Life insurance is something that you just don’t hear a lot about from single unattached millennials. I don’t know if we think we are invincible or that the bad shit that randomly happens to anybody on a given day will just never actually happen to us, or maybe the stereotype that most of us are just plain broke is even more accurate than some of us want to believe, but I read a lot of personal financial blogs, and this just isn’t a topic that I see commonly written about. Every now and then you might see sponsored post…but this isn’t that. But, hey, If someone DOES want to sponsor this post, feel free to send me some cash. 😀
There was such a reaction to my tease of this post over the weekend on Twitter, that I’m loading this up on a Monday instead of the post I originally had planned. 🙂
A lot of the frugal folks out there will tell you that if you’re young and healthy, you don’t need life insurance, that it’s a waste of money. I’m going to tell you why I think it is penny wise, dollar foolish choice to listen to all of these people.
Just a reminder to the reader that while I’m definitely in a good financial position compared to the average millennial, I’m not financially independent, I’ve never had a six figure income, I don’t have a pension, I don’t have a million dollars, and to my knowledge, my sperm is not yet infertile. If one or more of these things happened to be true, it might change my opinion regarding the usefulness of my currently owned life insurance.
PROTECT YOUR INSURABILITY FOR YOUR FUTURE FAMILY
I’m someone who has generally lived a healthy life. Other than having the diet of a teenager for most of my adult life, I’ve mostly been ailment-free as an adult.
However, around the age of 26, I had my first physical in probably five years. Since they were going to pull blood work on my vitals anyways, I also had them run some blood work for an inherited disorder that we know some of my extended family members have, since, you know, it would probably be a good idea to know these things about yourself. When the blood results came back, we learned that I do in fact have one mutated factor V leiden gene, but not any of the other related mutations that some people unfortunately also have which cause bigger problems. This is something that has zero effect on my day-to-day life.
If I’m on a long haul flight, I might have to get up and move around a bit more often than the average joe, but that’s the extent of any inconvenience I have from this disorder. My understanding from my doctor is that the biggest risk is if I were to be in a surgery post-op, it changes the way that they do things in that scenario. Note to self: I should maybe put a note in my wallet that states I do in fact have this condition so if I get into some crazy car accident, the ER doesn’t kill me by mistake. Where it has affected me the most, however, was with insurance applications, particularly for disability insurance:
They approved the benefit amount we requested with a maximum 10-year benefit period, a 25% rate adjustment based on the Select risk class for the positive test for Factor V Leiden, and will not allow addition of the Future Increase Option rider due to the rating.
The money saver in me wishes I had applied for disability insurance BEFORE I had that test done, because I would have spent 25% less per year on my disability insurance. You all know I hate needlessly spending extra money. After experiencing that whole fiasco with my disability insurance application, it made me happy that I had an agent I was comfortable with and who knew my health history. I put off life insurance for a couple years after I had the disability policy in place, but eventually I reached the point where I felt like I couldn’t put it off anymore. I almost felt like I was playing with dynamite during those couple years where I wasn’t insured even though I knew that it would probably be a good idea to be insured.
If you are not already financially independent and if you have any intentions of ever marrying or having children, I cannot encourage you enough to do some research on your life insurance options pronto. When you are young and healthy is exactly when this insurance is going to be dirt cheap. I’ve heard of way too many tragedies happening and people are unsurprisingly caught off guard. Nobody expects their loved one to die young. But it happens. It probably happens to someone everyday. It could be any of us.
Consider the scenario where you and your better half are raising your awesome kids, but one or both of you unexpectedly kicks the bucket. If you have a single or dual income household, unless you have some amazing extended family members who are physically, emotionally and financially ready to step in and save the day, your cost of childcare is likely to skyrocket. Where is the money going to come from? If I had waited a few more years to get life insurance, perhaps some other doctor would diagnose something else that was wrong with me that they would then be required by law to be disclosed on any future life insurance applications. This could cause insurance to be drastically more expensive right at the time that I need it the most.
Because of my existing health issues, some of the insurers would in fact not offer me the best insurance rates. In fact, the results for the offered risk class were literally every available risk class across the board:
I received the responses back from the carriers regarding the life insurance quotes and which risk class you would most likely qualify for (subject to a formal application and medical exam) given the health history described. We received responses from 12 companies, and 4 of them stated they would consider you for a Preferred Plus rate class. Those companies are American General, Prudential, ING/Reliastar, and John Hancock. The other responses suggested a standard or standard-plus risk class, and MetLife said they would consider for regular Preferred (Preferred Plus is the best class, then Preferred, Standard Plus, and Standard). ING and John Hancock do not offer 30-year term, so the premiums for 30-year term insurance with American General and Prudential would be as follows: [snip]
As of today, a “Preferred Plus” risk class $1,000,000 30-year term policy with the cheapest carrier for a 31 year old male, Protective Life Insurance, costs $713/year. But “standard” risk class from the same carrier? That’s a much higher $1527/year. It’s more than double the cost. Maybe a few years from now, even American General and Prudential, the two who were happy to offer me a 30 year policy at the best rate a couple years ago, will decide that this inherited disorder should reduce the risk class for their underwriting standards too.
I ended up going with American General because they were the cheaper of the two, and unlike other types of insurance where they will fight you tooth and nail on what is covered, life insurance is pretty straightforward. If you’re dead, your beneficiary gets paid.
Because my information was shopped around anonymously prior to formal application, none of the insurers knew what their competitors were offering me and they couldn’t use that against me. This is why it’s super important to have a competent insurance agent if you’re going to apply for life insurance.
WHAT ABOUT GOVERNMENT BENEFITS?
If you die young while raising children under the age of 16, your spouse will receive social security survivor benefits until your kids reach the age of 18. Because I do not yet have a spouse who is on board with a dual-income low-expenditure lifestyle, I don’t feel comfortable relying on government benefits to protect my potential mystery wife and kids. If I marry someone and we run the numbers and the social security survivor benefits in addition to our joint assets are more than enough to raise our kids, then sure, maybe we don’t need this insurance after all, maybe we can cancel the policy and add another $704 per year to the fun money fund. No big deal.
I would wager that the financial habits of your future spouse/partner is one of the single biggest financial variables that any unmarried person has. (assuming that they’d prefer to end up coupled off), I’m not comfortable relying on the government’s limited coverage for this just yet because I have an incomplete data set of what potential future joint finances look like. I’ve definitely dated women who are better off financially than me and some of them even spent less (I told her that she was the unicorn! Maybe it was too much pressure. :D) , but I’ve also dated women who are worse off financially than me and spend more. The woman I end up permanently with could be either extreme or neither. I have no way of knowing. I’m not going to be so picky about my potential wife’ s financials that it prevents me from exiting singledom. I hope…
WHAT IF YOU KNOW THAT YOU DON’T WANT KIDS?
There are a lot of people who feel very strongly about not having kids. I actually used to be one of those people for the majority of my 20’s. As time has gone on, that has changed. I’m not saying that I’d runaway from true love if she was stubborn about no kids ever, but my thoughts have definitely changed on this as I’ve entered my 30’s. Maybe your views will change, maybe they won’t. Regardless, should these people forego life insurance? I’m not sure that they should. Consider the scenario where you have been married to your spouse for several years and your spouse gets into a car accident and develops some sort of permanent disability that does not allow them to go back to work. What if there are lifelong recurring medical costs that come along with the job loss? What if the asshat who caused the accident has no assets to speak of for you to collect? Hopefully ya’ll had the foresight to put a strong disability insurance policy in place before that all happened, but what if even that isn’t enough? If I unexpectedly die young, I do not want to risk leaving my spouse high and dry. I think having an adequate life insurance policy is a very cheap hedge against this admittedly unlikely catastrophic scenario. But it does happen to people.
WHAT IF YOU NEED LESS INSURANCE LATER?
One of the first things I asked my insurance agent about was how it worked if I wanted to reduce my coverage. There’s certainly a potential life scenario where I end up 50 years old, unmarried and without kids. That’s a scenario where I definitely no longer need a million dollars of life insurance, perhaps I don’t even need life insurance at all. Per my agent, most companies allow you to reduce your death benefit at least one time per year. No reason to keep paying for insurance that you don’t need. I’d rather over-pay a little now when I think it’s likely that I will need it someday, rather than take a gamble and abstain from buying it and potentially pay a lot more for it when there is a bigger need.
WHAT IF YOU HAVE INSURANCE THROUGH WORK?
I completely ignore any insurance that I have through work. I think mine is 10,000. It doesn’t cost me a penny. I signed some form once and that was it. I don’t even know who the insurer is. I could buy more through work, and that might be a good way to go if I was to become uninsurable on my own and didn’t proactively get a policy on myself, but it’s not like you can take that coverage with you when you leave your job, so these really should be considered short term policies unless you have the skills and job stability to be a lifer.
WHAT IF 1 MILLION ISN’T ENOUGH?
This is also a possibility, even it’s hard for me to fathom. I can always apply for more life insurance later if life circumstances warrant it. It might be more expensive and harder to obtain, but I think putting a million dollar policy in place when I could lock it in at a rock bottom cost was absolutely the most prudent and financially responsible thing to do to protect my future spouse and children in a catastrophe scenario.
THE SWEET SPOT AGE FOR PUTTING THE INSURANCE IN PLACE
One month before my 29th birthday, I purchased a 30-year term policy with a $1,000,000 payout upon my death. The whole process from first contact to policy approval was roughly two months. I’m expecting (hoping? praying?) that I’ll never have to collect on it. This coverage costs me less than $60/month and it will remain less than $60/mo for the next 28 years, assuming I keep it that long. If $1,000,000 seems like way more than your survivors would ever possibly need to maintain their standard of living without you, then, hey, go for $500k or $750k and it would cost even less than that per month.
Even though I don’t like to mix investments with insurance, If something tragic does happen to me in the next 20-something years, I can take pride in knowing that it will easily be my greatest return on investment E-V-E-R. If I do end up paying the whole $21,804 in premiums over the course of the next 28 years and don’t ever collect that death benefit, I’m completely okay with that too. In fact, I’d wager that it is the best $21,804 I ever spent. Because that means I’ve had an awesome life and lived to tell the story, all while having a very inexpensive piece of mind to take care of my loved ones if I didn’t make it through my 50’s. Win-win scenario if you ask me. 🙂
The logic in going with a 30 year term in particular over the other choices is that I also know that should I happen to die shortly after the age of 59, my retirement accounts would very soon be completely accessible without the early withdrawal penalties and that combined with my taxable investment portfolio, and the spousal old age social security income stream following a few years after that, should be more than sufficient to provide for whoever happens to survive me.
Readers, do you have life insurance? If so, at which age did you put it in place? Did you ever reach a point where you decided that it was time to drop it and invest the cost of the premiums elsewhere?