Mommy Diaries: What About Life Insurance?

 

 

 

 

In March of 2017 I was 8 months pregnant with our second child.  I was also applying to keep my job amidst a significant re-org at the location I had worked at as a Professional Engineer for the last 11 years.  While I was successful at securing a position within the new structure of the organization, many individuals were not.  This experience caused me to pause. I realized that many of our family’s benefits were tied up in my employment.  What if I was laid off in my mid-40’s?  Would securing life insurance be as easy as it was when I was 25?  35? What would the premium’s cost us?  I set out to demystify life insurance so that my husband and I could ensure our family’s financial future.

 

 

 

The first time we spoke to someone about life insurance, my head felt like it was about to explode.  How much coverage should we get? What type should we get?  Term Life?  Whole life? Critical Illness – something we had never had before?  I remembered reading “The Wealthy Barber” byDavid Chilton in University for extra credit and it was easy to read and helpful.  I dusted it off and re-read Chapter 5: Wills, Life Insurance and Responsibility. The information, while basic, grounded me.  With that information, we sat down and figured out how much coverage, in a multiple of $100k, we would truly need.  One item in the book that is worth mentioning is that if you DON’T have dependents, David Chilton argues that you don’t need life insurance.  It would be like having car insurance when you don’t own a car.  He also argues that as you get older and your assets to liabilities ratio increases, that you reach a point where you are “self-insured”.  I believe acquiring a life insurance policy is a personal choice, but only those that need it should get it.  I would recommend everyone read this book, especially Chapter 5!

 

Now, the topic of Term Life versus Whole Life.  Term life is a policy that is in place for a period of 10 years, 20 years or 30 years, therefore often referred to as Term10, Term20 or Term30 respectively.  If you die while the term life policy is in place, you will receive a payout; if you don’t need it, then you don’t receive any money once the term ends. 

 

Whole life however is in place for your entire life and has a guaranteed payout at the time of your death whenever that should happen.  I can understand the appeal of this option as the thought of paying into something like a Term Life Insurance and never seeing anything at the end of it may feel like a poor investment.  However, the premiums for Whole Life are orders of magnitude larger than Term Life.  David Chilton suggests that you should buy Term and invest the difference.  If you don’t trust that you will invest the difference, then whole life can be an investment vehicle and in that case, I see the value of going that direction.

 

No discussion on life insurance should omit covering underwriting.  I want to stress that if the company you are considering does not do underwriting at the time of application, then run away, run very far away!  Underwriting is the process by which an insurance company evaluates whether you are “insurable”.  Many company’s do this at the time of application, which to me seems like the only logical time however other company’s do it at the time a claim is entered which could be decades after the individual applied for insurance.  At that time the company does their due diligence on your insurability and at that point in time they can decline you coverage.  I know that I would rather know up front if I am denied rather than thinking I am insured for decades only to find out my investment was useless and my family is not financially secure.

 

As you can see, this is a huge topic and I am already past the word count for this blog!  Before I conclude, I want to touch briefly on getting Critical Illness for your Children.  Sun Life Financial, the institution we chose to go with, offers CI for youth and at age 25, if no claim has been made, they would return 75% of the premiums paid to you.  It also triggers a turnover to your adult child to take over the policy should they choose at the same rates that were secured at the time of inception.  We also chose to apply for Critical Illness insurance for my  husband and I.  The company I work for has Short Term and Long Term Disability coverage but that only ensures Income Continuance.  CI would provide a payout of $25k/$50k/$100k or whatever level of coverage you selected.  This then gives you a significant cash flow to seek out therapies, cover extra expenses incurred due to travel for treatment, or pay for a trip of a lifetime; whatever you decide to do with that money.   

 

I have merely scratched the surface on this topic.  My personal belief is that everyone should have a stand-alone policy that is not tied to your employment if you can afford it.  The world is changing and organizations are getting leaner and re-org’s seem to be more and more prevalent.  While I was safe this time, the next time I may not be.  It relieves me to know that should my employment end with my current company, I am not going to be overwhelmed with exploring this topic when my family needs its financial future secure.

 

 

It is something I hope I never need to use, but I truly gain comfort in knowing that my family’s financial security is sound should the worst happen.