I recently wrote about out how I was looking into disability insurance. In that article, I made a mention that I really should review my life insurance. Why? Because with the birth of our second child our financial obligations have doubled. If either my wife or I died, the other would be left to support both of the children.
Not only that, but we have a few real estate properties. (It still feels odd to write that.) When we have tenants in all of them (and, more importantly, the tenants are happy) everything runs smoothly. However, sometimes tenants move on and we have to replace them with new ones. Then we have to start all over, not knowing what kind of people we are going to get. In the meantime, we still need to make the mortgage payments… at least for the next 15 years until we have them paid off. After that our obligation is reduced to upkeep and taxes, but they aren’t exactly zero. One person working full-time and taking care of the kids has enough to do without having to deal with the hassle of managing multiple properties. Life insurance could cover the cost of a rental management company to ease that burden.
The biggest question is whether to get whole life or term life. Whole life is when you have life insurance for the rest of your life. It can get expensive, because as long as you pay the premiums, they have to pay out the benefit. Term life is life insurance for a specific term. For example, we might get life insurance for 20 years. At that point our children will be close enough to being able to take care of themselves (we hope!), so we don’t need the same coverage to raise them.. I prefer term life. It is cheaper and fits my needs of covering our obligations. Life insurance terms and details can get confusing, so I like the simplicity of term life as well.
When we had our first child, I had to rush to get life insurance. It was one of the last things I had thought about and it hit me – this is not something that I can procrastinate about. I’m not sure if I got the best deal. This time, I can time my own advice: always compare life insurance and perhaps save some money.
I’ll leave you with a final thought about the term life insurance I chose. It is one of the few times that I’m happy to pay for a service that I hope I’ll never benefit from.
I had the same question when buying my life insurance plan – whether to get whole life or term life? I chose to buy both tips of plans, term life for my shorter term needs of 30 years or less, and whole life for my lifetime coverage for final expenses. Make sure you compare plans and consider a mutual life insurance company that pays dividends to policyholders, especially for your whole life insurance policy.
Interesting choices. Some expenses will double due to the second child, but not all. If nothing else, the household size is increasing by only one third or one quarter (counting the parents) rather than 100% (doubling in size). Furthermore, some of the extra costs of a family are already sunk – e.g. if you already bought a minivan. Of course there are costs (day care, food, college) that do scale linearly with offspring count.
We am expecting a second child soon and we did not get any extra life insurance. Of course 2013 was a good year for stocks, so maybe we just feel wealthy. But based on the increase in our net worth since the birth of our first child, and the fact that the surviving spouse could almost live off one income, it didn’t seem worth getting extra coverage. Also, once either or both kids head off to school, expenses will drop significantly (no longer having to pay for day care). It could be a mistake but only one of us will ever find out, I suppose.
If managing the rental properties would be such a burden in widow(er)hood, why not just sell them at that point?
Lazy Man says
That’s a good point with the car costs not doubling. Maybe I won’t double our level of insurance after all.
The properties could be sold, but that’s a core part of our retirement plan. If the death were to happen soon, they would probably have to be sold at a loss (with the agent fees). So you’d go from a situation of having a couple thousand a month in income for retirement to losing money… on top of the death. I like the idea of putting some money in the life insurance to hire a management company to preserve the opportunity.