Life Insurance for Newlyweds

I’ve written in the past that when it comes to whole life insurance vs. term life insurance, choosing term life insurance is the easy choice. However, I haven’t really discussed when life insurance is actually needed. As someone who is going to be getting married in less than a year, I figured I would look at the necessity of life insurance for newlyweds.

life insurance for newlywedsBasically, term life insurance is the best insurance in most cases because it provides insurance against an unlikely event (i.e. death in the next 30 years). When you’re 30, dying before age 60 is an unlikely event and it should be insured against. Whole life insurance is an investment vehicle rather than an insurance policy. It’s most beneficial to have your insurance policies just insure you, and you can keep your investments in other financial vehicles. This is the basic reason as to why term insurance makes more sense than while life insurance.

But back to my real question. Is life insurance needed for newlyweds? And if so, how much is necessary? As a single guy, I have never had anyone who depended on me. If I were to die, my assets would be split amongst family and nobody would be financially hurt by my death. Once I become married, someone else will be depending on me financially for the first time. Here are the categories that need to be considered for a newlywed couple when determining whether term life insurance is needed.

Loans & Consumer Debt

Many people graduate from college with significant student loans these days. I graduated with $43k in student loans, although fortunately, I have paid these off now. However, if you or your spouse has significant student loans, car loans, or credit card debt, then this will be a factor in any determination about life insurance. If one of you dies, the other will need to extinguish this debt. Ideally, a life insurance payout would accomplish this.

Housing

Your housing situation will play a similar role as your student loans and other debt. If you live together in an apartment or other rental situation, then you do not have a mortgage that needs to be extinguished upon death. If you own a home together, you will likely want to make sure that the home can be paid off. If you were to live until the age of 55 then the home would likely be paid off. But if you die early, there is likely to be a significant chunk of the mortgage left to pay off and you don’t want your significant other to be foreclosed on or burdened by the mortgage. If you currently rent, but are looking to purchase in the next year or two, it may make sense to include this in your current calculation.

Children

Raising children can be very expensive. While some expenses would decrease with the death of a spouse, childcare costs would increase. In addition to the normal costs of raising children and the additional childcare costs, the funding of an education fund for the children should be considered. If you currently have children, this should be considered immediately. However, if children are simply “on the horizon”, you can always wait and purchase additional life insurance later.

Type of Employment

The safety of your careers should be considered when purchasing term life insurance. If both of you have relatively stable careers, then you may not need as large of an emergency fund. But if your careers are riskier, you may want to include enough in your insurance policy to fund a greater emergency fund. With only one person left earning an income, a proper emergency fund becomes even more critical.

Current Financial Outlook

If you’re both going to be very diligent about saving and investing for retirement, this decreases some of the need for life insurance. However, life insurance is meant to protect from the risk of a spouse dying before you’re financial independent. No matter how diligent you are at saving and investing, if you die at 30, you’re going to be a long way from being financially independent and your spouse will need more.

Is your spouse attractive?

Okay, this is kind of a joke… kind of. Is your spouse likely to remarry is you died? Or would you likely remarry? While it’s kind of grim to think about, it’s a reality that needs to be considered. If you remarriage is out of the picture, then you’re going to need a greater policy.

My Assessment

In less than a year I’ll be married. My wife will be working and will be earning enough money to support herself. We do not have any debt, and we will not have any kids at that time (nor we do intend on having them anytime soon). We also have enough savings to cover funeral expenses. Based on this assessment, I don’t think it makes sense for us to purchase life insurance on each other at this point. Until we have some of these items, or until we’re about thirty, life insurance is probably unnecessary. However, for peace of mind, we could consider getting $250k policies for the time being.

When I am ready to purchase a real policy I’m going to have to determine what policy amount and term to get. If I get the policy under 30, I’ll probably look at a 30-year fixed term. If I’m over 30, I’ll likely go with a 25 or 20-year term. I do intend on being financially independent by age 45, so a 20 year term might make sense in any circumstance. To determine the amount of insurance I need, I’m thinking that I’ll use some form of this calculation:

Funeral Expenses
+ Combined Debts (mortgage, one car)
+ Children’s College ($250k x number of children)
+ Children’s Weddings ($35k x number of children)
+ Salary Replacement (Salary x 10yrs)

For now, until we are more dependent on each other, I think we’ll skip life insurance. I don’t really want to pay for something that we don’t need. But it’s definitely something that I expect to purchase before we’re thirty so it’s important to start thinking in that direction now.

(Image: Pinterest – FYWI)

Purchase Engagement Ring Insurance the Right Way

If you have expensive jewelry and you don’t have specific jewelry insurance, you may be incorrectly assuming that your homeowners insurance has you covered. Often times, normal homeowners insurance will cover some small amount when it comes to jewelry. That’s because it can be difficult to prove what jewelry you had and how much it was worth and the insurance company doesn’t want to be held liable for those if they don’t have to. The jewelry that you have might only be covered up to $1,000 if you don’t have a rider to cover the jewelry specifically. And often times, homeowners insurance will only cover theft of jewelry by default.

Last year I proposed to my fiance, so I figure it’s about time I purchase engagement ring insurance. This isn’t like normal insurance where you list items that you want to itemize and claim a value. To get a quote and purchase engagement ring insurance you need to get the piece of jewelry appraisal by a certified jeweler. The insurance company is going to rely on this appraisal when giving you your jewelry insurance quote.

Engagement Ring InsuranceWhen looking for a jewelry insurance quote, you’ll need to specify whether you’d like replacement or dollar value coverage. Replacement coverage will replace the lost or stolen ring with a piece of jewelry that is similar or better. Dollar value coverage will replace your lost or stolen piece with money equal to its appraisal value.

There are a variety of jewelry insurance companies to choose from. One of the most popular jewelry insurance companies is the Jewelers Mutual Insurance Company. I like the idea of choosing a company that specializes in jewelry insurance. Jewelers Mutual offers what they call Perfect Circle insurance. Under Jewelers Mutual’s Perfect Circle insurance policy your jewelry is completely covered. Whether you’re at home or traveling abroad, Jewelers Mutual covers loss, theft, damage, and best of all, mysterious disappearance. Sometimes you just aren’t sure where the ring went. In those cases, mysterious disappearance covered is going to be crucial. Jewelers Mutual truly covers any way in which you may lose your jewelry.

Getting an Engagement Ring Insurance Quote

Getting an engagement ring insurance quote from Jewelers Mutual is extremely easy. You just have to put in your zip code and value of the jewelry.

Engagement Ring Insurance Premiums

For the sake of easy, let’s look at the jewelry insurance premiums for a $20,000 engagement ring. Insuring an engagement ring worth $20,000 with no deduction will cost approximately $380 per year. A $1,000 deductible drops this down to $312. That’s about as far as you can go with a “Quick Quote”, but a real quote will give you more options to select that will impact your insurance premium. The frequency with which you wear the item makes a significant difference, and the location in which it’s kept (alarmed safe, under the pillow, etc.) will also affect your insurance premiums.

If jewelry insurance is something you need, then I suggest checking out to see what Jewelers Mutual can do for you. A prudent purchaser will compare the price and benefits of Jewelers Mutual with the price and benefits provided by a rider plan on their existing homeowners insurance. Once I insure the engagement ring I can check back in with a few more details about the process.

(Photo courtesy of ilovebutter)

Whole Life Insurance vs. Term Life Insurance

A friend of mine recently asked me the difference between whole life insurance and term life insurance. At that point I realized that I’ve largely neglected discussing insurance on Hacking The Bank, so I figured I might as well start now. So… Term Life Insurance vs. Whole Life Insurance: Which one is better for you?

First, I think it’s important to think about the purpose of insurance in general. Insurance is created to protect you against outcomes with low odds, and high expense. These situations, though unlikely, would be very damaging if they happened to you. Examples of these include being diagnosed with cancer or causing a five-car pileup. Without insurance, these two circumstances could easily bankrupt someone. The odds of each isn’t very high. Because of this, people band together to insure each other. An insurance company collects money from a large group of people to offer assistance to the small number of people who are affected.

Now, with that general definition of insurance, I think we can continue with our discussion about life insurance. When it comes to life insurance, we are insuring against the unfortunate outcome of death. However, as we know, death and taxes are the only guarantees in life. So we aren’t looking to insure against death in general. More specifically, life insurance exists to insure against death when our dependents cannot afford for us to die. So when is this? Well, let’s look at some examples.

Let’s pretend that I’m a 19 year-old student in college, with no girlfriend, kids, or other dependents. I am not making any money. At this point, I have a high future earnings potential once I graduate, but at this time I have nobody depending on my income. There isn’t anybody who will be significantly financially impacted by my death, and thus life insurance is not really necessary.

Now, let’s fast forward five years. Let’s say I have a good paying job, a wife, and a kid on the way. I have high future income potential and I have a wife, as well as a future child, who depend heavily on my income. This is the time when I need life insurance most. Others are depending on my income, and if I were to die, they would need that insurance money.

Now, let’s fast forward 25 years from that moment. I’m now 50, I have a comfortable retirement, and my kid has graduated college and now has a respectable job of his own. With a lower future income potential, and nobody really depending on my future income (I said that retirement savings was comfortable), life insurance is once again unnecessarily.

Now, we’ve established that there is a specific time frame for when life insurance is needed, and when it is unnecessary. Within this context, lets take a look at Whole Life Insurance vs. Term Life Insurance.

Whole Life Insurance
Whole life insurance acts exactly as you might expect; it remains in effect for the entire life of the insured person. It was created as a product to sell to those who were upset with the possibility that they might pay premiums for 20 or 30 years and never receive any benefit. Whole life essentially collects premiums, which are invested on your behalf, to pay out upon your future death.

Term Life Insurance
Term life insurance is insurance that covers a specific time period (term). Common policies are twenty to thirty years. Under these policies you will pay a much lower premium than whole life insurance because you will simply be purchasing insurance for the time period needed and there is no investment portion attached.

Term life insurance is going to cost you much less in premiums and will still protect you for the term needed. Whole life insurance ends up being an investment vehicle that provides mediocre returns and lines the pockets of insurance companies and insurance brokers.

If any “financial planner” tries to sell you on whole life, universal life, or any similar insurance, you shoulder consider asking them two things:
1. What commission will they earn if you purchase the policy?
2. Is this financial planner serving you as a fiduciary?
I can pretty much guarantee that this person is not acting as a fiduciary (in your best interest) and that they will earn a significant commission (about 50% of what you pay in the first year), as well as a recurring commission for the lifetime of the policy.

In most cases, term life insurance is going to make the most sense. However, as with all things personal finance, the “best” decision for you is going to depend on the facts of your current situation and goals. It would be best to do further research and potentially consult with a fee-based independent financial adviser.