This is a guest post from my good friend, Jeff Rose, who is a totally legit PF blogger — he’s a CFP. He is something of a life insurance expert, and this is a great post from him, particularly for newlyweds.
I had just woken from an afternoon siesta, dozing off after reading about 12 pages of my book. I’d already sucked down my umpteenth Aqua Blue ice crushed umbrella drink and was straight-up loving life.
It was 2006 and I was in the Riviera Maya, celebrating my honeymoon with my brand new wife. My only two concerns at the time were
- Where’s the resort guy with my next drink?
- What are we having for dinner?
No kids. No responsibilities. Just two lovebirds soaking up the sun without a care in the world.
We weren’t thinking about going to work next Monday or how much to put in our 401k(s). We definitely weren’t thinking about whether or not we needed to buy life insurance. What normal newlywed couple would?
When the honeymoon’s over and you’re back to the daily grind, buying life insurance should be on your agenda of things to do as a new couple. And yes, I will give you some slack if you don’t take care of it the first Monday back.
If you’re a recently married couple, here are the things to consider when buying life insurance:
1. Be picky.
When it comes down to it, there are several different types of life insurance. For the sake of this conversation, we’ll keep it simple. We’ll be talking about term life insurance and permanent, often to referred as whole life. You’ve probably heard the expression countless times:
“Buy term because it’s much cheaper than whole life.”
First, let me say that yes, that is an absolute fact, but does that mean that it makes sense?
As a financial planner that has seen young couples sold whole life insurance to newlyweds on a frequent basis, I would unequivocally say yes. Most newlywed couples starting off do not have a lot of extra disposable income. You probably have some student loan debt, maybe some small credit card debt, and you have to furnish your new living quarters. The last thing that you need to do is waste any more money on expensive life insurance. Without a doubt, term insurance = cheap life insurance.
Just to illustrate, here is an example of two sample quotes of comparing term life insurance versus whole life, just so you can see how cheap it really is.
The cost for a $250,000 30 year term policy on a male will cost you roughly $20-$25 per month for someone in good health. For the same person, a whole life policy will cost you $280-$300 per month. Ouch!
2. How much is too much?
Now that we know what type of insurance policy to buy, the next question to answer is how much life insurance do you need? There are a couple of different ways to figure this out, but let’s keep it simple. The most simplistic way is to add up all your debt – credit cards, student loans, mortgage, car notes, etc., and whatever the amount totals, that’s how much you buy, and to keep it easy, that’s how much you would buy for each individual.
Now, if you want to put some more planning involved, I like to tell my clients to know about how much life insurance you need today by how much you think you’re going to need in the next ten years, especially if you plan on having a family.
Another rule of thumb to follow is to take your current income times 20 and that’s how much life insurance you would need. For example, if you’re making $80,000 a year, take that times 20 and then you would need a $1.6 million term policy. Before you freak out and think that’s a whole lot, here’s an actual breakdown of how much that would cost.
Using the same 30 year-old male above, a 30 year term life insurance policy would cost around $95 per month. Still far cheaper than the whole life policy!
When you’re young and newly married, life insurance is probably the last thing on your mind, but there’s nothing that says love more than making sure that your significant other is taken care of if something happens to you.
Jeff Rose is a proud Iraqi combat veteran and certified financial planner. He blogs at Good Financial Cents and Life Insurance By Jeff, but primarily spends his day craving the next time he can eat In-N-Out Burger again.