The big day is fast approaching. You’ve put the deposit on the location and found both the photographer and caterer. You’re nearing the final stretch, but as you review the finances and your budget, you realize that if something were to happen to you or your soon-to-be spouse, one of you could be in serious trouble. This is not the wedding picture you were looking for. You will be adding some of the wedding expenses to your now joint budget, and buying a new house will soon follow.
If you’re like many couples, one or both of you might bring college debt and maybe even a car loan into your marriage. Here is where a simple term life insurance conversation should happen. Most young couples don’t realize how little it costs, so they put it off. Unfortunately, life insurance is like a good wine; the longer it sits on the shelf, the more it will cost you.
Here are some reasons you may want to buy life insurance as you begin your next life phase as a married couple.
Why Buy Life Insurance Now
One of the biggest reasons to buy life insurance now is this: The younger and healthier you are, the less it costs. We explain the need for life insurance this way – it covers lost income in the event of an untimely death of you or your spouse. Savings you haven’t had time to build up to cover expenses once one of you is no longer around. No one wants your spouse to be stuck paying for the house alone or face the possibility of selling the home early.
Buying Life Insurance with Kids
This seems to be when most young couples start thinking about life insurance. That thought of what would happen if you or your spouse were no longer there while the kids are young. After all, we all want our spouses and kids to continue living the same lifestyle they did while we were alive, from summer camps and sports activities to dance class or learning to play the piano. Kids are expensive, but they are worth it. Life insurance is about taking care of your family when you’re no longer there.
Even if one of the parents is a stay-at-home parent, it’s equally important to look at policies for both parents. Think about it, who would watch the kids while the surviving parent works? Depending on where you live, childcare costs can be tremendous, so you’ll want to plan accordingly.
We typically advise parents to look at getting a policy to cover the amount needed from now until the time the kids would get out of college, and then another to cover the period while you’re still building that retirement account. While this sounds like it would cost more, it usually costs less.
Here’s an example of a conversation and comparison:
We often get a call looking for a 30-year $1,000,000 policy on a 30-year-old male.
For a 30-year policy at $1,000,000.00, the cost per year is $705.00
Here is the plan we recommend most:
A 20-year policy for $750,000.00, with a cost per year of $338.00**
A 30-year policy for $250,000.00, with a cost per year of $270.00**
With this plan, the cost of the first 20 years while the kids are still home is $1,000,000 at a cost of $608.00 per year — $338, and $270 for the two policies, respectively.
The cost of the final ten years is $270.00 for a $250,000 policy since you will no longer need the full $1,000,000, and the 20-year policy has expired/dropped off. But don’t wait; getting that same 10-year policy for $250,000 will cost twice that much if you wait until age 50 to secure it.
How Much Life Insurance Do I Need?
Since every family’s needs vary greatly based on their season in life, I highly recommend talking with us to see how much you genuinely need. As a general rule of thumb, multiply your annual income by 10, add any fixed expenses that you know will be there for the long term, and then subtract any investments or non-retirement savings that would be meant to cover expenses in your absence. Should you wait until you can afford 10x your income? The answer is no, definitely not; having something in place is always better than having nothing at all.
**Quotes based on UItra Select Rates