life insurance: scam or lifeline?
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Life Insurance: Scam or Lifeline?

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I’ve been mulling over life insurance lately.

While I’ve always thought of life insurance as a non-negotiable expense, it appears that the personal finance community is torn on it!

On one end of the spectrum you have people who advocate for life insurance as a way to care for your loved ones and to replace your income once you pass away. On the other side, it’s an unnecessary expense and an insult to think your family can’t get by without you.

I’m firmly in the pro-insurance camp, and here’s why.

My experience without life insurance

Five years ago, my mom passed away suddenly.

She had zero life insurance, no will, and thousands of dollars of debt. She was the main breadwinner and handled all of the finances.

The lack of life insurance made this horrible situation five times more traumatic. Life insurance would have paid for a funeral, covered my mom’s debts, and given my dad help with the mortgage and other bills.

I’ve seen the painful consequences of losing a family member without insurance, and I never want to put anyone through that pain, either.

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I’m firmly pro-insurance as long as you have any debt whatsoever.

I don’t think life insurance is a necessary expense once you achieve financial independence. At that point you have enough passive income and zero debt, which means life insurance would be a pointless drain on the finances.

Since we’re currently paying off student loan debt and then are tackling a car loan and a mortgage, I need to get life insurance.

Finding some damn insurance

Now that Mr. Picky Pincher and I are settled and have a few assets (and by “few” I mean our house), it’s time for me to draft a will and get life insurance. I plan on updating both of these once we have kids, too.

In the meantime I’ve been trying to hunt down some decent life insurance plans. I like to bundle everything with my current bank/insurer so I can get bundling discounts. However, I’m not a fan of their rates (non-term insurance is about $50 a month for a healthy 25-year-old person) and the fact that they require a doctor’s visit.

I thought this would be a perfect opportunity to enlist the help of my readers! What life insurance companies or plans do y’all recommend?

I’m not sure what type of coverage I would want, either. I know I at least need $10,000 to cover immediate funeral expenses. Ideally I’d like to have $150,000 to cover the mortgage so Mr. Picky Pincher could breathe easy—but I’m sure those monthly payments don’t look great. Womp womp. For now I’ll check out a few different options and see what works best for us.

The Bottom Line

Life’s a gamble and no one really knows when their time is up. Even though I’m young, it’s important to prepare for life’s twists and turns—especially while we’re in debt. I plan on having some kind of life insurance policy in place to take care of Mr. Picky Pincher in case something happens to me because it’s the responsible thing to do.

I’ll revisit the issue of life insurance once we’re financially independent, but for the next ten years it will be a good safety net as we build our net worth.

We want to know: Do you have life insurance?

48 comments on “Life Insurance: Scam or Lifeline?

  1. I have life insurance thorough my employer. Mr. FAF will get his once he starts his new job.

    If I didn’t get it through my employer, I’m not sure if I would go out of my way to purchase it. I think Mr. FAF would be ok financially without my salary. I my self am a bit torn on this topic.

    1. Right? It’s a tough one, because it does feel like throwing money away in the event that the worst doesn’t happen.

  2. We don’t have much life insurance and what we do have we get through our work. We basically have enough to cover our mortgage and living expenses for two years. There is also survivor benefits through social security that you should look into. The benefits are actually pretty substantial.

    I see some people recommending enough for all debt, 10 years living expenses and college for your kids. I would rather take the money for a million dollar plus plan and just invest it every month.

    1. Good point! It’s hard to pump that much money away into a policy when there’s no true guarantee you’ll need it any time soon.

  3. I’m actually shopping for insurance right now! I was originally planning on getting a super-low amount (like $160,000 just to cover our debt, some income, and the funeral), but I decided to up it so that my husband can have some extra money to reach some of our financial goal if I die (mainly, building our dream house). I haven’t decided yet on $250k or $500k yet. I’m leaning toward $500k, though.
    I first checked with PolicyGenius, and submitted an application through them. Later I heard an ad for health insurance for people who exercise, supposed to get lower rates or something. So I checked with them too. Then I asked some people on the Rockstar Finance forums about my rates, and they said I could get it even lower by checking with a third place. So now it’s a battle to see whose rates come back lowest, haha.
    I did have a nurse come visit me to do a physical. I’m no fan of needles, but you can get much lower rates if you’re healthy by doing this, so I figured it was worth it, especially over a 20-yr term or something.
    I’m still going through the underwriting process so I don’t know what my final rate will be, but I’m hoping it’ll be under $17/month for a $500k, 20-yr term or something like that. That’s less than my renter’s insurance!

    1. Wowza, you’ve done your homework! I really need to check out those Rockstar forums more, too. I’m actually getting a physical tomorrow for a life insurance policy I found through USAA. It’s like $15/mo for $250k, but they’re also cutting me a deal on my car insurance.

  4. I’m sorry to hear about your mom. My mom unexpectedly passed away 6 years ago. She didn’t have any debt (except for the outrageous hospital bill), but the financial aspect of dealing with her estate while grieving was like pouring salt on a wound-I can’t imagine how difficult that must have been for your family.

    I think if I were planning on having kids I would get life insurance. I don’t have anyone depending on my income, which would be another reason for me to get life insurance. I agree if you have debts and/or want a funeral, then life insurance is a good use of your money.

    1. Absolutely; if you have kids you should have some type of life insurance. It’s so tough sorting through things after someone passes (and of course everyone acts like they’re going to live to be 120).

  5. Even though we each would be “fine” without each other’s salaries, the peace of mind to pay off car/student loan debt, more easily maintain the house, pay for funeral expenses is well worth the monthly expense.

    Just a heads up that the medical test is pretty unavoidable for any life insurance policy. Our insurance company sent a medical test company out to our house to do the basic height/weight/blood sample/urine sample, so at least it was convenient and we didnt have to make a special appointment and trip to the doctor.

    1. Ayuuuup. I wrote this post a while back; I’m having the physical for our insurance policy tomorrow (not. thrilled.). There are policies without a physical, but they’re created on the assumption that you’re higher risk since you’re avoiding a physical, so they’re much more expensive.

  6. I am with the get insurance camp.
    For myself, with no children or any one depending on me it’s enough to get me toasted up and pay off any debt.
    Getting a policy in place now while you’re young and healthy will allow you to make any adjustments you need to make in the future a lot easier.
    And, while your at it have the difficult discussions with your family about health care proxies, final wishes and arrangements.
    Believe me, it’s a LOT easier now than later. Then you can file and forget until needed.
    So now I’m second guessing myself if this is too much information. But honestly, I wish someone had said these things to me.

    1. Agreed! Mr. Picky Pincher and I are looking into ways to write a will / trust. A lot of people don’t think about these things, but man, it becomes the most important thing in the world if you pass away.

  7. We just had our yearly benefits update. I’m single so I opted out of extra life insurance. Work provides basic, which is 2x our annual salary. That will be more than enough to cover a funeral & credit card debts.
    My coworker asked what the life insurance part was about so I gave her a quick over view. She has 2 children & a spouse and they recently bought a new house. She gave her husband a quick call to discuss how much coverage she should put in. For the minimum it was $5/pay check and we get paid 2x a month, so $10 isn’t bad.
    At my last company in a benefits meeting someone pointed out that your 401k etc will go to beneficiaries listed, regardless of will, as a reminder to update that should any of your relationships change. The person who noted this had her husband pass at a young age, and the 401k money was available while the will went through probate.
    I completed my will earlier this year. Work has a program where you can consult with a lawyer for 30 min for free and then if you use their services it’s a 25% discount. He took off another small fee, or rounded down to an even number too with the discount. Which I appreciated. 🙂 As you said it gives peace of mind for me, and for my relatives knowing my wishes are written down.
    Set a goal, with a timeline and just get the will done. Update beneficiaries on retirement accounts. 🙂 You’ve got this.

    1. Good advice. We have all the same benefits where I work. I’m single w/2 young adult kids that are on their own. I have plenty of money to cover funeral expenses. Each of my kids will get over 100k by selling my house and 401k. I don’t see any point of having life insurance.

    2. Wow, your work offers some really great benefits! I hope everyone is taking advantage of them. Most of my work policies have been for about $10k, but for double your annual salary, there might not be much need for an external policy. And the discounts for drafting up wills are great too!

  8. I second Marion and am in the get the insurance camp. I have life insurance through my work only. My husband, being unemployed, has none. I am also the main breadwinner, and my husband would be hurt if my income left, even though we don’t have hardly any debt. However, he and I both have pre-existing conditions, that keep us from getting any private life insurance except the TV funeral expense kind. We just counted on work life insurance when we were young, and didn’t look into private insurance for when we weren’t working. Surprise! He was diagnosed with juvenile diabetes at 32 (yes, that can happen), I was diagnosed with an auto-immune disease at 48, and although my auto-immune disease almost never causes death, it still keeps me from getting private insurance, much to my surprise. It is absolutely better to get insurance while you are still young and healthy. I vote for term only, but that’s not always an option for some. Even after someone is FI, they can’t guarantee the future, and auto-immune diseases, cancers, and failed organs like to hit people at middle-age, and can cost hundreds of thousands in treatment. If you do die without debt, so your spouse/kids/loved ones don’t need your policy to cover your debt when you die, they still at least get the cash to help cover the unexpected expenses that come up after your death, like discovering your previously responsible renter skipped town after you died and left them with a mess — something my siblings and I experienced when our parents died.
    I think you are doing the right thing, Mrs. PP.

    1. Oh gosh, I’m sorry to hear about those health issues! It’s insane what companies will or won’t cover; it’s ridiculous. I’m glad you’re at least able to get a policy through your work, but I do worry about people who don’t have access to those benefits, too.

  9. Both my wife and I have life insurance. The goal is to build enough wealth to become self-insured, but until we do a solid term life policy will be in place.

  10. We don’t right have life insurance now, but I’m thinking about adding it on my husband. A lot of our current success in adding net worth is based on my husband’s ability to DIY most repairs we need to make on our home, rental properties, and cars. Lose Jon and I lose that resource, and our rental properties lose a lot of cash flow.

    So while I think he and Little Bit would be okay without me, Little Bit and I would be better off without the rentals if Jon can’t fix them, and might need to spend a fair amount to get them sold at a good price.

  11. Even in retirement we’ve kept our term life policies. We each have $250K. Mine costs in the $300s and Mr. G’s is in the low $400s per year. It’s with AGI.

    For many couples, it’s whether or not you would need a spouse’s income, or need to pay for the responsibilities that a stay at home parent takes care of — childcare costs, etc — that may determine if insurance is needed.

    Same as Mack, a nurse came to our home to do the medical tests.

    1. I’m curious–is there a reason y’all kept the policies in retirement? Yup, I have a nurse coming over tomorrow to do the medical tests (I wrote this blog a while back). I’m not thrilled, but the peace of mind is great.

      1. Mr. Groovy wants to cancel my policy as he feels he doesn’t need a cash benefit. He wants to keep his to provide me with funds for a driver, Uber, etc. since I don’t drive. We’ve got 11 years left on the policies but I should be eligible for Medicare in 7 years so maybe at that point we’ll revisit.

        I just pulled out our policies and reviewed a rider I never paid attention to previously. There’s a terminal illness benefit if either of us is diagnosed with less than 12 months to live. It allows for an advance on the benefit before death. You hate thinking about this kind of thing but that could cover hospice or some other care.

        1. Thanks for the info, that’s good to know! I think ours also comes with a terminal illness clause, so that’s good to know as well (hopefully no one will need it!).

  12. I’ve always been in the camp of get as much as you can get, unlike a house. If you’re young and healthy you’ll never get a lower rate than now. Although you don’t want to be worth more dead then alive. Don’t want to give Mr. PP any evil thoughts, ha. Something like $250k-$500k won’t make either FI, but the ability as you, and I unfortunately know also, that it’s a terrible time in a person’s life and being able to go thru the grief process at their own pace without the worry of money is Yuge.

    1. Thanks for letting me know! I’m getting a physical today for a policy with USAA, so hopefully that works out.

  13. Even though I’m financially independent and early-retired, I kept my policy active. It’s a 20 year term with 7 years left on it. Figured I might as well hang on to it since it isn’t costing me much and would be a nice extra bump for my wife if I die*.

    I won’t start a new policy though when this term ends.

    * It’s actually a first-to-die policy, so it pays if either one of us dies – whichever is first – then it ends.

  14. SUPER pro-insurance here. We insure up the wazoo.

    Here’s why:

    The goal isn’t just to be rich. It’s to not be poor.

    And one sure way to become poor in a new york minute, is a black-swan type event that wipes away your money. You can have millions. Doesn’t matter. So, yeah you can self-insure the small stuff. But guard yourself (insure) against the major catastrophes. Thanks for the post!

    1. I agree! I’d rather pay a little bit for insurance than an ungodly $100,000 sum for a catastrophe.

  15. This is actually something I’ve been thinking about lately too. I recently re-read an older post by Mr. Money Mustache where he mentioned that him and his wife don’t have life insurance because they’re both in good health and they trust each other to bring in an income if the other passed away. For now (especially since my wife and I are renting and don’t have any debts right now), we’ll be living without life insurance. But we’ll definitely have to reconsider once we buy a house here in a year or two.

    1. Yup, I was thinking about MMM’s post when I wrote this. I think it’s different when you’re financially independent and can pay your bills in cash anyway. I do think the best time to get insured is when you’re young and get a term policy. After all, I drive a car, which is pretty dangerous, even though I’m young and healthy. But I like your plan! We waited until we were in a house before we started thinking about life insurance. I’d still recommend an itty bitty policy to help with funeral expenses, though.

  16. I have life insurance through work but if I ever left I would probably get 10x my income which would allow my wife to reach FIRE and never have to think about working again. So while I don’t have any brokers to recommend, I definitely think you should go with term life insurance over whole 🙂

    1. Thanks! I wrote this post a little while ago and I’m actually getting the physical done today for a term policy with USAA. Hopefully it all goes through just fine and I can put this behind me. I ended up with a 20 year term for $250k (it was cheaper to get more coverage for some reason).

  17. I have a private policy which is enough to pay for funeral expenses and to settle my estate as well as providing some cash for whichever family member has to take time off work to deal with it.

    And then I have 4x salary through my employer, which is nice to have, but I don’t want to rely on it because in my career I need to know I can tell my psycho boss to stuff it and leave at any point.

    I also, however, have disability insurance which is expensive but to my mind more important than life insurance – it pays out a flat sum of money every month (enough to cover my mortgage and a few living expenses) in perpetuity if I’m no longer able to work.

    Hmmmm. I guess I technically have four life insurance policies because my travel insurance and equestrian insurance both have a death benefit component. My heirs would be minted if I died on horseback on holiday…

    1. Oh wow, you’re super-insured! I really love the point you made about not relying on an employer for the coverage; that’s an important thing to remember!

    1. Thank you! Some people may decide they don’t need it, and that’s fine. But I think it’s so easy to gloss over this stuff until it’s too late, so it’s good as a little reminder.

  18. I regret not getting life insurance when I was younger. It would have been cheaper. I never thought I’d have to leave my full-time job,thanks to health issues in my kids, and with my autoimmune issues, I am in a higher risk group. I thought I would be rejected, but I went through Select Quote last fall and was thrilled to be able to get $200K or term life insurance for about $400/year. It would be enough to do an immediate cremation, which is what I want (about $1K), and pay off the$126K left on our mortgage. The mortgage is our only debt,and without it my husband would be able to hire a nanny to help with the 3 kids. He would also get Social Security survivor benefits for himself and the kids. My friend Brian is an agent and did a calculation of our needs. He calculated we should be well covered that way and have enough so there would be no lifestyle changes and the kids’ college would still be mostly covered.

    1. Oh my gosh, I’m so sorry you’ve had all those tough circumstances. You and your kiddos are troopers. 🙂 It’s really great that you’re prioritizing their needs and if anything ever happens, they’ll be grateful. 🙂

  19. Great post and all wonderful reasons to have LI. I am about to go out of my way to purchase LI since my employer doesn’t offer it and I’m about to have a kid. I want to make sure my wife and kid are covered if I were to kick the bucket. We are also going to have her get LI to cover child care and all those costs if she were to kick the bucket.

    It also just gives me a piece of mind knowing that I am taking care of her financially. Which is worth all the monies in the world to me. Again, great post!

    1. Congrats on the upcoming little one! 🙂 I also don’t get LI through my employer, so I share your pain there. The piece of mind is so worth it though. 🙂

  20. No life insurance here. I fall into the “it’s a scam” group.

    But, I will agree that in certain situations it makes a lot of sense. A single bread-winner family with big debts may need it.

    For me, it’s like sticking a bunch of leeches on my arm when I’m already healthy. Totally unnecessary.

    1. Good points! It’s different if you aren’t financially independent, but if you have a hold on your finances (and your family would be fine without your income).

  21. You don’t need to insure your life so much as your income. If you don’t have any dependents, it’s not necessary, but with dependents, debts, or a spouse that doesn’t earn enough to cover the bills, a term life policy is prudent, with a term just long enough to cover those years when your income is necessary. In addition, statistics show that more people will need and use disability insurance during their lifetime than life insurance. If losing income through death is a hardship, losing income through disability will be worse, because your costs may increase. Unfortunately, insurance companies know this, and disability coverage is more expensive.

    1. Great point about disability insurance! Many employers offer this automatically, but very very few people are informed about their policies.

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