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The author, Jason Steele (left), and his daughter.
Jason Steele
For my wife and me, it was a no-brainer to purchase term life insurance when we had our children.
We want to ensure they’ll be financially protected if we both die before they reach adulthood.
We spend about $82 a month on two policies worth $500,000 each.
Becoming a parent is very heavy stuff.
There’s an overwhelming feeling of responsibility that can overcome new parents as they realize that they are no longer responsible for just their own life. All of a sudden, there’s a helpless baby who’s completely dependent on you for everything.
That’s why it was a no-brainer for my wife and me to purchase life insurance to make sure that if anything ever happened to us, our kids would be financially secure until adulthood.
Thinking about the unthinkable
One of the biggest obstacles to purchasing life insurance is the need to think about the last thing you’d ever want to imagine. What if I died before our children grew up? What if my wife died? What if we both died? What would happen? And how can we financially plan for all of those possibilities? None of these scenarios are the stuff of daydreams or pleasant conversations.
But after mulling it over, my wife and I ultimately concluded that if one of us died first, then the surviving spouse would have difficulty grieving while raising the children and earning a living at the same time. Money from a life insurance policy certainly wouldn’t fix all of those problems, but it would give the survivor breathing room to take some time off of work, and to gradually return to the workforce when the time was right.
My wife and I both have careers and we are equally capable of providing for our family, so we decided that we both needed a life insurance policy of equal size, should either of us die. In clinical insurance terms, it’s called “predeceasing” your spouse. And in the almost unimaginable case that we both should die and at least one of our children survived, our children would receive twice the benefit that a surviving spouse would have.
That said, we wanted insurance to provide for our children into adulthood, but we didn’t feel it was necessary to provide for them should one of us die after they reached adulthood. Our goal is to raise our children to be self-sufficient, not to fund them for the rest of their lives. And if we die soon after they’ve reached adulthood, they won’t receive an insurance benefit, but they should inherit our remaining assets, which we hope will be significant.
Choosing a type of life insurance
Once you decide to purchase life insurance, you’ll quickly learn that there are many types of policies available. However, they all break down into “term” and “permanent” options.
Term life insurance is sold for a specific period of time, such as 20 or 30 years. If there’s no claim, then the policy expires. Term life insurance policies feature a single premium and a fixed payout.
Permanent life insurance lasts until you die, so long as you pay your premiums. This is typically more expensive than term life insurance.
Ultimately, my wife and I chose to purchase term life insurance policies from American General Life Insurance. We purchased one each for ourselves for 20 years, with a benefit of $500,000 each. We purchased this policy in 2013, so it will expire in 2033.
Should either of us die before June of 2033, the survivor will receive $500,000, And if we both should die, our survivors will receive a total of $1 million. Should we die after June of 2033, then the policy will have no value.
But as I mentioned, we plan on having substantial assets at that time, including both retirement savings, home equity, liquidable cash, and personal property. And while the inflation of the last year has certainly reduced the real value of our policies, it has also increased the value of our assets, such as our home.
The insurance premium on my wife is $21.96 per month, and the premium for myself is $60.66. The difference is due to my age (I am nearly 10 years older than she is), as well as my health. I have a history of heart disease in my family, and I take cholesterol-lowering medications. I am also a commercially rated airplane pilot and flight instructor, which ups my premium. Although I’m not currently employed as a pilot and I only fly recreationally, it was a risk factor that I had to disclose.
What we might have done differently
Now, nearly 10 years into a 20-year term life insurance policy, my wife and I have few regrets.
Perhaps I would have purchased a longer policy, a little earlier in my life. The younger and healthier you are, the less expensive a term life insurance policy will be.
And while we might have purchased more expensive policies with larger benefits, I know that, with each year that goes by, our household assets increase, and our children’s future financial needs decrease, largely canceling out the effects of inflation on our policy’s benefits.
It always helps to keep in mind that we purchased these policies only to make sure that our children would be provided for into adulthood in our absence, not so that they might receive a windfall and be set for life. We sleep better knowing that if anything happens, our children will be provided for and will be able to attend college with the proceeds from our life insurance policies. And they won’t be a financial burden on our family members who might be called upon to raise them in our absence.
Until I wrote this article, I rarely gave our life insurance policies a second thought. That’s how you want it. We wanted to purchase life insurance for the proverbial “peace of mind.” And in those inevitable moments when I’ve felt that my life could have been in danger, I’m glad that I didn’t think that my children would have suffered financially in my absence.
As for the cost, our greatest desire is for 2033 to come and go, and for my wife and I to be thankful that we never received any benefit at all from making all those payments.