My husband and I were recently given a sales pitch by a friend (who happens to sell life insurance) on why we need life insurance. As he went through our finances, and came up with the perfect amount of life insurance that we would need, we started to convince ourselves that we completely needed a $1.2 million life insurance policy on each of us.
But before we signed on the dotted line, we did our research.
Permanent Life Insurance vs. Temp Life Insurance
Our policy included a combination of permanent and temporary life insurance. Permanent life insurance is basically a longterm savings and investment plan. You put a good chunk of money into the policy annually but at the end of the term, you get a lot of money back.
Temporary life insurance is similar to car insurance, in that it covers you should anything happen, but you won’t get any money back if you don’t use it (ie. you won’t get any money from your policy unless you die).
On paper, permanent life insurance sounds like the better deal. However, the perm life policy can easily run several hundred dollars a month ($450), vs a temp policy of roughly $50 a month for a $1 million policy (depending on your age and income).
Many people are getting into the habit of using their perm life policy as an investment tool–which experts strongly warn against. Life insurance should only be used for life insurance purposes, and not as an investment tool.
So that helped us rule out a perm life policy.
Then we needed to look at temporary life insurance.
Why we don’t need life insurance
Once we decided that we weren’t going to do perm life insurance, we still had to look at a temp life policy, which came at around $80 a month for policies that covered both my husband and me. $80 a month is still a good chunk of money.
We don’t have children. We don’t have a mortgage. We don’t have any outstanding debt.
If I died, my husband would get a life insurance policy worth roughly $300k that is covered through my work. If my husband died, I would get help with funeral expenses through his union, as well as a $50k policy, also covered through his work.
In addition, I would get his pension payouts once he is fully vested after three and a half more years, and he would get my pension after I am fully vested in two more years.
If something were to happen to me, my husband would be okay. And if something were to happen to him, I would also be okay.
At this point, we are focused on saving for a house and taking $80 a month away from savings (or almost $1000 a year), is still significant enough that you need to strongly consider whether you REALLY need it.
We decided not to go ahead with it. Should our situation change–we have kids, we get a mortgage–then we’ll reconsider it. But there’s no point in unnecessarily spending extra money right now when we really don’t need to.