do you need life insurance? quite possibly.

by Alison Green on February 24, 2016

And now a break to talk about a sponsor…

The older I get, the more time I find myself thinking about topics like wrinkles (hello, laugh lines that seemingly appeared on my face overnight!), retirement planning, and how I need to line up someone now to bring me food when I become a shut-in (that one could happen in the next three to five years).

Also, life insurance. Yes, life insurance, because someday we are all going to kick the bucket, in many cases leaving behind financial dependents.

Here’s the deal with life insurance: If you have people who currently depend on you, in whole or in part, for financial support, life insurance will help provide financial security to them. Some signs that you should be considering it are:

  • You’re married.
  • You have kids or are about to have kids.
  • You’re caring for other relatives who rely on you financially.
  • You have significant cosigned debt, like student loans, a mortgage, or a car loan, since that debt could fall to your co-signer to pay off if you die.

Or use this life insurance calculator to determine if you indeed need it.

Then, if you do decide you want it, what should you get and where should you get it? First, know that there are two main types of life insurance out there: term life insurance and permanent life insurance. Term life insurance covers you for a set term length and is pretty affordable (like less-money-than-your-cable-bill affordable). Permanent life insurance covers you for your entire life and has a cash value component that you can borrow from, but it’s typically far more expensive and a bit more complicated to understand (most people need a financial professional to help). Term life insurance is easy to understand and is a great choice for most people.

Your employer might offer term life insurance, but it’s pretty typical for an employer-sponsored plan to offer coverage that equates to only one to two times your base salary. In other words, if you make $60,000, and the coverage you have is two times your salary, your beneficiary would receive, at most, a $120,000 payout upon your death. That can sound like a lot of cash when it’s in a big lump like that, but if you’re married with kids, it could go quickly. In two years, your partner would be supporting the kids on a single salary. That’s why experts suggest coverage of seven to 10 times your salary. (See if 1-2 years salary would be enough for you and your family.)

Haven Life, the sponsor of this post, is one place to go to get insured. They’re a life insurance startup (backed by a top life insurer) that lets you apply, get a decision right away, and if approved, buy your term life insurance online. Amazingly, it only takes 20 minutes. (Most other companies take four to six weeks and won’t let you do it online.) A 20-year, $500,000 Haven Term policy could cost a healthy 30-year-old less than $18 per month. You can get a free, fast, no-obligation quote here.

Almost all of us will buy life insurance at some point in our lives, and it gets more expensive as you get older. So it’s smart to set it up now if you’re going to do it, to save yourself money in the long-term.

Now, who is going to bring me food during my shut-in years?

This post is sponsored by Haven Life. All thoughts and opinions are my own.  Haven Term is a term life insurance policy (DTC, ICC14DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Haven Life Insurance Agency, LLC.

You may also like:
{ 56 comments }

{ 56 comments… read them below }

  1. Oy*

    As someone who used to work for a life insurance carrier, I learned quickly the benefits of having it. Term insurance, while affordable now, isn’t always the best option for the younger crowd as the premiums still increase exponentially as you age. If you can afford it, invest in permanent coverage. My $100,000 policy is around $120/month (purchased at age 28). The policy is accumulating cash value and all dividends are currently purchasing more coverage, but they can also be paid out monthly, set to reduce premiums, etc. I can take loans against the policy, and after age 65 withdraw cash value with no penalties.

    1. Judy*

      Our 20 year term life is guaranteed for the price for the term. Once the term is over, the price will go up, but you are still guaranteed coverage.

    2. Chriama*

      That sounds like whole life, not just permanent. And whole life is rarely the best option for a younger person. Term premiums remain the same throughout the term, but they only payout if you die. So people sometimes want something that pays out either way, but the price difference between term and whole life usually means you come out ahead if you buy term and invest the difference yourself.

      Anyway, I don’t want to get into a debate about the best type of life insurance but I recommend anyone who’s planning to purchase some should get informed (preferably by someone who doesn’t have an incentive to sell you anything).

      1. fposte*

        Yes, in general whole life is trying to be both an investment and insurance, and you’d generally be a lot better off separating the two and investing your money separately.

    3. Artemesia*

      Young people with families need at least a million on husband and wife and this means a 20 year term policy usually. After 20 years people should have saved enough to be largely self insuring but during the years raising kids they need huge amounts which are available at low cost.

      Whole life policies are rarely reasonable. As the old advise goes — buy term and invest the difference. Policies that include savings are a bit of a scam. If you die they keep all that extra money you have paid for ‘savings’ and pay out the face value. You are usually better off investing what you can invest on your own.

      And 100K is just not close to adequate for a family catastrophe of losing a parents when kids are young. Replacement income or services is hugely expensive.

    4. The Cosmic Avenger*

      We just wanted term life because the closer we get to retirement, the less we need the insurance anyway. We really just need it to cover lost potential income. But if one of us passed away 10 years ago, when our daughter was a toddler, we’d really need that second income to pay for child care and also a lot more domestic services for the surviving spouse, so they can spend the time they’re not at work with the kid. Or even take a year off of work, after something that life-altering.

      1. Victoria Nonprofit (USA)*

        Yeah, we wanted enough that we could take the time we needed to recover. And, for my husband, to disrupt his career with a (likely) move back to his hometown.

  2. Colorado*

    Very informative as life insurance can be intimidating. It’s nice to get the facts from someone we can trust. Thank you Alison!

  4. Just Another Techie*

    7-10 times? Wow. I’m not sure my employer sponsored life insurance even lets you go that high.

    1. Steve*

      I don’t think I’ve ever heard of an employer sponsored life insurance that went that high. I think I’ve personally seen employer coverage that could be as high as 5x pay, at employee’s expense, with a medical exam. At that point you might as well just get your own policy not tied to your employer.

      1. Just Another Techie*

        Ours has a dollar cap, and given the cap and my salary it works out to about 5.2x. Since I don’t have kids and I only make half what my spouse does, I don’t pay for anything above the 1.5x that my employer pays the premiums on.

  5. MV*

    Please get insured while you can – I now have a condition that makes me “Uninsurable” and I wish I had purchased guaranteed coverage beforehand. I am not even particularly old, though I have had this condition since 25. However young you are…you are not too young!

    1. ArtsAdmin4Life*

      +1 We actually have a life insurance policy for our 16 month old (!) Why? Because with our family history, he is likely to inherit diabetes due to genetic factors (as opposed to lifestyle) when he is in his 30’s and we don’t want him to be “uninsurable”. I’m not advocating that everyone get life insurance for their kid but rather, that anyone who can get it for themselves to do so, most especially if there’s a chance you might develop certain conditions as you age.

      1. la munieca*

        Your son is lucky to have such thoughtful parents, ArtsAdmin. Given he’s so young, would you have a long enough runway (30 years, it sounds) to invest that money in other vehicles (index funds) that could grow over those 30 years and cover your son’s future dependents in the event he passes? Because time is on your side, it seems you might be able to set him up so he will never need life insurance because that fund you would build could provide a financial cushion to help his family in case of the worst. And if your son gets those hypothetical kids through college and gets debts paid down to the point that his spouse could handle the financial obligations if he passed, you would have a nice stack of money to repurpose for your own retirement, other emergencies, or grandkids’ college rather than giving it to an insurance company for a product you ended up not needing.

      2. I'm not a lawyer, but ...*

        My parents took out a policy on me when I was born. Even though I’m still only 29(!) it has grown enough over the last almost 60 years that my adult, independent daughter can bury me and pay off my mortgage. I’m still paying $30 per year for the premium.

    2. Looby*

      I agree with MV, I was diagnosed with a condition that basically prices me out of insurance when I was 20, while I was still a student and definitely not thinking about things such as life insurance.
      I’m lucky to have some coverage through my employer but otherwise I will have to rely on leaving a decent amount of savings.

    3. manybellsdown*

      I have a congenital heart defect. I’ve NEVER been able to get life insurance of any kind. Even the ones that say “no physical exam” require you to disclose something like that.

    4. Anon for money reasons*

      I talked my late husband into getting a whole life policy in the 1970s soon after we got out of college. The policy was modest but allowed us to increase the face value. For a while, because of medical issues, he was unable to get affordable term insurance and that policy was the only thing standing between me and poverty in the event of his unexpected death. Then, he did die unexpectedly at age 59. The whole life policy paid out over face value. It was only a part of our insurance coverage — we both also had term insurance and life insurance through our jobs.

      I am in a grief support group. There are a lot of women who have come through the group who haven’t had many resources after their spouses die. Amounts of insurance that seem high to ordinary people aren’t necessarily all that much money if the remaining spouse (male or female) is left alone for 30 or 40 years. And while some people advocate being able to drop insurance after a 20-year term policy runs out, sometimes families at that stage have high college tuition costs or want to pay for weddings and contribute to raising grandchildren. Continuing to have life insurance past that first 20-year term policy helps enable the spouse to fulfill those plans and also to survive late-in-life unemployment (especially if the spouse who died earned more than two-thirds of their combined income). Being laid off after being widowed cuts into a person’s financial security in ways people aren’t always realistic about.

      A person can have between half a million and a million dollars in capital (from retirement funds, savings, inheritance, and life insurance payouts) and still not have enought to live in the same house and in a similar manner as they did when the spouse was still alive. Being laid off before achieving Social Security retirement age is a big negative for a surviving spouse, and often results in much smaller cash flow, because the person can have a very limited income but not qualify for a lot of benefits because they’ve got capital, even though the capital can’t provide an income that replaces the lost wages without having the money run out in 20 years instead of 30.

      People who are lucky enough to have pensions should also investigate various scenarios to have a true picture of pension worth. Life insurance is sometimes needed to make up for pension losses. My late husband did have a pension from his very first job, but the pension was pro-rated first, because I was the spouse, not the worker; second, because he died before reaching retirement age; and third, because I made my claim before reaching my retirement age. The payout is less than 25 percent of what he would have received at age 65. Neither of us had any idea that I would have needed $50,000 to $100,000 in insurance for each year of his death before age 65 to make up for the pro-rated losses in pension income.

      Finally, Alison doesn’t mention it, but find out how your life insurance pays out. I thought I’d have access to cash within a week to ten days of turning in the death certificate, but that was information from an older era. When someone dies, first there’s the wait for the death certificate (fortunately, my funeral director ordered more than I thought I’d need). Next comes the business of getting the forms and submitting the claim. The whole life policy moved promptly to get the money to me, but it came with documents that look like checks but are orders to draw on the company handling the life insurance funds. They aren’t processed like normal checks, and so it may take a week before the funds are in your bank account if you write a “check” to yourself. Writing a fairly big withdrawal and putting that in your savings so you can move it around by electronic transfer is a lot more convenient.

      I had particular problems with the term insurance my husband had through work because all the administration of those benefits for employees was through an electronic system that I didn’t have any access to. Getting employees at his office to provide me with the contact for the benefits administrators took more than a week. Getting the outsourced benefits staff to provide decent service was a struggle (in the 21st century, the benefits people held life insurance claims for a once-a-week batch processing instead of forwarding completed claims within 24 to 48 hours). It took weeks before I had access to any of that money, and my kids emptied their savings to pay for the funeral to get the advance-payment discount, since my husband had just moved our savings to a credit union account I was scheduled to be added to just after his death. Since it was not yet a joint account, I never did see that money because it went into the estate and got eaten up there by other expenses.

  6. Erica*

    Man, this would be great. Unfortunately, they aren’t in my area yet. I have been dragging my feet on life insurance, even though it’s something I really need to do. :(

  7. The Alias That Gloria Has Been Living Under, A.A., B.S.*

    I currently work for an insurance company that carries Life insurance. Not Haven or MassMutual. A lot of companies offer one or two times salary or a flat amount of life insurance that the company pays for. However they also often offer supplemental or voluntary life too. Usually if you sign up as a new hire, you can elect a up to around 5X your salary and 50% of that for your spouse without a medical form. Obviously the amounts vary by policy and carrier though, this is just what I see a lot of. However come annual enrollment time you may find that you either can’t elect anything at all without a medical form or can only elect a small amount without first needing to fill out a form. If you’re young, don’t smoke, have no medical issues, and are in good shape, this isn’t a problem. But if you have a weight problem, blood pressure issues, are diabetic, etc. then they might decline you.

    So, moral of the story, always sign up for as much life insurance as you can as a new hire because it’s probably pretty cheap and they may even have a portability policy to take it with you when you leave the company.

  8. Victoria Nonprofit (USA)*

    Whoa, this sponsorship makes me a little uncomfortable. Purchasing life insurance is a very significant financial decision, made in a highly complex marketplace, with serious consequences.

    Alison is a smart woman, an experienced manager, and a talented writer and publisher, but she is not an expert on life insurance. I hope folks aren’t taking advice from this post (or the comments on it – excepting mine, of course ;)).

    1. la munieca*

      Agreed, Victoria. I am the worst possible candidate for life insurance (early 30’s and healthy, no debt nor dependents, renter, bring in less than 50% of our household income, some life insurance coverage through work, and with enough savings to cover funeral and other expenses) and Haven’s calculator recommended a $300,000 policy. Haven may sell a wonderful product, but that calculator does not seem to provide reasonable guidance.

      1. Marianne*

        Remember life insurance is not just funeral and debt coverage, it is also income replacement. Are you saying the 300,000 would only provide 10 years at 30,000 which is or is not enough?i

        1. Victoria Nonprofit (USA)*

          I think she’s saying that there’s nobody that needs her income replaced, so she needs less than $300,000.

          1. la munieca*

            I can see where my first comment was unclear. Thanks for jumping in to clarify, Victoria. Yes, with our childfree and mortgage-free marriage, my husband wouldn’t need my income upon my death, so life insurance isn’t a good investment for our family. Both 401k’s and Roth IRAs can be accessed in a lump sum by a surviving spouse/beneficiary, so it makes more sense for us to put our money in those retirement vehicles that can pull double duty as an extra cushion in the event of an unlikely early death, and (more likely) provide us with income in our later years.

  9. finman*

    You should never buy a whole life policy and view it as an investment. You are buying insurance, which should be viewed as help against something unexpected occurrences. Also, you should probably avoid purchasing employer life insurance as in most cases it is non transferable once you leave that company.

  10. LawCat*

    My husband and I bought 10 year term policies last year that would replace my income for about 3 years, and would replace his for about the same amount of time and provide funds for his son’s college education. If we were to buy a home, we would definitely up our coverage to cover that liability. It definitely brought me peace of mind when we got the insurance.

  11. Elizabeth West*

    We get it through our work. I’ve just got the basic, with a parent as my beneficiary. I don’t have kids, have no prospects ( :( ) and not much in the way of worth-anything possessions. (Wow, that sounds pathetic.)

    The only thing I would need to cover is probably what happens to manuscripts and my digital presence, etc. after my death. This is something Brian Keene brought up recently when he had to handle a friend’s estate. Someone would need to oversee that and it should be someone who knows what they’re doing. Hopefully, by the time I kick off, I’ll have such a person in my life (agent or whatever), but there’s no guarantee.

    It’s good to plan for the future. Right now, I’m thinking me, alone, old, what do I do when I cant’ drive anymore? I should move to a city that has good public transport because I will probably never be able to fully retire unless I hit the big time (bahahhaha!).

    1. Victoria Nonprofit (USA)*

      Eh, by the time you aren’t driving we’ll all have self-driving cars. Take that one off your worry list! :)

  12. Jamie*

    I would strongly encourage anyone to speak with a financial professional THAT THEY TRUST. Everyone’s circumstance is different. Term makes a lot of sense for a lot of people, and whole life makes a lot of sense for others. Even combinations of both in some cases. I will say that all whole life is not created equal, and you should really only consider purchasing it from a mutual company with strong dividends. It is not designed to be an investment. It’s designed to complement your investments. Investments carry market risks and most are taxable. Whole life is not tied to the stock market and is not taxable in most cases. It’s not affordable for a lot of people and take that into consideration as well. Find someone knowledgable that you’re comfortable with who can walk you through what makes sense FOR YOU.

    1. finman*

      If you are going to talk to a financial professional, make sure it is someone who is paid by the hour and not a commission on the products they sell. You will get a much better answer.

      1. fposte*

        And ask them if they are a fiduciary. Most advisors aren’t, and they aren’t legally required to act in your best interest otherwise.

  13. Jamie*

    I say this as a financial professional: find someone that you trust who can walk you through what makes sense for your individual situation. It might be term, it might be whole life, it might be a mix of the two, or even something completely different. But please do not assume that “buy term and invest the difference” is the correct solution for everyone. It’s not. Dave Ramsey made a lot of money on that phrase because it’s more catchy than “Life insurance is complicated and the type of coverage that’s correct for you depends on your individual circumstance”. And in reality, most people do not research the cost of term vs permanent and invest the difference. It is a great solution for some, but no where near all.

  14. Accountant*

    As a financial person, this is a huge soapbox issue of mine.

    PLEASE please get life insurance while you’re young and healthy. Mine is $30 a month for 20 year $750,000 term life coverage.

    A friend of mine in her late 20s is a waitress and has two small children. Her husband was killed in a car accident last year. No insurance. I always cringe when I see fundraisers for people in these horrific and tragic situations. I can’t imagine the grief and stress that losing my husband would cause, and then on top of that having to worry about not being able to afford basic living expenses. The $4,000 you can raise on gofundme or at a local benefit does not in any way provide a financial cushion the way life insurance does.

    I think this is so easy to put off, but please please please get it if you can. Don’t rely on the 1 or 2x your salary thing you can get at work, though get that too, since it’s usually extremely cheap or free. Many professional organizations have life insurance at very reasonable rates.

    1. Victoria Nonprofit (USA)*

      Damn! That’s a great rate. When did you purchase it?

      (I bought mine when I was in my early 30s, no health problems or bad test results but with several risk factors. 30 year term, $1,000,000. I pay over $150/month.)

    2. The Cosmic Avenger*

      Wow, that is good. I got 20-year term at 32, and it’s $39/mo. for $500K with USAA.

      But I also pay a fixed premium of $20/mo. for long term care insurance offered through my employer, with a payout adjusted for inflation and in-home care is covered. I started that even earlier, because I knew while I’d pay a lot over time, it would be harder to get when I was older.

    3. Chriama*

      The key isn’t to get it when you’re young and healthy, but as soon as you’re in a position where anyone else is dependent on your income. In my case, I don’t think I’d get it as soon as I got married but I would once we bought a house or had kids.

    4. A Definite Beta Guy*

      Second Accountant, +1.
      This is definitely one of those things you should get. It’s only slightly behind “Emergency Savings” and “Pay Off Credit Card Debt.”

    5. Anxa*

      I know that there’s a reason young people are encouraged to buy life insurance and start investing ASAP.

      But that $30-60/ month premium can financially destroy you if you become unemployed. It’s extremely hard to find money to save or invest while you can barely cover the essentials. And of course you’re going to be tempted to elevate your lifestyle every time you find a little wiggle room because that’s human nature. It’s also an investment. Long-term relationships thrive with more date nights. Job performance improves when you’re eating better. Buying shoes without holes may keep your feet dry and stave off fungal infections or the frustration of walking around with wet feet. Going to the the doctor to get that mole checked out may be a smarter move.

      I know this probably it meant for someone like me, almost 30 and making far below the FPL. But I’m far from the only young person in poverty who DOES want to start saving, investing, etc. but just doesn’t have the income. It’s frustrating to feel like your browbeaten to be more responsible when it’s not a situation of putting it off or not thinking about these things, but of not having the resources to make those more responsible decisions.

      If I can only afford a 10/month policy while I’m young and healthy (I’m aging out of ‘young’), is it better to lock into a 20 year policy that will offer less coverage? Or wait until you can get actual substantial coverage when you can swing a heftier premium.

  15. Regina 2*

    Dumb question, which may be answered above — if you sign up for life insurance, are you locked into the rate you’re paying when you start? How does that work if you’re with an employer and then go to another one? Do you start all over again at the higher rate?

    Is that a potential benefit of getting life insurance outside of work, that if you’re young, you can lock in a rate?

    I wish they taught this stuff in school, because I find anything vaguely personal finances completely confusing and totally terrifying.

    1. Victoria Nonprofit (USA)*

      Yes. That’s a key reason to purchase life insurance independent of your employer’s plan.

    2. Treena*

      Another benefit (I’m not 100% sure about this, but it’s what I was told) is that with work insurance (premiums taken out before tax), the benefits would be tax-deductible because they’re considered income. But with a policy you pay for with after-tax dollars is tax-free. Big difference between 1-2 years salary taxed and 1 million tax-free.

  16. lfi*

    thank you for this – we recently purchased a house and are looking to have babies in the very near future. we’ve been talking about life insurance so thank you for this timely post!

  17. Omne*

    If you’re in your 30s or 40s actually a 30 year fixed term might be better considering current life expectancies. A little more money but you don’t have to worry about qualifying again in your 50s or early 60s. I’m good until 77.

    Talk about gender issues, I rated super-preferred and my wife rated preferred. I’m still paying almost twice as much for the same coverage.

  19. Chameleon*

    This is timely for me, as I’m trying to buy life insurance. But the company I was going for requires a blood test, and my husband is *intensely* needle-phobic and will never agree to that. Anyone know of insurance that doesn’t require testing? We are in WA.

    (it looks like Haven requires a medical exam but I don’t know if that includes a blood test).

    1. Treena*

      In general, if your husband is that opposed to needles, you’re going to have to go for a very low amount as your benefit. With AAA, I believe the max was $250,000 without an exam. If it makes you feel any better, with AAA, they sent a nurse to our house to do the exam, and that’s all she does. Weighs people, asks them a few questions, and takes some blood and urine. Well, that and drive around a lot. So hopefully that might make your husband a bit more comfortable.

      As an aside, I hope your husband manages to get an annual check-up and blood work, even if it’s every 2-3 years! If he manages to do that, then he should know that you get the results of the tests the insurance runs and then maybe he could skip his check-up blood work, and instead rely on the insurance test results for that year.

    2. Victoria Nonprofit (USA)*

      You can often purchase policies with of small dollar amounts with no medical exam (like $50,000), but any significant amount will require an exam.

  20. Jinx*

    Thanks for posting this, Alison. I have life insurance from my employer, and this made me realize that I don’t know enough about it. It provides (like you said) two times my current salary, which does sound like a lot when you don’t know any better.

  21. Jack the Treacle Eater*

    I’ll bring you food if the life insurance will cover the air fare.

    Food might be a bit cold when it gets there, though…

  22. Christine16*

    My husband and I just signed off on our life insurance policies last week. We’re in our early 30’s with one kid and another planned, and it just hit me a few months ago that if something happened to either of us, we’d be screwed. I have $40k in student loan debt, and we have $190k left on our mortgage. We each have 2x salary with our employers, but that’s a drop in the bucket of what we’d need.

    Unfortunately I have severe asthma and have been hospitalized 7 times since age 6 for it. It’s controlled with 3 daily asthma medications, but I’ll never be off of them. My husband is about 50 lbs overweight. We both only qualified for the “standard” rate and could only afford $300,000 each due to the monthly payments. Not ideal by any stretch of the imagination, but I feel a little bit better knowing my student loans and the mortgage can be paid off if I croak.

    If I had been smarter, I would have taken out a policy in my early 20’s when term rates are super low because you’re young and relatively healthy.

  23. Janet*

    Yo, you need to be very careful about advertising for insurers. There are strict laws in every state about who can sell insurance and what such ads can say.

Comments are closed.