Life Insurance: Term, Whole Life, or What?

I have two good friends who, as personal financial advisors, offer life insurance policies to their clients. One is all about Whole Life, and the other is all about Term. Since The Fiery One and I were married, I’ve been wondering which type of insurance policy I should choose when we have children. I knew I didn’t want to start paying monthly life insurance premiums until I had dependents, but it just wasn’t clear which of my friends was peddling the better policy (Not planning to buy through either of them, btw. I don’t like doing business with family/friends unless it’s very small-time/fun).

Well, the other day it all clicked for me. I realized that, for a person in my situation, there’s only one smart life insurance strategy. Here it is:

I’m young. I have my whole career ahead of me to make money, save, invest, and build a respectable retirement savings. The Fiery One is the same way, and if I were to die right now, she’d easily be able to support herself for the rest of her long, lonely, frugalCPA-less life.

Once we have children, however, she’ll have a more difficult time of it, especially considering she wants to stay home full-time with the kids to care for them. So life insurance makes complete sense for the years we have young children at home.

Once the kids are older and TheFieryOne is again free to work, life insurance no longer makes sense for us. The kids’ll be on their own (yes, we are kicking them out at 18 in a very loving, you-need-to-be-independent sort of way, though we’ll be happy to pay for their lodging during college), TFO will be able to work if she wants, and I’ll have accumulated a nice little portfolio of savings and investments that will, from then on, be what we can fall back on in case of my death or some sort of financial difficulty.

In summary, I only need a Term life insurance policy of 25 to 30 years, which starts when TheFieryOne gets pregnant (we’ll also get a small one for TFO to cover daycare costs and what have you should the worst happen). No more life insurance after that. I can’t see any compelling reason to have it when you don’t have dependents.

I do, however, plan to have long-term disability insurance throughout my working years, and long-term care insurance once I turn 55 or 60. Do you?

p.s. Ah, l’amour. There’s just nothing that says “Happy Valentine’s Day!” as effectively as a post about life insurance, is there?

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7 Comments on “Life Insurance: Term, Whole Life, or What?”

  1. Frugal Trenches Says:

    “Ah, l’amour. There’s just nothing that says “Happy Valentine’s Day!” as effectively as a post about life insurance, is there?”

    I’m glad you mentioned it as I did a little chuckle looking at the date of the post and what is being discussed! ha.

    Good post!

  2. accountingelf Says:

    In one way, it seems like if you have a good enough emergency fund, that can act as your own life insurance… on the other hand, you can get such a huge amount from insurance if you are one of the unfortunate people who need to take advantage of it.
    Of course, everyone is going to die at some point, and then your kids can get it, and then you get to the really fun part of tax planning so they get to keep it all! :-D

  3. Revanche Says:

    Hah, I was just chatting with a friend about this last night, and I’m reviewing a life insurance application today.

    I did reconsider the 30 year term momentarily because it’s primarily intended to take care of my parents, but then I realized that if I marry and have kids, the longer term means they’d be covered at the end of the policy as well. Probably more flexible to stick with the 30 instead of the 20.

    I do agree about the long-term disability/long term care insurance timelines. Just need to prep myself to deal with those guys!

  4. K-money Says:

    I don’t think all insurance is bad, just the whole life I was talked into when I was young. I have a small term policy w/my employer, I’d get more if I had kids of was caring for my parents. I also have long-term disability through work but will consider long term care when I retire in about 25 years. I think you made a good decision about your insurance needs.

  5. Pops Wallet Says:

    You make some good points here. I am concerned, though, that when my wife interrupts her growing career to spend time rearing children that her income earning potential will be significantly impaired. Therefore, even after the kiddos are off to college and are no longer dependent, my wife is dependent on my income stream. If I were to die long before her, she may be “free again to work”, but would not be as successful at it as she may like. Realistically, she would probably not choose to return to work. Therefore, I may choose to continue some insurance to cover the gap between an income stream from our investments and her desired level of income.

  6. frugalCPA Says:

    @ Frugal Trenches: Lol. I could have said more about providing incentives to “off” me and all, but decided to keep it straightforward. :)

    @ Accounting Elf: I still haven’t decided what I think about leaving money to kids. I do know I don’t want them to expect a fortune when I die.

    @ Revanche: I’ll be interested to see what you decide on.

    @ K-Money: Glad to hear you’re pretty well set!

    @ Pops Wallet: You have a fine point. If, for one reason or another, your investments aren’t going to cut it, life insurance makes sense even if the kids are all gone. I don’t want TheFieryOne to HAVE to work if she doesn’t want to at that point in life (though, knowing her, she’s very likely to want to).


  7. I have to agree with you, frugalCPA. Term life sounds best for you. But I’m going to side with your Term Life friend and say that it’s probably best for most everybody.

    There’s rarely a time when someone absolutely needs permanent life insurance coverage. And using it as an “investment vehicle” is foolish unless you’ve already maxed out all other tax-advantaged options. Even then, there are better investment products with lower costs that can give you similar tax advantages.

    There’s one reason that whole life is recommended more often than it should: huuuuge commissions!


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