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Over the past five years of writing this blog, I’ve examined whether I should have life insurance a few times. The first time I asked this question was when I got married. At that time I didn’t have any dependents or money to speak of, so I determined that life insurance wasn’t necessary yet.
The second time I reassessed my life insurance was in 2015 after we’d made a move to Halifax. Our expenses were much higher in Halifax, and we were spending much more on rent. Because our expenses were higher, our standard of living would have been affected if one of us were to pass away, but we both had small life insurance policies through our employers, and that was sufficient to bridge the gap for at least a year. Again, I decided it wasn’t time for life insurance yet.
For those five years, I belonged to the more than 55% of millennials who did not have life insurance, according to a study by TD. Not only was it not necessary, but it wasn’t a priority. My biggest priorities, like most millennials, were paying off debt (21%) and saving for a house (25%).
Then I Became a Homeowner
Everything changed for me when I became a homeowner last July. For the first time in my life, I had a debt that I couldn’t easily pay off, and my husband was shackled to that debt too. If something happened to either of us, I didn’t want the other person to be saddled with a mortgage they couldn’t pay, or be forced to sell and move out right after a traumatic event like one of us dying. I knew that mortgage insurance was not right for me, and that life insurance was a better fit.
Finally, after many years of assessing and holding off, it was finally important that we both got life insurance. I don’t know about you, but life insurance has never been a very interesting topic for me, so when the time came to obtain it, it was an “Ugh, fine!” type of moment.
Choosing How Much Insurance to Buy
I’ve already gone over what type of life insurance is best for me: term insurance. I want insurance that will pay out when I die, the end. I don’t need an investment portion (I’ve got a handle on my investing), and I don’t need a cash value (ditto). I just need money to cover my husband if I die, and only while we still have a mortgage and our investments aren’t substantial enough to support him. For these simple requirements, term way the way to go.
The next question I asked myself is: how much life insurance do I need?
The answer to this question will be different for everyone because it depends on what you want your life insurance to do for you. I don’t have dependents, so I don’t have to worry about funding their college education*. For me, I wanted my life insurance to do the following:
- Pay off my $240,000ish mortgage
- Provide income replacement for my husband for five years so he can emotionally recover from my death
Based on this assessment, I determined that I’ll need about $500,000 worth of insurance. To double check my assessment, I took TD’s Right Fit Coverage Assessment which gave me approximately the same number – huzzah! My husband’s income is a little less, but we opted for the same $500,000 worth of insurance for him as well, in the name of simplicity.
Getting Insurance While I’m Young and It’s Cheap
There was another reason I was suddenly motivated to buy life insurance – my husband was coming up on his 30th birthday. I knew that the older we got, the more expensive our insurance would be, so I wanted to buy it now while it was still affordable. Term life insurance is notoriously affordable if you acquire it while you are young, and I love a good deal.
In the end, after shopping around, we opted for 20-year Term insurance with $500,000 worth of coverage each. I knew it was going to be cheap, but I was still surprised at how affordable it was. It ended up costing less than a cup of coffee per day, which was a nice surprise. Considering how much peace of mind it provides, that is a good price.
Now that I’ve had it for a few months, I’ve got to say I’m very happy with my purchase. It gave me financial peace of mind and was the missing piece of the puzzle in my overall financial picture. Getting that piece in place let me heave a huge sigh of relief. #lifegoals
Next month I’ll talk about where I bought my life insurance and precisely how much I spend on it per month, but first I want to hear from you:
Do you have life insurance? Why/why not? What kind? I want to know!
*I’m unsure whether I will become a parent, if I do, I’ll supplement my policy.