able to self-insure and never need life insurance. If I did though, I would probably buy a 20 year term policy.
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That’s how my employer does health insurance – pays for it on our behalf, but we have to pay tax on the premium amount that passes through our names.
Everybody tries to make the life insurance decision so hard, but I think you just boiled it down to the most essential questions. Someone asked me the other day whether or not I had life insurance. I looked at them dumbfounded… I have no significant other or children, my siblings and parents don’t and wont ever rely on my income, and I’ve got more than enough in savings account to cover a funeral. Having defeated their arguments, they accepted defeat. To me, the life insurance debate is not especially complicated. Thanks for spelling out your criteria.
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Thanks and I’m glad we see it the same way! There are more important insurances to have in place when you don’t have any dependents.
Term is definitely the way to go, and I think your approach is right on. We didn’t have it until we were looking at starting a family. Just to note it is cheaper/easier to get before you are pregnant then when you already are as companies view pregnancy as a risk.
A lot of companies will offer group term life policies as well for extremely low cost, with no medical exam required (almost all others you will need to get some sort of medical exam). I have my own in addition to what I have through my company because I wanted the continuity if I left. But my company plan is about 40% of the cost for the same coverage as my personal plan.
Good to know we should buy before pregnancy. I didn’t know the rates would increase but it makes sense. I just figured if Kyle died during my pregnancy without insurance I and our child would be SOL! Likewise if I died and the baby survived.
Having a mortgage or a child is the time to get life insurance in my opinion. I think you’re smart not to have it right now. Maybe if one of you didn’t work or have skills, it might be prudent. Also if you had a private student loan that wouldn’t be forgiven with death, that might be a reason. Otherwise, good move.
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Yeah, I definitely wouldn’t want Kyle to be saddled with my student loan debt if it weren’t forgiven upon death or vice versa. Thankfully I stuck to federal loans.
Emily: This is a fine and logical plan except for one big risk. That risk is uninsurability. If either one of you has an event that makes you uninsurable or result in you only being able to obtain a rated policy you and your future children could be at risk. With term being so so cheap for young people the risk reward would seem to indicate that you should in fact have term on both of you to cover the contingency of uninsurability.
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Yes, that is a good point. I suppose we would have to look at the chance of that happening in between now and when we plan to buy insurance and the potential financial downside.
We’re basically in the exact same boat as you guys. Buying a house/having kids will be the trigger to get life insurance.
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Glad to know this is a popular school of thought!
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