Life Insurance: Products, Needs, and Basic Understanding

How much financial planning do you do? My financial planning goes as far as making sure all the bills are paid, 401K deduction set in place, budget followed (to a certain extend), our savings stays untouched at least for a little while.

Unexpectedly, a new dimension was added to my financial planning routine. The other day one of my coworkers asked if Beaker and I have life insurance. I nodded, saying that we have life insurance through our work. According to my co-worker, life insurance that is provided through our company is not enough.

Aren’t you afraid that if something happened, you or Beaker won’t be protected enough?

Of course I am afraid, but I never thought about life insurance as a life saver. For some reason (perhaps because for my own sanity I try not to think about tragedies, financial disasters and death) I always viewed our small emergency fund as a place to go in case something awful happens. Life insurance was never something that preoccupied my mind until that day when my coworker told me that $25,000 life insurance that is provided through my work simply doesn’t cut it.

When I am trying to learn something new, I try to be a thorough student. First thing that I did was try to understand what life insurance is all about. Wikipedia says it all (direct quote):

Life insurance is a contract between an insurance policy hold and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person.

The main purpose of getting life insurance is to protect your family. We have a mortgage, a car loan and student debt. I am the main earner in the family. If I get hit by a bus tomorrow, Beaker will struggle paying for my funeral, and paying all the bills we have.

This scary scenario forced me to start looking into either bumping up our premiums through work, or going outside and selecting a life insurance product through a different provider. This is where it gets interesting.

Do you know how many types of life insurance are out there? Let me name just a few: term life, whole life, variable life, universal life. My eyes almost literally glossed over from all of this. How do I know which product is right for us? I am still trying to learn and understand what would work and what is just too much.

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Right now, I am leaning towards a term insurance because it should be able to cover most of our financial needs and debt.

A direct quote from Wikipedia:

Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term.

Features that attract me to the term insurance:

  • fixed rate of payments;
  • price (it is one of the cheapest options);
  • it is renewable;
  • it’s convertibility clause allows to make changes in the future.

As of today, we did not choose any life insurance yet. It is a tricky process, and before we will start to rely on the expertise of professionals, we need to understand our needs.

Do you know how much life insurance you need? I, honestly, have no idea. Beaker and I are trying to answer these questions by determining:

  • If we want to cover a specific use such as pay off debt and that’s it;
  • If we want to make sure a surviving spouse has a future income provided;
  • If we want all the above.

Overall, I am trying to understand and keep it all as simple as possible. Right now, I feel a little overwhelmed. When you are trying to learn something new, being overwhelmed seems like a normal state of mind.

Do you have life insurance? Please share your experience!

7 thoughts on “Life Insurance: Products, Needs, and Basic Understanding

  1. From Shopping to Saving

    I was just reading another post by a fellow PF blogger that outlined the details of life insurance and how the one provided through work is not enough. I know that the one provided through my work covers $120k, but I have no clue what the details are. I still need to look into this more.

    Reply
  2. Daisy

    Oh dear. I have life insurance through my work, and I haven’t looked into other insurance at all. My life insurance would only really pay $10k to my boyfriend if I died, which isn’t a lot and would just barely cover my car loan ( let alone funeral, student loans, etc).

    Reply
  3. Crystal @ Real Estate Grasshopper

    When we went fully self-employed, we got policies. But a 10-20 year term policy for $250,000 on each of us is only about $30 a month total. So it is affordable, and if either of us dies, the other one will have enough to pay off the mortgage and have about 6 months to grieve before worrying about income…

    Reply
  4. Andrea Jularbal

    Funny thing to imagine “hit by a bus tomorrow” 🙂 If you really want to know which insurance policy will suit best your needs, basically list down what your family might need just in case you get hit by a bus tomorrow 🙂 I would personally recommend the whole life insurance policy, it may sound expensive but the benefits you can get from it are perfect and will suit your beneficiary needs.

    Reply
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