I spend $70 per month to know that if I die prematurely, Julie’s life without me will not become a financial disaster.
If you can’t say that about your spouse, you need to look at your life insurance needs.
This is a very difficult post to write, because you have to be so matter of fact about things you’d rather not think about at all.
Today is the #LifeAware Life Insurance Movement. More details can be found here. There are a lot of cool prizes being given away for your participation (just tweeting with the hashtag #LifeAware will enter you to win).
What You Could Do TODAY
Everything you need to know is in italics.
I don’t want to debate the merits of term life insurance vs. whole/universal/variable life insurance. I did thorough research into term alternatives and they only make sense if you have a lot of discretionary income and are looking for an additional vehicle to avoid paying taxes. This post applies to the 99% :) So I’m probably talking to you.
You want TERM life insurance.
When you “lock in” term life insurance, you’re locking in the premium. So if you’re healthy and strapping at age 25, you will pay a pitance for a very large term policy. If you get a 20-year term, that means you’ll pay the same price, for the same coverage, for 20 years. As Jeff Rose mentioned on my special podcast today, (he’s the founder of the Life Insurance Movement), who wouldn’t want to lock in their mortgage at today’s rates of 3.75 percent?
The same thinking applies to your term life insurance policy. The older you get, the more expensive it becomes.
Lock in your policy early. How about today?
How much life insurance is needed? That’s a pretty personal question, and one that I can’t answer for each reader of this post. When I first bought a term policy on myself (I believe I was 24), it was 63 times my annual income! I did this to 1) lock in the rate, and 2) allow us to “grow” into the policy. We have been able to “grow” into the policy by having four more children, seeing my income rise (with expenses along with it…though always in check by the ever-faithful budget!), purchasing a home, etc.)
You can use 10 times your annual income as a starting point, and then adjust accordingly (up if you have a lot of debt, down if you have less, down if you’re not the sole breadwinner, up if your spouse would maybe need to go back to school, etc.)
Being wired conservatively, I error on the high side of the multiple.
Start with a policy that’s 10 times your annual income, then adjust up or down to suit your individual needs (debt to income ratio, dual income household, number of children, age of children, etc.)
Most life insurance premiums are payable annually. This is a simple Rule Two Rainy Day fund. At the beginning of this post I mentioned that I “spend” $70 per month for our life insurance policy. I actually don’t spend it, but it sits in our “Fixed Expenses” category and accumulates for the year. The bill comes, and I pay it. Zero stress. Lots of peace of mind.
Break the premium into monthly amounts and set that amount aside in your ‘Life Insurance’ category so you’ll be ready for the bill when it comes due.
The late Stephen Covey talked about To Dos that are Important but Not Urgent. Life insurance isn’t urgent, until it is. Then suddenly it’s in that other quadrant: Important and URGENT. Take responsibility. Prepare your family for a future where you may not be there. Don’t make it harder on them that it obviously already would be.
Start today. Locate an agent. Get some references on said agent. A few have asked who I use. You can email Casey at firstname.lastname@example.org. He’s fantastic to work with.