One of the many financial challenges that young adults face is learning to allocate money to specific aspects of their budget. How much should one spend on this or that. Housing. Food. Retirement. Life insurance. These are all competing factors in our budgets and young adults generally have less money to work with. This inevitably means that some of the most important aspects of someone’s budget are left out of the equation. Without any doubt, it’s obvious that life insurance is one of the first things to go. It’s seen as an elective. In the terms of sports, it’s 3rd string. Rarely used and a waste of money. That is, until it really becomes necessary.
As many of my faithful readers already know, I didn’t want to make this mistake. That’s why I decided to get whole life insurance. It was one of the financial goals that I set for myself last fall and I wanted to get ahead of the game. I also made a purposeful decision to avoid term life insurance because I wanted to diversify my investments at the same time. Yet, Jeff’s initiative has invited my to revisit this decision. Now that we are doing okay for ourselves, it might be time to consider whether I need more life insurance. Maybe many of you are in the same boat.
Reasons to Get More Life Insurance
Generally speaking, there are many reasons why someone might be interested in getting more life insurance. Here are some of the top reasons:
- New Addition to the Family – Whether it is getting married or having children, another member (or members) of the family often means that there are more expenses on a regular basis. If someone is the primary bread winner for the family, this makes necessary coverage that much higher.
- More Liability – Another possible life change that could require more life insurance would be taking on more debt. Whether it is to buy a home for your family or as an investment, more liability means more money that you need to cover. An unexpected death after a recent home purchase could be a major challenge financially for the remaining family members if you aren’t fully covered.
- Lifestyle Inflation – Another general reason to get more lifestyle inflation is because you have slowly increased the standard of living for your family. If your averages expenses increased $10,000-20,000 per year, you need to include this in your necessary expenses.
- Pay Increase – Maybe you already have life insurance, but made a necessary choice to limit how much coverage to buy because you couldn’t afford to be fully covered. With a recent pay increase, you are now considering getting more life insurance coverage.
- Bigger Peace of Mind – Regardless of the primary reasons, sometimes you just feel like being extra cautious. Whether it is a result of seeing someone close to you pass away or something else, you may just feel the need to be better covered. Getting more life insurance can help you sleep at night, knowing those you love about are covered.
To put it simply, most people get more life insurance because their life situation has changed enough to justify spending more money now for a future security. Getting more life insurance is often motivated by coming to realize that the current coverage is insufficient.
For me personally, very few of these reasons actually apply directly to my situation. We have seen modest pay increases, but have no more debt and don’t plan on expanding our family anytime soon. (Except for a cute puppy that I want to get). We may be buying a home in a few years, but that’s still a few years away. However, it’s no reason to exclude the option of getting more life insurance.
As it currently stands, my wife and I both have decent life insurance plans. My death benefit on my plan is $80,000 and considering that my wife earns more than I do, I am not worried about her ability to make ends meet without me. She also has a decent life insurance plan, so I’m not worried either. Yet, that doesn’t mean that we couldn’t use more for peace of mind. In order to judge whether it is absolutely necessary, I figured I would get some more specifics.
What Would it Cost Me to Get More Insurance
In order to determine whether it was worth it for me to get more life insurance, I decided to get a couple of estimates. I asked my good friend Jeff to give me a couple quotes, just for informational purposes and he was more than happy to oblige. Here’s the estimates that I received for a term life insurance plan for 20 and 30 year terms. I should point out that these are personalized quotes and if you are looking for how much it would cost you personally, know that a lot of variables go into this.
20 Year Quotes:
30 Year Quotes:
So, what does this mean? For me, it means that I could get an extra $250,000 death benefit for the next 20 or 30 years for $150-250 (approximately) per year. Yet, that figure does very little to help me. Let’s imagine that I elect for the 20 year term and spend $150 per year for this benefit, only to find out that I survived. While I will rejoice to reach my mid 40’s no matter what, this would mean that I am spending only $3,000 for a huge benefit. Not bad at all, right. For the 30 year option, let’s say I make it to my mid 50’s. I would have spent $6,150 on the cheapest premium option. Not bad for an extra 10 years of coverage. This may seem like a “no-brainer” until you consider my personal situation.
I currently don’t have any debt, am happily married where both of us work jobs that we could be self-sufficient if absolutely necessary, and we don’t plan on having kids anytime soon. While we may buy a home in the coming years, it will only be when we can absolutely afford it. Thus, for right now, I am choosing to pass up this opportunity for additional insurance. While I am sure my role as a personal finance blogger should be to plead with you to get all the coverage you can, I don’t see it this way. My role is to help you make wise decisions and sometimes that means not getting extra life insurance.
Getting more life insurance is a decision that you make carefully and don’t let anyone persuade you that it’s the best decision if you deem it unnecessary. Consider your liabilities and your responsibility and weigh that against the financial hardship that those closest to you would face without it. Because I know that my wife can get by with the life insurance that we currently have, I am not electing for extra life insurance right now.