Insured for the Family

Do you have people in your life who would be financially affected if you died? Our pals at LearnVest have an essay by a woman whose father died in a plane accident when she was three, and what his life insurance policy was able to provide her family after they filed a claim:

In our case, the life insurance paid off the mortgage, and provided enough for my mother to continue to stay at home with us until I was in high school. It funded private school for my sister and me through 8th grade. Although we had only paid nine years of premiums, we received a giant influx of money that would sustain us until my mom reinvented herself as an interior designer when I was in high school and reentered the workforce on her own terms.

I’m currently paying about $40 a month for a 20-year term policy worth a little over $1 million (my beneficiaries are my parents). Here’s how to get yourself insured if it’s something you need to do.


10 Comments / Post A Comment

eagerber (#1,958)

I want to read this, but the link the LearnVest article is incorrect! Thanks!

Mike Dang (#2)

@eagerber Fixed! Sorry about that!

Lily Rowan (#70)

I met with a financial advisor recently who was adamant about not buying term life insurance. Whole life is an investment you can get back (with earnings) at some point. So, as of the day I’m insured, if I die, the beneficiary gets $X. If I’m 70 (or whatever) and have no dependents to worry about, I can cash out more than I paid in and have that money. Term life, you only get anything if you use it (i.e., die) during the term.

Whole life is more expensive to pay into, but again, you can get that money back out if you need it.

Mike Dang (#2)

@Lily Rowan There are pros and cons to both, and you’ve definitely mentioned some of the pros for whole life. My term-life insurance costs less than $500 annually for more than $1 million in coverage—to get that same amount of coverage with whole life, you’d have to pay several thousand dollars (Suze Orman has a popular segment where a man reveals to her that he pays $14,000 a year for $500,000 in whole life coverage, and she convinces him to switch to term insurance).

If you don’t have lots of money to pay into whole life insurance, term life insurance is great because most people can afford it, and it leaves them room in their budget to put their money into other investments, like retirement, or emergency savings.

Lily Rowan (#70)

@Mike Dang Oh, absolutely. How much you need to provide for people is a big factor as well — if I died tomorrow (knock on wood), I have no dependents, but want to be sure my parents aren’t stuck with my student loans, although I’m not otherwise concerned about their finances. (Also I have term through my job, and assume I’ll have it through any job in the future, due to working for The Man.)

Basically, if other people were relying on my income, I’m sure I’d buy term insurance.

josefinastrummer (#1,850)

@Lily Rowan Unless your folks co-signed on your student loans, they will not be your parents’ responsibility when you die. I had an Aflac rep lie to my entire company about that and it made me so mad, I had to look it up.
I hope you live long enough that you get to cash out the policy and spend your golden years living it up!

Lily Rowan (#70)

@josefinastrummer Ah, but they did co-sign.

sally (#917)

But Whole Life is more of an investment product than insurance, right? It’s really a whole different thing. Term is what you do in order to provide for people you are supporting, in case you die. Long period, low premium because you’re young and presumably healthy when you take it. You don’t get the money back, but it’s not that much money in the first place. It’s just insurance, where Whole Life is a way to invest for before or after you die, with special tax aspects. My insurance agent sold me a little bit of Whole Life in addition to my 30-year Term, with the idea that if I become a sick, uninsurable person, and the Term runs out, it will be the only insurance I have. But my financial planner pointed out that the agent made more commission on the $50,000 of Whole Life than on the $750,000 30-year Term, and recommended I cash in the Whole Life and drop it.

Whole Life, in amounts to replace a person’s income for years, isn’t what you do. I think. Surely a bunch of insurance brokers will start chiming in here any second.

OhMarie (#299)

Ooof. I have NO IDEA if my husband or I could afford to pay our mortgage alone if the other died. I also know that both of our jobs come with some kind of life insurance but again, I have no idea how much it is or if it would be enough to help. Fortunately it’s just the two of us–we have no kids and independent parents.

Funny, I read this the other day and I was hoping you’d feature it.

My girlfriend’s dad died when she was young and the insurance was a HUGE help to her and her mom and her sister. Now she is a big advocate of insurance on everything.

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