Tuesday, January 31, 2012

Life Insurance

This weekend, Peanut did the most romantic thing he's ever done for me in the four years I've known him. He paid for a life insurance policy that lists me as the beneficiary.

I know. What a wonderful guy!

This came at my request - back in November while reading Insurance for Dummies (a must-read!) as we prepared to buy a house, I asked Peanut to buy life insurance on himself that would enable me to pay off the house in full and provide additional income or a cash settlement to keep me afloat for several years (or to invest) as well as disability insurance that would cover our entire mortgage payment, were anything to happen to him. I did a lot of research to determine how much I felt I would need to receive, and I presented him with the plans I preferred. He agreed and followed up with both companies to fill out their paperwork and receive a physical exam before being approved and writing checks to solidify the purchase.

We'd never purchased individual life or disability premiums before, and the process was enlightening. I spoke with some local agents, but ultimately we ended up going through Zander Life Insurance, of Dave Ramsey recommendation fame.

The really interesting thing, to me, is the cost. A 20-year term life insurance policy for Peanut, who's in good health and has no bad habits like smoking, is $325 per year. That price is locked in for the entire 20 years he owns the policy - but year 21 will cost him $3,160 and it increases about 10% for every year thereafter. This really goes to show the benefit of buying these kinds of things when you're young! (Disability was also a few hundred dollars a year, but isn't a term policy the way life insurance is, so the costs for that are pretty boring.)

For what it's worth, we decided not to take out individual insurance for me. My company offers a standard 1x salary life insurance for free, and I can double that for about $2 a month, so I opted to do that (those are the only options - 1x for free, or 2x for double. No picking a different amount!). I also opted in to the group disability plan, for about $5 per month. But we chose not to go after additional policies from private insurers to cover me.

We have two reasons for this disparity - the difference in our salaries and the difference in our comfort levels. Peanut could afford our house without my salary pretty easily, and he's close to his family now. If something were to happen to me, he would be very sad but he would stay where he is and continue working and living in our house. I, on the other hand, would struggle at my salary if I suddenly became the only one providing for all my needs, and I live across the country from my family. If something were to happen to Peanut, I doubt I would want to live so far away from them. Whether I permanently moved back to my parents' area or not, I would probably take a leave of absence or quit my job, and I would need a way to either pay off the house or continue paying the mortgage while selling it.

We may revisit the decision on my life insurance when we have kids (if something were to happen to me, I would want to leave something behind for them) but for now, this makes the best sense for us. It's been both an unpleasant exercise as well as a very interesting one, and it's just phase one of our what-if plans. Next up, determining wills, living wills/medical directives, and that sort of thing. I think I'm just going to have to bite the bullet and sit down with a lawyer for a few hours.

Do you have private life insurance, or do you plan to get it? 

 

4 comments:

  1. Yes. We got 1 million on my husband right after we were married. It is $260 a year. While we don't have any kids several years later, and I would probably be fine without any insurance as long as I didn't have any kids, you really never know. For $260 a year we don't have to worry about any of that. We are covered for another 5 years, but then we will need to either sign a new policy or go without. Who knows, we also might not even need any insurance, as my husband's salary is probably going to be about 3-4 times what it is right now in about a year. We plan to continue living on what we make now and put the rest away in savings or other assets.

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  2. Interesting that you wrote about insurance. I just started a new post about the topic this morning.

    My only question is... Do you plan on continuing to work after your kids are born or do you see a possible breakage in work at any point in your future? If so you may want to get an additional policy now while you are young and healthy.

    I was recently laid off and I'm now considering staying home with my son for a few years. When I left my job I had the option to transfer my life insurance policy but it didn't lock in rates and would've been really expensive if I continue to remain out of the workforce for a significant period of time.

    My husband should be able to afford things without my salary, which is why I'll be able to stay home, but I am considering a small individual policy that would help cover day care costs, college tuition, etc.

    When I had a job I definitely didn't think I had a need for an individual life insurance policy, but now that my job has ended I can definitely see the value in it. The nice thing about an individual policy is that it travels with you wherever you go. If a future job doesn't offer insurance you're already locked in and if you decide not to work at all you're covered too.

    I'm not suggesting that you need this now, but it's one aspect of life insurance that you might want to consider.

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  3. Great timing -- I'm in the process of investigating life/disability insurance policies. My salary is significantly larger than my hubby's, and his couldn't cover the mortgage if something were to happen to me. My company is offering me a pretty good deal on life insurance, so I'm probably going to go that route. I do love that we can get it so cheap at the moment.

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  4. We have life insurance for both myself and my husband. We have a little one that we would need to provide for. Because we both have about $500K in life insurance, we also have wills that dictate how that money would be set up in a trust and spent if something happened to both of us. I do not want an estate of over one million and a little girl without any direction financially at least.

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Thanks for commenting!