Mindful Money: Life Insurance

By Mir
February 26, 2008

Hey, remember when you were young and carefree and life insurance was for old people? No? That’s because now you’re old and senile. Ha!

Everything I want to tell you today can be summed up in this one sentence: You need to have life insurance. The end.

But if you want to get picky—and more specific—about it, read on.

If you have kids, you need life insurance. If you have a spouse, you need life insurance. If you are a single person old enough to not be on your parents’ health insurance anymore, you need life insurance. Have I covered everyone here, yet? You, in the back! You need life insurance! (The only exception here is children. Children do not need life insurance, no matter how many daytime television commercials tell you otherwise.)

The reasons vary, the amounts vary, how you handle it may vary, but you need it and you need it now. Yes. Repeat after me: I need life insurance.

Let’s get down to brass tacks, shall we?

The younger/healthier you are, the greater the reason to buy life insurance right now. The cost of life insurance is based on a formula having to do with the odds of you dying. Obviously. Otherwise, how would the insurance companies make any money? And the odds of you dying when you’re young and healthy are minimal, so the cost is very, very low. Wait and you could be looking at much higher premiums, either due to a health condition or simply age.

You should buy as much insurance as you can afford, because it’s expensive to go up later. Now, obviously, a single person with no real obligations is unlikely to need a million-dollar policy when all that money would be used for in the event of an untimely demise is a funeral, true. On the other hand, if you’re in a field where your earnings are likely to go ‘way up, and right now you’re young, do go for a larger policy if you can afford it, because you’ll probably want it later and it’s cheaper to get it right now.

You need life insurance even if you’re a stay-at-home parent. “Oh, but I’m not making any money,” you say. “And my spouse makes plenty! It doesn’t matter if I have life insurance!” If this is your response, you’re being short-sighted. In the event of your death if/when the kids are still young, your spouse will need to pay for your funeral and probably additional care for the kids and (let’s be honest here) probably some therapy. That’s aside from the issue of said spouse probably needing to take some time away from work—which may or may not be paid. Do not equate not having a salary with not needing life insurance.

You need life insurance even if you don’t have kids, even if your spouse makes good money. Again, in addition to funeral costs, your grieving spouse could probably do with the freedom to take some time off of work, if necessary, without having to worry about paying the bills.

Term life insurance is a better value than whole life insurance. I love insurance agents. Truly. But their job is—surprise!—to sell you insurance. And just about every insurance agent would rather sell you a whole life insurance product than a term one, because whole is more expensive. If you don’t know what I’m talking about here, in a nutshell the difference is this: Term life insurance is a set payoff amount (if you buy $100k worth, you can never get back more than $100k), whereas whole life insurance has the potential for a greater payoff because some of your money is being invested, resulting in a greater value over time. There are better ways to grow your money than a whole life policy, and given that most people are scraping to find the funds for any policy, stick to term. (There’s a better explanation of this here.)

If your employer offers insurance, take it. Maybe this has changed in recent years (I’m now a freelancer, and my husband is a state employee, so it’s been a while since I’ve poked around in the private sector to see what benefits are looking like), but back when I was a corporate drone just about everyone offered some sort of employee death benefit. If the benefits were so-so it was one year’s salary, and at better places it was automatically two or three times your salary—without any extra charge to the employee. And then there was usually the option to add on to that coverage for a fee. Do look into the additional coverage your employer offers; just as with health insurance, bigger groups get better rates, and your employer may be offering coverage at a rate that’s superior to what you can get as an individual going to a life insurance provider on your own. It’s worth checking out. (However, you also want to keep in mind that hardly anyone is a “lifer” at a job anymore, and you may prefer additional coverage purchased independently because it’s portable.)

Shop around for advice. Talk to a few different agents; poke around online; talk to your parents and/or your friends. There are all sorts of guidelines about what sort of coverage you “should” have. But you have to do what works for you. My insurance agent is one of those “ten times your salary at a bare minimum” sorts of people; again, she’s selling, so it behooves her to aim high-end. Do you really need that much? If you can afford it, sure. But in reality, think about what you’d want covered. I’m not saying I know the answer for everyone, but I can tell you that if something happened to me, I would want to know that my kids would absolutely be taken care of—what that means to you might be different than what it means to me. To me, that means that adequate care for them would not be a financial issue, and also that there would be money available to them to pay for college. You don’t have to be a rocket scientist to figure out that that’s a sizable chunk of change. Some people might say I’m throwing away the money I spend on my policy’s premiums, but to me the peace of mind is absolutely worth it.

Hey, lord willing, I will end up “throwing away” every cent and the policy will never be cashed.

Shop around for price. You want a reputable company, and rates are going to be similar amongst different providers. But you wouldn’t buy a car without shopping around, so why would you do so with your insurance? You shouldn’t. Also, read this before you shop.

Now please tell me you already have life insurance, or that you’re looking into getting some right away.


  1. Mir is right, of course. But just so you know, you need to be prepared for some VERY personal questions, blood tests, etc. I was shocked at how very detailed the insurance application process is. And be prepared to pay a high premium if you’re overweight. Some companies won’t sell you insurance at all if you’re a woman and you weigh over 250 lbs., no matter how healthy you are (don’t ask me how I know…)

  2. You forgot that the spouse may need help paying bills in the event that there is only one income–regardless of having kids or not.

    (I sell life insurance, that is one thing people do not realize–or rather do not want to)

  3. Mir,

    I forgot to tell you that it was a very informative post!



  4. Since we’re on the subject, keep in mind that the life insurance money isn’t available immediately. It can take weeks to get it…Even more of a reason to have a chunk of cash socked away in an emergency fund.

    It is a very difficult subject to talk about, but very necessary. Thanks for the reminder, Mir.

    To determine our coverage for each spouse, we added up our current debts (including mortgage) and tripled it. That way, the surviving spouse could pay of all debts and have plenty stashed in the bank to pay for living expenses for quite awhile, as well as $$ to invest/pay for college.

  5. Thanks for the timely post! DH will soon be getting out of the military, so we will lose the life insurance we have, so we’ve been looking around.

  6. Great info! We finally got life insurance a few years ago, after our daughter was born. Same time as when we finally started our IRAs. Anyways, we ended up with whole life insurance, apparently because that made our agent more money? My husband had been stressing over the money going into life insurance a lot recently – he thinks it would make more sense to invest that money because it would allow for a bigger return later. We are wondering if it would be better to cancel our policies now and cut our losses (then proceed to invest our current premiums into our IRAs instead) or if we should just keep the policies. Can anyone offer advice about that?

    Also, what about policies for children? We have a small policy for our daughter and I want to do the same for our new son. I’m assuming it is better to start them now just in case they become uninsurable or something later in life. Does that make sense?

  7. I always thought you should have a small policy for children, in the event they died, so you’d have enough to bury them.

  8. Thanks for this important post, Mir. I was shaken into the reality of stay-at-home parents needing coverage last year when a friend died in childbirth. Thankfully, they knew to have her covered and now I try to tell as many SAHMs as I can. Life will never be the same for that family, but at least they don’t have to sweat every cent.

  9. Rachel May’s caution that this doesn’t replace an emergency fund is an important one.

    As for kids and life insurance, the only case in which I’d suggest bending is if you absolutely could not afford a funeral without coverage. (Though there are more likely to be avenues of financial assistance available in the event of the death of a child, so take every that with a grain of salt.) The “this will give them insurance in case they end up uninsurable later” argument is a fallacious one, as what it will cost you will far outweigh what you’ll pay later even with higher rates.

  10. Such a good post. I forget about life insurance for me, but now that our will is in place, we will be taking care of that as well.

  11. Since my husband & I had the kids we’ve had term insurance on us. We couldn’t afford whole life and now that we could it just doesn’t make sense (see, we’ve learned a bit in the last 13 years!). I JUST got a small policy on the kids with my new job because for less than a dollar every other week I could. And it’s one amount no matter how many kids you have (I have 4). So, I definitely think there are times it makes sense.

  12. Good to know – we won’t bother with a policy for our son then. What about my daughter’s policy – we’ve had it for over 3 years, is it more cost-effective/money-wise to cancel it or continue it?

  13. A few years ago when I was living in Dallas, there was an article in the newspaper about a father who had left his job to take care of his children (at least 4, if I remember correctly) because his wife had passed away unexpectedly. The article hit home about how important it was for the “SAH” spouse to have life insurance, too, because that’s what was allowing him to quit his job. They were smart and agreed that they needed equal life insurance on both of them because if one were lost, the other needed to be able to pick-up and move forward without worrying about money. So sad it came true for them.

  14. AMEN, Sister! Great post. And ditto to Rachael May’s caution re: emergency funds. My dear friend’s husband died 3.5 years ago under somewhat unclear circumstances, and the insurance company just paid out last month — over THREE YEARS later. It has been a very rough road without that emergency fund.

    And if I may, one more piece of advice that will hopefully be superfluous for Mir’s pretty readers — but PLEASE don’t anyone be tempted to lie on your application. Any deliberate falsehoods on the app will invalidate the policy, when/if it’s time for the insurance company to pay out, the company will investigate and deny the claim if they have any grounds to do so. Better to bite the bullet up front and pay any premium surcharges than invalidate the policy all together.

  15. Very good advice both in your post and in the comments! We took out insurance policies when I first got pregnant with my son.

  16. I always understood term policies to be ripoffs because if you don’t actually die during that period, when the period expires, you no longer have coverage and then you have to start all over? Hopefully I’m wrong. Alas, I have no insurance. Soon.

  17. The way I’ve heard it explained about term life insurance is that it’s a better way to go–better rates and you can usually earn a bigger return investing yourself than going with whole life. Yes, if you don’t die within that term, then you may feel you’ve lost out there (oh darn, you’re still alive!), but the term life policy is there to make sure you’re insured before you’ve had enough time to build up your own personal wealth from a lifetime of working (or however you come by your money). By the time your term expires, then hopefully you have saved up enough to live the rest of your life comfortably and leave behind enough to take care of any expenses for your spouse/SO/kids/whomever without the life insurance payoff.

  18. Mir, awesome post! Thanks for brining up a difficult topic and dealing with it beautifully (as always) with the right amount of humor. One question though – I heard an argument that you *should* insure your children, because if something should happen to them, you would then be able to afford a lengthy grieving period away from work. Any thoughts? Or is it just a risk assessment type thing?

  19. Katie in MA: Check out this article for an explanation.

  20. It so ABSOLUTELY sucks that someone who has served in the military should lose life insurance once out. It should be given to one who has served his country – for LIFE!

    Great post, Mir!

  21. We do have it, but we have the amount we’d need for the other of us to pay off the house and afford childcare until the youngest child was well-established in school. I don’t think it’s necessary to have a TON of life insurance—just a moderate amount so that no one is stranded. The risk isn’t high enough to justify getting all we could afford.

    If we didn’t have children, we would have less life insurance because we wouldn’t need to take their care into account.

    I don’t think it’s necessary for people with grown children to have more life insurance than they need to cover their own funeral and anything their death would deprive their spouse of (like if they’re still working and paying for the mortgage). Some people use life insurance as some sort of inheritance thing, and I think that’s unnecessary.

  22. Great & thoughtful post, Mir. My dh and I have had 20-year term life insurance since the birth of our first. We’re both working about 3/4 time right now so that we can juggle our schedules and be home with our children before they enter school. I forget the formula that we used to figure out how much we’d buy, but we went high because we know that once our working lives rebound from new parenthood, we’ll be earning a bit more. So we were aiming to maintain a future with a higher standard of living. Now THERE’S hope in the face of tragedy. LOL.

    I can’t speak to what other individuals may have to pay, but just for folks who may be reluctant to make that first call: We started our policies at 28 & 33, no major health issues to speak of, non-smokers — and our premiums are about $40 monthly combined. So we think of it as a pocketful of change each day that could make such a difference in the lives of those you love.

  23. My husband and I have term life insurance. We wanted to have equal coverage, but our insurance company wouldn’t insure me for more than $500,000 because I’m a SAHM with no income. We only checked with two large reputable insurance companies, but they both had the same limit. Has anyone else encountered this limit as a SAHM? If not, what is your insurance company. Thanks.

  24. I do think children should have some kind of policy. My children each have $20,000 of coverage which only costs me $25 a year. Unfortunately, I had to use one of those policies to bury a child three years ago, and it was a blessing, since her funeral ran over $7,000.

  25. One more reason to quit smoking…my smoker husband pays almost as much for one month of term life as I pay for a YEAR! And his policy payoff is significantly lower than mine because we just can’t afford more.

  26. Just a response to Sharon whose husband is getting out of the military, I would check on that life insurance because I believe it is still available to you (out of your own pocket)but the premiums are so much cheaper than finding new life insurance all together. My husband just recently got out of the military and we had that option.

  27. Therese, I’m so sorry for your loss. Since the subject of funeral costs has been raised a couple of times already, I hope folks won’t mind that I’m going to harp on this topic a bit. It’s one of my peeves. Through my work with hospice, I’ve come to understand a LOT about the funeral industry. Unfortunately, funeral directors have capitalized on the fact that most folks don’t want to deal with death until they absolutely have to. The cost of a funeral is astronomical these days due in no small part to the fact that many people don’t know their options prior to facing the death of a loved one, and can’t imagine researching them in the midst of their grief. One suggestion: Check out http://www.funerals.org — it’s the website of the Funeral Consumers Alliance. Their blurb: A Federation of Nonprofit Consumer Information Societies protecting a consumer’s right to choose a meaningful, dignified, affordable funeral since 1963.

  28. When we dealt with life insurance, the guy tried to sell us “mortgage” insurance (so if one of us dies, the house would be paid off). It’s stupidly expensive and makes no sense and my husband pointed out that it would be better to take out another term policy for the amount and period of the mortgage. We didn’t end up buying from him.

    That said I do have half a million on me (SAHM) and I don’t know if that’s the limit or not. My policy is like $20 a month (cause I fell into the “super duper healthy extra premium” category) so life insurance can definitely be affordable. We don’t have insurance on the kids though and I feel way too icky to buy that (so sorry about your loss Therese).

  29. We were short sighted when we bought our first life insurance policies. We bought 20 year term when I was pregnant with our first child. Now we realize that the 20 years will be up when our second child is only 15! The rates are higher because it’s five years later AND we’re five years older, etc. So buy as more than you think you need and as soon as possible.

    Also, as horrible as it is to even consider, children should have a small life insurance policy to cover funeral expenses and should you need to take time off in the event of their death. We had some friends who lost their child and the mother took some time off of work to cope and to spend more time with their other child. I have a policy that covers something like $10K for the death of a child and the policy is only a quarter a pay period or something very small.

  30. My husband and I just looked into life insurance a few months ago. We could have gotten 100,000 on each of us through the Knights of Columbus for about $100 a month. Not bad, but I looked into the additional policy at work and we got the same coverage for $24 a month for both of us! Now I know I won’t stay at my job forever, but for the time being we are saving that money. We also just opened a savings account at ING thanks to you Mir!

  31. Great post Mir. I used to be in the insurance industry so I just have a little tidbit to add. When it comes to paying off a mortgage with life insurance proceeds, I would caution you to not do this. Your mortgage is one of the biggest sources of tax write offs–the last thing you need when dealing with the death of a spouse is to pay more taxes. A more reasonable thing would be to set aside 10 years worth of house payments in an interest bearing account from the proceeds and make payments off of that. Usually for most people, the savings you would gain from not paying interest on your mortgage loan is not enough to offset the additional tax burden.

  32. Thank you for this post. We have life insurance, but probably not enough. Hopefully you have just prompted me to get going on it! I know you are 100% right!

    If you need any ideas for a future topic, I am wondering what your thoughts are on disability insurance(AFLAC). It was offered at my husband’s employer last year and we passed because it is really expensive (to us). It should be up for offer again soon, and I am wondering if we should consider it this time, as we are about to buy a home and get into a larger mortgage. This sounds horrible…but thinking we would only be okay financially if one of us died, not if one of us got hurt and could no longer work or care for children, is hard.

  33. Outstanding post, Mir! My hubby and I are both insured, even though I’m a SAHM. Now…..we need to get it set up in a will! All that insurance means nothing if we don’t have a will in place.

  34. We have an appointment (that’s been on the calendar for over a month now) first thing tomorrow morning for the insurance’s nurse to come to our house and take 1) blood pressure 2) weight 3) urine (for drug testing I think?) and 4) blood (for an HIV and cholesterol test I believe). We’ve been working on getting life insurance for over a month now, filled out a gazillion forms, just waiting on the appt tomorrow before we can go ahead and finish up. I can’t wait!!! 🙂

    Oh, and I’m a stay at home Mom and covered myself the same as my husband – should I pass my husband would have to pay for childcare, so my value is equivalent even though I don’t bring in a paycheck. The insurance agent recommended 10x my husbands annual salary. If you’re on the fence about it – go for it! Thanks for the reminder, Mir!

  35. I’m back with another reason why I think children should be insured, even if only to cover the cost of a funeral: what if, God forbid, the child develops some sort of ailment which prevents them from being insured as an adult? Even something like asthma can do this. With the policies my children had, they have the option to pick them up as adults without any health penalties. Also, I paid $100 a year to insure four children ($25 each for $20,000). It takes a long time to pay back $7,000. I will never pay this company $7,000 even if my children are insured up to age 25!

  36. I think this is an important post but wanted to suggest you revise some of your points. Spouse is a former Certified Financial Planner and holder of multiple licenses which authorized him to sell insurance and even be a principal in a firm (Series 7). First, term life is typically a 1 year premium, which goes up each year based on age. You do not get discount because you have had it previous years. So to say now buy as much as you can because it will be cheaper, works for whole life/universal but not typically for term life. Second, 90% of the folks that have term life will have let the policy lapse before it would be payable (e.g. they die). On the one hand that is a good thing- they didn’t die. On the other hand, their premiums were ultimately lost value. If you can obtain a policy in which there is some cash value/savings amount, such as whole life, you MIGHT be better off. If you only have a short time need for a high payout, term life might be the better deal. YMMV. You have to figure out what is best for you.

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