Tuesday, May 19, 2015
An Unusual Take on Life Insurance
If you have MS or any other nasty disease, I hope you bought life insurance before you were diagnosed. Oh, you can sometimes get it after diagnosis, but it’ll cost you an arm and a leg, even if that arm and leg don’t work anymore.
When Kim and I had young children, we bought a boatload of life insurance and planned to have it expire when our youngest finished college. Our major financial obligations for child rearing would be complete, and we would have a healthy retirement nest egg, sufficient for the surviving spouse in the event of an untimely death. The nest egg isn’t quite what we had hoped because of my early retirement, but it’s not insignificant either.
Well, Zach just graduated from college, and the life insurance, it’s expiring on schedule.
But we have one policy that is renewable for another 20 year level term, at the same benefit amount, with no medical questions asked. At our age, the monthly premium is a lot higher than it was for the past 20 years, as it should be. Here are the specifics:
Death benefit to me if Kim dies: $150,000
Death benefit to Kim if I die: $50,000
(this is how we set up the policy 20 years ago, and it can’t be altered now)
The monthly premium for a 20 year policy extension: $83 (we had been paying $29)
Warning, this post gets a little morbid from here on. If you want to make good financial decisions about life insurance, you can’t avoid frank discussions.
There are two ways to look at insurance needs, now that our children are grown. One way is – how much money would a surviving spouse need to get by? In our case we could use a bit more money because of the nest egg shortfall.
The other way to look at this financial decision is to treat it like we are placing a bet. Macabre? Absolutely. But such is the nature of buying life insurance later in life, for someone with a chronic illness. Are we willing to bet that one of us will die in the next 20 years, with the insurance company giving us favorable odds by ignoring my illness? Based on my poor health and complete lack of exercise, let's be honest – I'm probably not going to live to a ripe old age.
I have found a company willing to insure my life at the same rate they would insure anyone’s. I think I should do it. I think I will do it.
But I’ve never wanted to lose a bet more than I want to lose this one.