Jan. 14, 2019
You’re expecting a new baby. Congratulations! Now go buy yourself some life insurance.
Okay so you should enjoy the news, and celebrate with family and friends. After that, one of the things that should be high on your to do list during baby prep time is buying yourself some term life insurance.
When you’re young and no one else is relying on your income, you don’t need life insurance. It would be sad if you pass away, but it’s not going to financially impact others. When you have a small living being relying on your income to be fed, clothed, diapered, and entertained, you need life insurance. This isn’t negotiable.
What kind of life insurance do you need? Almost assuredly you need level premium term life insurance. Term life insurance works like any other insurance you’re thinking of: You pay a set amount to protect against the risk of an event happening. If that event happens (in this case, your untimely demise), the insurance company pays. If the event doesn’t happen, the insurance company keeps your money and you get “nothing.”
There is another type of life insurance called Whole Life. But chances are, you don’t need whole life insurance.
Term insurance is extremely affordable. How much you need varies, but many experts recommend around 8-12x your annual income. That’s imprecise and personal situations impact that both up and down, but you likely need more than you’re thinking you do.
The cost varies based on the age you purchase it and health factors, but here are some recent policies I’ve helped clients purchase:
- A 34 year old woman bought a 30 year term, $750,000 policy for $61 per month
- A 32 year old man bought a 30 year, $500,000 policy for $24 per month.
- A 40 year old man bought a 20 year, $250,000 policy for $18 per month
It’s extremely cheap considering what you get for it. There are some people who would argue, “But why would you spend all that money only to get ‘nothing’ at the end of it?” These people are wrong. You don’t get “nothing” when you buy term life insurance and don’t end up dying.
You’ve bought the peace of mind to know your family will not be forced to move.
You’ve bought knowing your spouse would be able to pay for additional childcare now that they’re unexpectedly a single parent.
You’ve bought several years worth of time to readjust to an entirely different life without financial stress compounding all the other stress.
You’ve bought knowing your family could splurge a little on dining out now that you’re not home to make dinner every night.
You’ve bought your family not having to use a GoFundMe or other crowdsourced website to pay your funeral costs.
You’ve bought knowing your kids would still have funding for their education, despite your family no longer having two incomes.
You can buy all that for an amount many people spend regularly on dinner and a couple drinks. You can afford it, but many people choose not to buy it because the benefits above are vague and theoretical, but the dinner and drinks make you happier today.
Now, it’s true that for the majority of people, you’ll get to the end of the twenty or thirty years and the policy will end with you having not needed it. According to actuarial tables, if you’re a 30 year old man, you have a roughly 12% chance of dying sometime in the next 30 years.
While that’s a low probability, it’s exactly what insurance is for, low probability events that have a catastrophic outcome if they happen to occur. And nothing is more catastrophic to your family finances than you dying.