When Her and I got back from our honeymoon, not two weeks passed before Her took the initiative and started researching life insurance. We first looked to friends for suggestions…which was a mistake.
Our First Life Insurance Meeting
We got a suggestion to check out a couple friends of ours life insurance agent. His office was on the 30-something floor of a downtown Chicago skyscraper. He lead us to a bland conference room with a whiteboard. It was only five minutes into his pitch that I realized that he was selling us a whole life insurance product; he was selling us an investment. I pretty much tuned out, but Her was kind of interested. I left our meeting unconvinced.
In the days after, I researched the plan that the life insurance agent pitched to us. It was as bad as I thought. It took a few spreadsheets and links to good articles, but I finally won Her over to my side. But Her still wanted to give the guy a shot and scheduled another meeting with him. When we brought up our concerns about the plan, the agent got defensive, almost hostile. We got our answers and then left. He followed up with us soon after, but we told him that we’d be researching other options. Our stance: insurance is used to protect against catastrophic loss only and investments should be separate.
Life Insurance – We Found A Winner!
While I was doing more research on life insurance, I filled out an online form for a quote for a term life insurance plan. I expected a lot of spam and other solicitations, but I actually received calls form helpful people. We picked one randomly — Jason — and decided to meet with him.
The meeting with Jason couldn’t have been more opposite than the meeting with the first insurance agent we met. We started by talking about ourselves. For an hour. Then we left. We weren’t sold to at all.
Of course all of the cynics are going to say that now he has all of the information he needs to craft a life insurance product. THAT’S EXACTLY WHAT WE WANTED. I’d rather that an insurance agent listen to our needs and then comes up with a plan rather than blindly selling us a product that doesn’t work to our advantage. We decided to make the follow up appointment and get more information.
The Life Insurance Process
During our first meeting, we identified all of the financial things, our assets, that we already had going for us – our jobs and salaries, investments, and current life insurance coverage. With that information, we drew up an estimate of how our salary might change over the years (sadly, since then, the projections did not come true) and how our investments may grow.
We then tallied up our liabilities – student loan debt, possible future mortgage, new car purchases, etc. Those numbers were pretty simple.
The fun part: dreaming about the future. How many kids? What would our lifestyle be like 5, 10, 25, 30 years into the future? Would we have 20 cats? This process was fun, but we had to be somewhat realistic, otherwise we would run the risk of getting the wrong amount of insurance.
Then came the Debbie Downer: what would happen should one or both of us died. Would we want all of our debts paid? Would we like to not work so that we can grieve or take care of the kids? Should we have enough to cover kids’ school tuitions? Will we need to build an addition to our home for all of the cats?
After all of this information was out there, we came up with a number: $750,000 of life insurance coverage for each of us.
What surprised me was that our agent then worked with us to find the cheapest way possible of getting that coverage. Did we need all of that coverage for the fill 30 years? Probably not. We assumed that our assets would grow over time, meaning that we would need less coverage as we got older. The assets would take the place of the coverage. Our agent then proposed that we get $500K coverage for 20 years, and $250K for the 30 years. So for the first 20 years, we would have $500K + $250K = $750K coverage, and then it would drop to $250K afterwards.
Thinking about it now, I don’t exactly know (!) how we’re covered. I know that right now we’re covered for $750K, and it may or may not decrease in 20 years or so. I should look that up.
If there’s one downside to all of this, it is the cost of life insurance. Bloggers and TV ads all around have stated something along the lines of “for only $30 a month you can be insured for ONE BILLION DOLLARS”. Well, that’s certainly true if you’re the paragon of health, but I’m not. I’ve covered previously how my health problems have made my life expensive to insure, to the tune of $220 per month. Luckily Her is in much better health than I am in, so her premiums are quite low at the fabled $30 per month. There’s not much I can do about it other than setting up a genetics lab and then expunging the bad genes from my genome. I’d wager that would cost a lot.
So was this all worth it? YES. We both go to sleep better at night knowing that our kid (and future kids!) will be financially protected should something terrible happen to one, or worse, both of us. If there are people depending on your ability to provide financially for them for at least the next 10 years or so, you should have life insurance to protect them in case something terrible happens to you.
You’ll sleep better at night.
The ABI/Association of British Insurers have released details of a New Act that is to help clarify insurance coverage for consumers, to read more about it, please click here.