Life Insurance

Nope, I don’t sell insurance and I don’t pretend to know much about all the various insurance products, but I do know one thing.

If you have other people like a spouse, children or even parents dependent on you and your income, unless you are extremely wealthy, you need insurance, even if paying for it means giving up spending on something else more pleasurable.

I recently read about a woman who had a bit of a struggle after her husband died suddenly without insurance. He had employer group coverage which went away once he retired and they decided he didn’t need coverage because it was expensive and their emergency funds would do the job.

She is using accumulated savings and budget cutting to get by, not easy with three children still at home.

There are lessons here:

  • Buy insurance when you are young when coverage is least expensive
  • Use a combination of term and permanent insurance to maximize coverage when it’s most needed at lowest cost while making sure there is always coverage into retirement
  • Don’t count on employer-based coverage alone, especially if it ceases at retirement. Plus you could always change jobs or lose your job.
  • Don’t risk retirement or other savings as a substitute for life insurance. Also, an early untimely death may mean not much has yet been accumulated in investments
  • Don’t assume because your spouse works, insurance is not necessary, especially if your lifestyle is built on two incomes.
  • If you have a pension, factor in both the pre-retirement and post-retirement survivor annuities when deciding the amount of insurance to carry.
  • Remember, proceeds from life insurance payable to a beneficiary are income tax free, that’s not the case for many retirement vehicles or even the gains on investments that are liquidated. If an estate is involved get professional advice.
  • Don’t forget that both spouses may need coverage, especially when there are young children.

During my working years I had employer coverage equal to twice my base salary. When I retired coverage dropped to half my salary. While working my wife was covered with a pre-retirement survivor annuity. I also purchased group universal life with an investment fund. That was another one times salary. A few years after retiring I purchase a paid up policy with the accumulated assets.

After retiring, my insurance is worth about 70% of my pension and my wife has a 50% annuity on one portion of my pension and a 75% annuity on another portion. There are also 401k, IRA and other investments.

I must admit, with four children and as the sole income source, I took a chance. My coverage while working was insufficient. Don’t take that risk as modest as it may be.

2 comments

  1. What about SS survivors benefits, with 3 children still at home it should help some.

    I have always had life insurance. My wife and I started getting SS benefits at age 62. We have savings now but I told my wife if I die suddenly before age 70 to use the life insurance money to live on and suspend her SS survivor benefit from age 66 and 4 months thru age 70, so the benefit amount can grow by $280 per month. In 12 years of the bigger checks she will have all the suspended SS benefit money back and be getting more than my FRA amount, like we had never started SS benefits at 62.

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  2. If I could tell my younger self something it would be don’t get rid of that whole life insurance policy. I bought a policy at 20. I let it lapsed when my employer offered much more coverage for a lot less. I got lucky in the fact that I retired from that same employer but in this day and age, that will be highly unlikely now.

    The other thing I realized when I was working was my wife needed more coverage than what she earned. Yes I made great money and could do without her salary, until you factor in long term medical bills followed by child care expenses. I would need to hire a nanny or something if my wife had passed away or I would have to quit my job. Working shift work and being a single parent would not have been easy and finding around the clock coverage would have been expensive. Her insurance had to cover what I would lose in taking a pay cut by changing jobs. I bought the coverage and I am happy to say, didn’t use it but looking back, I think that it should have equaled my coverage.

    In my old age, pre-paying for funeral expenses is cheaper than buying insurance for the same purpose after retirement. At least I realized that and saved for it before retiring.

    But insurance and like most other benefits and IRA advice, who listens when you are 20. You “can’t” afford it in your 30s. You forget about it until you are in your 50’s and it becomes too expensive in your 60s.

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