Today’s post is one that some people are not going to be comfortable with. I’m going to talk about life insurance, a topic near and dear to my heart. If you’re at all familiar with me then you’re aware of my story. I have been a single mom for almost 23 years now. My husband died of a heart attack at the age of 35. You can read more about that here if you want.
My husband and I had a minimal life insurance policy that was provided through his employer when he died. We were young and, we thought, healthy so we assumed that was sufficient. We were soooo wrong. If I remember right, it was around $56,000 or maybe $58,000. That might seem like a decent sum but when you factor in paying for a funeral and burial plot and raising two very young children (6 months old and 2 1/2 years old at the time) when you’d just lost more than half of your household income then I can tell you that the money didn’t stretch very far.
Who needs life insurance? Obviously, if you have a family then you need life insurance. If you have someone else that’s dependent on you financially, maybe a parent, then you need life insurance. Stay at home parents also need life insurance, not just the breadwinner. Think about who will take over those responsibilities if something happens to the stay-at-home parent.
I currently have a 20-year term life insurance policy that will expire in 3 years. I’ve been paying $250 a year for $500,000 in life insurance. Super cheap because I took it out when I was young and healthy. I chose a 20-year policy because I could easily afford the premiums and I knew at that time that it would last until the boys were well out of college.
My insurance company notified me a few months ago that although I still had 3 years before my current policy expired, that my conversion option would expire in April of this year. Here’s a quick disclaimer, I am NOT a life insurance expert. My understanding of the conversion option is that you have a certain period of time where you can change your existing term life insurance to a permanent life insurance policy without a medical exam.
Life Insurance-Dilemmas, Dilemmas…
So, here’s the difference in permanent life insurance and term life insurance in layman’s terms (AGAIN, PLEASE CONSULT WITH YOUR LIFE INSURANCE PROFESSIONAL FOR ADVICE-THIS IS JUST MY EXPERIENCE), term life insurance is a policy that is good for a certain term or number of years. It’s relatively cheap, especially if you buy it when you’re young. Once the term expires then you either have to switch it to a permanent policy, get a new term policy, or let it lapse if you no longer need it.
Permanent life insurance will provide you a policy that will provide you with the same premium until your death or you decide you no longer need it and let the policy lapse. It is MUCH more expensive, but it provides you with the knowledge that you’ll have this coverage available to you regardless of future medical conditions that might pop up.
So, in my case, permanent life insurance just wasn’t going to fit into my budget. It was going to be about $300 a month for half the coverage that I currently had. So basically, going from $21 a month to $300 a month and losing half the coverage amount.
I chose to go with a new 15-year term policy. I had to go through another medical exam to prove my insurability (fingers crossed I’m as healthy as I assume I am) and I did drop my coverage a bit. Here’s the reasoning behind my decision. This plan will cost me about $41 a month and provide for $250,000 coverage. Yes, I’m paying double for half the amount I currently have. Life insurance gets more expensive the older you are but that’s okay for me. My boys are out of school now and busy building their own lives and careers. I still have my current policy for another 3 years. In addition, I will have this new policy so for the next 3 years I have plenty of life insurance. In 3 years, the amount will drop significantly as my original policy expires but my boys will be 26 and 29 and hopefully even more financially comfortable in their lives and careers. The new policy will last until they are 38 and 40 years old and I am planning on having my final arrangements paid for before this new policy ends so there won’t be any financial obligation to them.
What Plans Do Have in Place?
I’m curious what insurance plans you have in place. Do you think I made a wise decision? Do you have a plan in place for your family when you’re gone? I’m currently working on a digital binder that will help families organize the information their family will need in case something happens to them. Is this something you think you might find useful?