[Welcome to Mile High Finance Guy! Please find my website disclosures governing this post on term insurance here. Additionally, this post is educational only and does not constitute investment, legal, or insurance advice.]
Term Life Insurance For Those Not Yet FIRE’d
With the proliferation of insurance for everything, we now live in a culture where purchases hold little risk if something goes awry. After all, on-demand replacements are a click away. So, have we reached the stage where the adage, “If you can’t afford to replace it, you shouldn’t buy it,” is dead?
For most consumers, the answer is likely yes, because nowadays, you can insure nearly everything. Purchased a blender on Amazon or a lawnmower from Home Depot? There’s an insurance plan for that. Are you buying a new computer or smartphone? Insurance is available! Random $20 purchase online? Yes, there is a plan for that, too. Crazy, I know.
Public Service Announcement: Do not overconsume! Just because you can buy anything doesn’t mean you should. Nor should insurance be used to cover everything. Instead, insurance is for protecting things that would otherwise cause financial hardship if lost or destroyed.
But, while replaceability and insurance go hand-in-hand for high-dollar material possessions, the conversation dramatically shifts when discussing your own life.
Why? Because the end goal of insurance is not the same.
Take a step back to consider your mortality. Are you doing what you want in life? If not, how can you get there? What would the fallout be if you died today? Do you have things in order, or are they shuffled in disarray? These profound questions enable us to look at the bigger picture. So, remember to repeat them every once in a while.
Do you have a spouse and children? If so, would they be able to survive in your absence? With time, they would likely learn to cope emotionally. However, they may not financially.
For those single without debts, there may be no financial fallout from death. But, for those with student loans, that is a different story; whoever cosigned will have to repay them, even after your death. Hence, you should always ensure that you insure when appropriate.
Disclosure: I am not an insurance agent or broker, and I have no financial interest in telling you to purchase insurance.
I do not believe life insurance is for everyone. Those who are retired or FIRE’d rarely need insurance, and those who are single with no debts would likely be wasting money. But, term life insurance is an essential tool for households that depend upon earned income or have unforgiven debts, plus those that are still in the savings stage.
The good news is that if you work for a medium to a large-sized employer, you likely already have term life insurance. If you do not know how much coverage you currently have, check with your HR!
Definition: Coverage refers to how much money your beneficiaries will receive in the event of your death.
While there is no easy answer as to how much insurance coverage you need, generally, you should have at least enough to satisfy any debts and funeral costs upon death. Additionally, for those with family’s, there should have enough coverage to help stabilize the family after your passing and help replace your lost savings potential.
For some, enough coverage means the surviving spouse never needs to work again. For others, it means having enough to put the kids through school and to provide the surviving spouse with enough funds to be financially stable. Regardless, purchase the amount you need or want, not what a salesperson tells you is commonplace. And remember, if you have a spouse, don’t leave them out! This is a family discussion, and they may need coverage or have a different opinion on amounts, too.
Once you have consulted with those nearest and done calculations, you can get to work. If you need help determining your coverage needs, check out this post: How much life insurance do you really need?
Suppose your employer coverage is enough, no need to buy more. If not, your employer may offer the ability to purchase additional coverage at a discount. However, if your employer doesn’t provide life insurance or additional coverage, shop around online to compare term life insurance rates.
Term insurance is usually inexpensive when you are below the age of 55 but can become more costly as your age increases and prospects of death increase. Importantly, do not get sucked into the permanent life insurance sales trap!
Importantly, do not get sucked into the permanent life insurance sales trap!
Public Service Announcement: Permanent life insurance is not better than an IRA or 401(k) for most, nor is it a retirement savings vehicle. Term insurance is usually sufficient!
I do not work with any insurance affiliates, nor do I have any to suggest. Instead, I propose shopping around on the internet.
Thanks for reading today along. In the comments below, I would love to hear your thoughts on life insurance and where it fits into your financial freedom plans! Do you still carry coverage now that you have reached FIRE, or do you plan to keep it once achieved? As always, have a great day!
Mile High Finance Guy
finance demystified, one mountain at a time