1 Million Dollars

Tuesday, May 3, 2011

Term Life Insurance

There are two types of life insurance, term or whole. For most people term insurance is the way to go. The only exceptions come about when you are bringing in a lot of income and have maxed out your 401k and IRAs. But for young people, I do not think any of us are in that boat so I am going to focus on term life insurance. Term life insurance is misnamed, it should be named income replacement insurance.

Term life insurance comes in different amounts of money ($100,000 to $1,000,000) and for different terms (10-30 years). The cost starts lowest for the lowest term and amount of money and increases as you increase either variable. The benefit for getting the longest term is the rate won't increase for that term.

Often people can get a small amount of life insurance through their employer for free and larger amounts for pennies on the dollar. My employer gave $20,000 for free and an extra $1000 for every .10/week. This means $5.20 for every $1000 extra you would want per year. However, I did not take advantage of any extra life insurance through my job. You may be asking, why? My fiance and I both work, we live on my fiance's income (the higher salary) and bank both mine and the rental income. Given that term life insurance is suppose to replace the income of the provider I do not need any. We could hypothetically self-insure for my burial if my work did not provide the $20,000 free life insurance.

Now in my fiance's case, I am dependent on his income so he should have life insurance. On the other hand, I do have both my job and the rental, so I could survive without his income, though it would be tight. This would change if I got pregnant or started graduate school. We also determined that after graduate school my fiance likely would have life insurance through his job and therefore we would not need a long term. Considering all of this,if we chose to get life insurance, we would choose the ten year term and probably the lowest amount that we could get ($100,000).

While we were checking out disability insurance we checked out term life insurance for both my fiance and me. The cost would be between $100-$150 per year for either of us. We could get life insurance for both of us, and disability for just $50 more than I expected to pay just for disability. Though that is amazing I do think we will wait until we need the insurance and for now just add more money to our Roth IRAs.


  1. Great post. Dave Ramsey recommends term over whole.

  2. Whole Life can be useful, rarely. If someone was "Bill Gates rich" and wanted to give money to a charity or their kids when they died, it might be useful but honestly that is the only time I can see it being useful.