Another financial to-do is almost complete for me today. I have a health exam to qualify for Term Life Insurance. It seems like a morbid topic, at 28 to be planning for death. But I have a 2 year old daughter and a family that is dependent on me. Plus, my thought on all of this is to start the financial habits now so that I can move on to bigger and better things in my financial life.
I debated quite a bit about whether I needed it, whether I should get Term or Whole Life insurance. Term insurance is basically just a monthly payment that you will never see again that protects your family by paying out a cash value upon your accidental death. Different policies have different rates and terms as to what type of death qualifies. The term insurance that I selected protects against all types of death.
Whole life insurance is when you pay the monthly maintenance fee, but also pay more that goes into basically a savings account that earns a certain percentage interest – right now between 2 & 4% usually. This can be nice for people that don’t have great habits for savings or retirement investing.
Some basics on life insurance that are helpful can be found at: http://www.insurancefinder.com/lifeinsurance/aboutlifeinsurance.html
My agent suggested that as I get older and earn more, I convert $100 of my $500 policy to whole life insurance so that the interest helps pay for the premiums over time. We’ll see.
So, moving on. I didn’t know what length of time to select the term insurance for, or the amount. I decided to opt into 20 years because at that point my daughter and even my next child should be fairly independent. I also selected the $500,000 coverage. The idea is that I can keep the same monthly premium over the next 20 years, so opting for a little higher pay out than what I might need now ensures that I can keep the same plan in the future and keep the premiums lower.
As you get older and especially as you get any additional health problems, your qualification for life insurance decreases, and your premiums go up. So, I’m locking in a reasonable rate for it now.
I am very cautious to add insurance, let alone a new monthly payment to my financial world. Nonetheless, I feel good about adding life insurance right now. I had it previously at my employer, but lost it when I left. Having it separate from my employer ensures that I will always be covered moving forward.
I did have to tell the insurance company I won’t be piloting an airplane or sky diving in the next 2 years. Darn it, right when I was thinking about taking the plunge! 😉