Life Insurance

January 27th, 2012 by Potato

“I have yet to meet a father who didn’t see little feet emerging and immediately feel the need to run out and throw himself at an insurance salesman.” — Garth Turner

Wayfare and I just had a very short discussion about our life insurance needs. I off-handedly remarked some time ago that one of the factors that maybe should go into the typical rent-vs-buy analysis is the reduced need for life insurance as a renter, but since I didn’t know what the cost was, it was hard to model (and I assumed, trivial).

Anyway, with a new spud under cultivation, I thought it was worth discussing seriously, and we very quickly agreed that we didn’t: she makes more than I do (though as of next week, “0″ is an easy bar to hurdle), but both of us are capable of supporting a single-parent family on our own. If we both die, both our sets parents are well-off enough to take in a grandchild and not become destitute themselves (at least with our savings to help out).

As renters, we don’t have a mortgage to discharge or huge transaction costs for moving, so it would be reasonably easy (at least financially) for the survivor to move to a smaller, cheaper place. And the aforementioned savings would help with any burial expenses, additional childcare costs, or bereavement leave.

A few online calculators confirmed that our life insurance needs were basically zero (varying between a $150k policy and negative $80k depending on the calculator and assumptions used). I went ahead and got a few quotes for a $100k term-10 policy, and it’s not terribly expensive, but not trivial either: about $150/year for someone my age. This might all change once I see little feet with their widdle toes, but for now, hey, we don’t seem to need it.

13 Responses to “Life Insurance”

  1. Netbug Says:

    Also less motivation for nefarious deeds.

  2. Aron Says:

    The only other consideration is that if you do foresee a future need for more insurance it is easier and cheaper to get insurance while you are young and healthy

  3. Alex C Says:

    Do you have disability insurance? That seems to be the one I read the least about, but those who do talk about it say it is the most important for someone early in their life (the whole personal work equity argument). It’s something I don’t have personally, minus the little bit through work. I do keep meaning to look into it though. I agree that if you rent and have no major outstanding debt you don’t need life insurance. Unless you need it to sleep at night, in which case 150 a year isn’t much of a loss.

  4. Potato Says:

    I’m at about the same point as you are for disability insurance. It’s something I really should look into, but haven’t yet. One excuse for my procrastination is that the bit of reading I’ve done says that there are several kinds, namely same-profession or any-profession disability, and since I don’t yet have a profession, I’ve been waiting on that.

  5. Alex C Says:

    I do agree with Aron’s point, although I do not know at what point it becomes an issue. I have also noticed that with disability insurance, but I wonder how hard it is to alter it once you are in a profession. I always assumed it traveled with you. Ie if you start as a brick layer and get disability insurance, and then become a lawyer and get injured, it results out as if you were a lawyer the whole time. I assume you have to notify them, and your coverage and payments may change. I could be waaaay off base here though. My big annoyance is it isn’t an easy thing to get online quotes for (in my limited research) and I’m too lazy to call around and go talk to agents.

  6. Potato Says:

    Having lower premiums when younger is definitely a good point, so we do have to think hard about the decision, but I don’t think we’re going to change our minds: unless we screw something up financially (e.g.: stop saving) our insurance needs (already basically zero plus or minus) should only go down.

    Alex: that’s exactly the reason I haven’t looked into it much further: if I can’t thoroughly research it online, it’s hard to get off my butt and do it. I don’t like having to call up salespeople to draw up a personalized quote only to go “gah, no thanks, that’s not even close to what I thought the price might be!”

    All: as I’m sure you’ve figured out, there are a lot of keywords in this discussion that can get a comment flagged for moderation. I do eventually get around to fishing them out :)

  7. Aron Says:

    Disability insurance is very important (you are much more likely to get disabled than killed) but it is therefore much more expensive than life insurance. I believe (I only have through work because of the crazy price) you have to be very careful with the fine print because the insurance companies will do their best not to pay you if they can. I wouldn’t assume anything about portability, job change coverage, etc. I had a professor at UWO who talked a lot about it because he had big problems with his coverage (he was only able to teach a couple of classes a semester and had to sue over getting his disability payments).

    Potato: When/if the housing market collapses and you jump into a $500,000 mansion, and you want to cover your kid growing up and their future university tuition (and additional kids?), etc. and you decide that you need $1.5 million in insurance coverage for each you and Wayfare the difference between now and just 2 months after someone is diagnosed with something or hits 35 or 40 could be significant. That being said, again insurance is expensive and hard to afford on an annual basis the amount you’ll really need to support your family when you’re gone.

  8. Mike Holman Says:

    I would consider getting some life insurance for yourself.

    If you kick, then Wayfare will be on her own with the kid - does she make enough to pay for full time day care and still have enough left over for a reasonable life?

    Even $100k would go along way in that situation.

  9. Potato Says:

    I’m more worried about what happens to me alone with the kid than Wayfare alone!

    Once I get a job $150 probably won’t seem like quite so much for insurance, and it will be something we’ll probably discuss a few more times in the future. For now we’re at least confident enough that we won’t be totally ruined that we can procrastinate a little longer :)

  10. Mike Holman Says:

    Hmmm..good point. Maybe both of you should get some insurance.

    I’m just not sure how you arrived at the conclusion that you’d be ok without any insurance. If Wayfare passed away minutes after giving birth and you don’t have a job - what exactly will you do?

    Even if you guys are gainfully employed, there is something to be said for covering a drop in lifestyle if one partner dies. For example, after we had kids my wife got $120k of life insurance. I roughly calculated that as 5 years of daycare.

    The reality is that I could “get by” without that insurance, but I don’t want to, especially considering it’s not very expensive. Daycare on the other hand is very expensive.

    FWIW - My advice is for both of you to get $100k or so of “daycare” insurance. It’s a hassle, but it’s cheap and you can always cancel it at any time if you think it’s not worthwhile.

  11. Potato Says:

    Well, you’re certainly making me think hard about it :)

    Without trying to be boastful of our savings or anything, I’ll just say that between those and our family support network (i.e.: grandparents), we figured we’d be ok. There would definitely be a drop in lifestyle, and a measure of “getting by”, but death is a small-probability event, so we’re taking the chance. If we weren’t so sure we could at least scrape by (i.e. less than two year’s expenses in savings/investments, nothing set aside for baby’s future education, big income disparity, big debts) then I’d definitely agree with you.

    But I’m confident enough that I’m not losing sleep over it, and if I’m not losing sleep over it I don’t feel the need to pay, even if it’s not terribly expensive (though who knows, your comment may have me up all night day!).

    Truthfully, it’s the disability insurance that has me more worried: in that case not only is the income gone, but the disabled person becomes a burden, too. I think I’ll be calling around for some quotes on that next week (and likely at least get some updated figures on life insurance cost).

    Anyway, thanks for the good points, advice, and for thinking of us Mike!

  12. Potato Says:

    And in case the future grandparents are reading: no the plan is explicitly not to have you babysit on a daily basis, as discussed. But if I kick it, consider it my dying wish :P

  13. Mike Holman Says:

    Sorry for making you think hard. :)

    Have you looked at actual premiums? One of my policies is $250k for 10 years and I pay $227 per year. I imagine $100k would only be around $100 per year which is a pretty small amount.

    I also follow the philosophy that you shouldn’t be insuring situations that you can afford, but I’m not interested in scraping by. However, obviously that is a matter of personal preference.

    For the record - you guys are far ahead of where I was on this issue. I didn’t increase my basic insurance (provided by work) until my first kid was something like 6 months old. Obviously it should have been done prior to the kid being born. So kudos for thinking of it now. Also, I meant to get more insurance after my 2nd child was born which hasn’t happened yet and she’s almost 4. :)

    Re disability - I have group disability thru work, but I’m in the process of getting an additional private plan which has better coverage. I’ll be writing about this soon, as there is a lot of different features for various plans.