Why I Bought a $500k 20-Year Term Life Insurance Policy and You Should Too

A good term life insurance policy is something most people should have.

I’m sitting here writing a check for my life insurance premium. I’m so glad to have this process over with. As most of my regular readers know I’ve been talking about getting life insurance since the birth of our first child, seven months ago. The process has been a long one. But I’m finally done. The receipt of this payment will seal the deal on a $500,000 20-year term life insurance policy.

When I first started this blog I was clueless about life insurance. It’s just one of those products no one wants to talk about. I started caring about it about the time I found out we were having a baby. Over the past year or so I’ve picked up a lot of good information and formed an opinion about what type and how much life insurance product works best for me. I actually have a small policy through work, but it’s only for a small amount. I knew I needed more.

Why Term Life Insurance?

I decided term life insurance was the way to go (vs whole life insurance or some other product) for the following reasons:

1. I plan to self-insure in the future. Twenty years from now I won’t need life insurance. I’m planning on having at least $500,000 of my own at that point. I’m taking serious steps with my retirement and short-term savings so that as soon as I’m able I can drop life insurance and rely on my own stash.

2. I’m of the opinion that investing and life insurance are two separate things. Why the heck did investing and life insurance ever get involved? Insurance products that promise investing returns are just an expensive waste. Keep investing simple, inexpensive, and separate from your insurance goals.

3. It’s inexpensive now. I was able to get my term life, 20 year, $500k policy for around $45 a month. For what it’s worth, I’m in my mid 30s, a non-smoker, and in good health. My weight was the only thing that took me down from the elite to the standard rates.

4. I don’t have a child with special needs. People with children with special needs should consider a whole life insurance policy since they may have a dependent for the rest of their lives.

Why 20 Years?

I decided on 20 years vs 25 or 30 because, again, I plan to be self-insured in 20 years. And, I expect all my kids to be close to adulthood by that point. They are why I’m getting life insurance, so it makes sense that I drop the insurance about the time they don’t need me anymore.

Why $500k?

I decided on $500k because that would be enough to replace a good portion of my income. If I passed, my wife would still have to work (which she plans to do anyway), but the extra income would allow her to breath easy and not put our home, her retirement, or our kid’s education at risk. Life insurance is all about replacement of income. But no one says it needs to be 100%. Especially for a couple that already lives well below their means.

Editor’s note: I realize my choice to go without life insurance on my stay-at-home wife is not the best answer for most people.

You Should Buy Life Insurance

As you can tell from my thoughts above, I’m of the belief that purchasing life insurance is a good thing for those who need it. If you aren’t self-insured and you have someone other than yourself dependent on your income (and they will be for some time), then it’s probably wise to get yourself some life insurance. A good term policy can be had for the price of Internet service each month. So if you are reading this blog post, you can likely afford it.

Later this week I’ll share my experience with actually getting the insurance. This includes getting quotes, selecting a company, taking exams, filling out applications, and a lot of waiting…

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Last Edited: August 22, 2012 @ 1:09 am
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.

Comments

  1. Congrats! An Important step in the protection of your family.

    • Life insurance should be part of almost every Americans financial plan. The question is can you find affordable rates, and where do you go to insure you are dealing with the best companies which hopefully correlates to the lowest prices. I am an independent life insurance broker that compares and shops over 50 life insurance companies. I saw someone mention a policy option where she gets her money back after the end of the term. DO NOT BUY ROP or return of premium life insurance, its over priced and not a good deal.
       
      Go to my website to ask me questions http://www.goldsmithinsurance.com And Nice Job PT MONEY!!!

  2. Nice! I have a 30 year term life policy that I bought a few years ago. I have more peace of mind, knowing that my husband and I son will be financially stable if something happens to me. We do have a universal policy on my husband (something we bought when we were much younger and kinda stupid) for $100,000. At the time, it was enough to pay off all of our debt and student loans (and it still is). Once he gets done with his Ph.D. and starts working, though, we’ll get him a term policy.

  3. If you plan to have a second child, 20-year term may not be enough…

    And… what’s your wife’s policy? What if both of you die together in a car accident?

  4. well done – I too finally purchased term life earlier this year – almost 2 years after the birth of my second child (I know, way too late). Interested to read about your evaluation and purchase experience – I did mine online. I agree with the comment about your spouse’s insurance – particularly for a two income family like yours. However, even if one parent is home with their children, both parents should have life insurance. If the care giver passed away, the cost of providing daily care for the children would need to be covered.

  5. aa and Dan,

    Thanks for swinging by and leaving your comments.

    As for the 20 years, I’m comfortable with it because I will be self-insured by that point, regardless of the age of my children.

    As for my wife’s insurance…she doesn’t have any. I don’t think it’s necessary for us. If something were to happen to both of us, the $500k policy would be more than enough for the guardian to take care of our children. Plus, there will be social security benefits AND our retirement savings. Plenty.

    I agree though that for most couples that a policy on the second spouse would be necessary. Good points.

    Call me ignorant or arrogant, but for me, it’s not necessary. If something happened to Mrs. PT I’d be able to handle all the expenses of raising our kids alone. In other words, my current budget does not rely on two incomes.

    Even if Mrs PT didn’t work again AND we had the kids in daycare we could cover it. Not because we’re bank rolling, but because we stay under our budget by that much. We are really conservative with our income to expense ratio.

    But just because I’m comfortable with this risk doesn’t mean the average person should be. In most cases I would probably advise two policies.

    Tell me if you see holes in my theory.

  6. “Call me ignorant or arrogant, but for me, it’s not necessary. If something happened to Mrs. PT I’d be able to handle all the expenses of raising our kids alone. In other words, my current budget does not rely on two incomes.”

    I don’t think it has to do with ignorant or arrogant, and trust me as both of these adjectives I would expect myself to see them (ah bad joke).

    The hole that I see is you not adding the expense of a nanny in. Regardless if you are spending $50K, $100K, or $350K/yr in expenses with having free child care (i.e. one of you) that number has to increase for day care, nanny service, maid, etc. while you may lose a car payment (maybe) you will need someone to help out when you are at your job during the day or at night.

    After discussing how cheap these options are, how much would it cost to insure your wife for $250K? $20 bucks a month? Maybe. Just seems like a good what if plan for the price of going to McDonalds for a family of 3!

    As always, I have some thoughts! Also wrote a post you might or might not find interesting about insuring a child:
    http://www.myjourneytomillions.com/articles/buying-life-insurance-on-a-childs-life/

  7. Thanks for sharing, I’m pretty much in the same shoes and your post helps me make a more informed decision, especially now with a baby I don’t want to put it off any more.

  8. Mr. Not the Jet Set says:

    I’m not familiar with PT’s situation (though it sounds like they’re doing great!), but for us, we did what you describe, Evan. As much as the Mrs. would need to replace my income if I were gone, I would need to replace her service if she were gone. I won’t put my foot in my mouth by attempting to list all that she does as a stay-at-home-mom (and consequently leaving out several unsung duties), but I would either be looking at hiring a cleaner, nanny, and personal assistant at a minimum, or I would be staying at home myself. With the latter, I would need to replace my income.

    so we both have insurance. Term insurance.

    Anywho – congrats, PT. What you’ve done is a big step!

  9. I have never ever bought life insurance because the idiot that I am, I always ‘tune out’ when insurance agents give their pitches. This list was more valuable than their presentation. Thanks.

    See ya around at pb.com

  10. PT – I think your move is a great call, since in 20 years, u should have your own nut already with less debt and won’t need it as much.

    Did you look into whole life as well? So much bashing about whole life. Do you feel the same way?

    Let’s say you were making on average $500,000/yr with no kids and in your 30′s. How much life insurance would you get on top of the $800,000 in life insurance you already have from the firm?

  11. Good post on an important subject. We carry term life on both spouses because it would cost a lot to replace the work I do in the home for at least the next 10 or so years.

    The plan is that I’d start bringing in income when the children were in school and that would go towards paying for their educations, so we took that into account in planning how much to insure me for, too.

  12. We have both term and whole life. We purchased the term when we first got married nearly 15 years ago. The policies are for only 125K. I wish we would have purchased much, much more. Now that I’m in my late 40′s, more insurance will be more money.

    I think about insurance more than I did when I was your age. Those term policies were just a whim. We purchased 500K whole life policies several years ago, but by that time the monthly premium was $125/month.

    Life is unpredictable and choosing life insurance products is not an exact science. Your plan is well thought out. Personally, knowing what I know now, I would suggest getting more insurance since your premiums are so low.

  13. We just got $800000 in coverage for a 30 yr term insurance. The monly payment is $112. Are we paying too much?

  14. Curious Guest says:

    I am a 31 year old, single female, and healthy. I was quoted $20 for a 30 year term life insurance for $250,000 month..is that a good rate?
     
    I was also quote a different type of insurance for 30 years, if after the 30 years I don’t use is then I get $21,000 back from a $500,000 premium.. Ever heard about it?
     
     

  15. The good thing about term life insurance is that you can decide on a plan and set a specific time on when and how much you want to pay for your premiums to realize your family’s needs