At last! After more than three years of deliberating what to do about life insurance, I finally got myself an affordable life insurance policy with no medical exam with Policygenius! If you're looking to get the same, here’s how I did it. Let me share a bit of background first.
Back in January 2012, at the age of 34, I decided to get a 10-year, $1 million term life insurance policy. Because I had about $1 million in mortgage debt at the time, I thought getting a $1 million term policy was the responsible thing to do.
In case I passed prematurely, I didn't want to saddle my wife with so much debt. She made about $120,000, which was not enough to comfortably afford a $1 million mortgage based on my 30/30/3 rule. Further, at the time I was determined to negotiate a severance and cut my overall income by ~80%. We were in a precarious financial position and I wanted financial assurances.
Back then, we also weren't certain whether we wanted kids either. When you light your earnings on fire, starting a family is generally not top of mind. Adapting to a new financial normal is. Therefore, I got a 10-year term policy, which I thought was long enough to pay off the mortgage or sell the house.
Not A Long Enough Life Insurance Term
Unfortunately, I miscalculated my future. Although I did end up selling our house with the big mortgage in 2017, we also bought another house in 2014. Then, we miraculously had our firstborn in 2017.
In preparation for the birth of our son, I decided to get a physical and see a sleep doctor for my snoring. I figured, given I hadn't seen a doctor in years and we were paying $1,600+/month in health insurance premiums at the time, I might as well get my money's worth.
Big mistake!
After going to that new sleep center in downtown San Francisco, the doctors put me through a battery of tests. These tests ended up costing my health insurance company more than $5,000. In the end, the doctors said I had severe sleep apnea and that I would need a CPAP and regular visits.
I gave the CPAP a go for a month and couldn't get used to it. I also stopped going to the sleep center because I found them to be way too aggressive. For example, at one visit the doctor suddenly stuck a big metal thing up my nose for several seconds without giving my prior warning. Then the center charged my insurance company $1,000 for the inspection!
Unaffordable Jump In Premiums
After our son was born in 2017, I decided to ask my carrier, USAA, if I could extend my life insurance policy for another 20 years. They said sure. About a week later, a traveling nurse came to my house to complete a medical examination and draw my blood. Then, after checking my records, USAA pointed out that my sleep apnea knocked me down two tiers.
The result? My quote for a $1 million term premium suddenly went from $40/month to $450/month starting at age 40! I was OK paying more given I was older and wanted a longer term. But not that much more. I told them thanks, but no thanks. Certainly, there was a more affordable life insurance option out there.
My 10-year term policy was set to run out on January 2023, so I still had time to weigh my options.
The Long Journey Towards Finding Affordable Life Insurance
To keep my top-tier health rating , one of my options was to convert my term life insurance policy into a whole life policy. It was an option my existing carrier proposed to retain my business.
In fact, here is a post on reasons to get a whole life insurance policy, even though it's highly frowned upon by most financial advisors. It's always good to see the other side of every debate.
The “Option A” universal life insurance would cost $958/month, $640/month of which would be used towards building my cash value. That's a lot more than $40/month. Further, with this “Option A” plan, my beneficiaries would only get the death benefit amount of $1 million and not the cash value. That didn't sound too great.
Then there was “Option B” universal life insurance, where my beneficiaries would receive my death benefit and accumulated cash value. With Option B, my monthly premium would go up to an impressive $1,660! $1,291 of the $1,660 would go towards building cash value.
Below is what the Option B benefit growth chart would look like if I took a $1 million universal life insurance policy out at age 42 in 2020. If I died after 21 years at age 63, my beneficiaries would get $1 million + the $474,904 year-end cash value, totaling $1,474,904. Much better.
Forking out $1,660/month in universal life insurance premiums felt like too much. Instead, I decided to just invest the difference for more flexibility. In retrospect, investing the difference since 4/21/2020, when I got the policy quote, turned out to be a good move. My cash value would have returned up to 4.25% a year, underperforming a blended portfolio.
Didn't Want To Do A Health Exam Again
When COVID began in early 2020, my wife decided to shop around for life insurance coverage to match mine. She had a $500,000 policy at the time, which was half the size of my existing policy.
In the end, Policygenius, found her a life insurance carrier that was able to double her policy for less than what she had been paying for the prior six years. In addition, she didn't have to do a medical examination.
Therefore, I was emboldened to try and see if I could get an affordable lifestyle insurance policy. Several years had passed since my last medical exam so I was curious how I'd be quoted.
When I filled out my information, it asked whether I had sleep apnea. I checked yes. Given I also wanted a $1 million term policy for 20 years, all the life insurance carriers that provided a reasonable initial quote wanted me to do a health exam.
Due to the pandemic and my aversion to needles, I decided not to go through with the process. My anxiety about death went up, like everybody else's anxiety during the pandemic. I still had time until my policy ran out on January 2023. Undaunted, I came up with a final plan!
Instead of going through another medical exam only to potentially get disappointed with the offerings once again, I decided to go through another sleep study. The idea was to prove that my sleep apnea was actually mild. It not severe like the overzealous sleep center reported back in 2017.
New Plan To Get Affordable Life Insurance: Prove My Good Sleep
Since the beginning of 2021, I've been sleeping much better – a consistent 6 hours straight. I'd wake up rested then I'd take a nap after lunch. Therefore, I truly believed if I had sleep apnea, it was very mild.
To first test out my hypothesis that I only had mild sleep apnea, I asked my wife to observe my breathing for 30-60 minutes after I went to sleep. We did this several times and at various stages of my sleep cycle. During her observation, she didn't notice any stoppage in breathing.
Due to my wife's observations, I decided to go to an Ear, Nose, & Throat doctor for a checkup. Then I had him order a sleep study. I figured there was no downside to seeing a doctor or doing another sleep study since the insurance carriers had already lowered my health tier.
After picking up my sleep study equipment and doing the monitoring at home, I waited about a month for the results. Then I went back to my EN&T doctor who confirmed I had mild sleep apnea!
Finding The Solution With Empathy And Slightly Lower Coverage
I specifically told my doctor that I did the sleep study mainly to apply for affordable life insurance again. Further, I told him I just had a baby girl at the end of 2019 and needed to protect her. As soon as I told him this, he emphasized the world mild in my chart.
Now that my sleep apnea was confirmed as mild, I decided to apply again on PolicyGenius to see what I could get. I was given two options: 1) Principal and 2) Savings Bank Life Insurance (SBLI).
Principal is what my wife went with. But they wanted me to get a health exam if I wanted a $1 million policy. SBLI, however, ended up OK with me not doing a health exam if I got coverage up to $750,000. Therefore, I decided to go with SBLI.
If you're looking for a no-medical exam life insurance policy, you should also be able to get one if the death benefit is under $1 million.
SBLI Cost For A $750,000, 20-Year Term Policy
Below is the $750,000, 20-year term life insurance policy I was quoted from SBLI. The monthly premium is $110.24 and the annual premium is $1,322.90.
Although $110.24 isn't dirt cheap, on a more apples-to-apples basis, it's much cheaper than renewing with USAA at ~$380 if I also got a $750,000 term policy for 20 years.
If I had initially gotten a $750,000, 30-year term life insurance policy in 2012, it may have cost me $55 – $60 a month versus $40 a month for the 10-year, $1M policy I got. So essentially, my mistake of improperly forecasting my future will cost me about $50 more a month minus $20 a month for the 10 years I only paid $40 a month. That's not bad given our net worth is up a lot since 2012 thanks to a raging bull market.
I don't feel like paying $110/month for life insurance is a lot at all. In fact, I feel like it's a great bargain based on my current stage in life. The value of my life insurance is much greater today. It now goes towards supporting my wife and two young children versus just my wife pre-2017.
If you're younger, please learn from my mistake. The best age to get life insurance is around 30. And the best term duration to get at age 30 is 30 years. At this age, it's like locking in a 30-year fixed mortgage at an all-time low. Life tends to get much more complicated after 30.
The Financial Game Plan Going Forward
The main reason I got a new life insurance policy is because I have two kids. In 20 years, both kids should be done with college, if they go. At this point, I'm hoping they'll be financially mature adults after spending over $100,000 a year each for higher education.
Another reason why I renewed my life insurance policy is because we bought our “forever house” in 2020 with a large mortgage. Therefore, in case something were to happen to us, life insurance helps cover this liability.
Since $750,000 doesn't cover all our mortgage debt, my financial game plan going forward is to live long enough so that our mortgage debt gets under $750,000. Once our mortgage debt goes below $750,000, the next plan is to keep on living!
A reader also smartly suggested I apply for another $250,000 term policy if I really want $1 million of coverage. I just might do that in January 2023, when my $1 million coverage expires. In other words, I’m currently insured for $1.75 million until then because I’m keeping my existing policy.
Technically, we can self-insure now because we can sell our investments to pay our mortgages if necessary. However, our general investment philosophy is to buy and hold for as long as possible.
Selling our investments would create an undesired tax liability. Hence, life insurance also acts as a tax shield, especially since the death benefit is also tax-free.
The next 20 years will be the most important time of our lives. Therefore, I'm thrilled to finally solve my affordable life insurance problem! In addition, I came up with a smart way to get life insurance for free. It's not technically free. But once you understand life insurance benefits, it's like getting free life insurance during the course of the coverage.
Life Insurance Premium After The Initial Term Is Up
One of the interesting things I came across in my new life insurance policy is what the total annual premium would cost after my 20-year term is over. Definitely inquire what yours will be as well.
As you can see in Policy Year 21, when I'm 64, the Total Annual Premium rises from $1,322.90 to $33,019.50! The difference is an impressive $31,696.6. Therefore, perhaps I should have got a 25-year or 30-year term instead. The one-year difference of $31,696.60 would easily pay for 20 more years of coverage.
Also notice how by the time I'm 84 years old, the total annual premium for my $750,000 policy would cost a whopping $391,512. But to get to that cost, I probably would have to pay the annual premiums in the chart every year since my policy expired at age 64. That wouldn't be cost-effective at all.
When you're deciding on a term length, it's better to get a little longer than you think you need. You can always cancel in the future.
Further, there's such thing as accidental death insurance you can add on top of your normal life insurance policy. This is something I didn't know until I got an upsell six months later. Again, this is a type of insurance you can cancel at any time that doesn't cost much. Just read the fine print.
Keep Shopping Around For Life Insurance
The key to getting affordable life insurance is to shop around. I thought that USAA would have provided me with the best renewal rate since I have an existing policy with them. Further, I've been a client for 20 years. However, Principal and SBLI's rates were so much lower. I wouldn't have had any idea unless I checked online with PolicyGenius for free for comparison.
It is a little befuddling to me how prices and standards can be so different in the life insurance world. I guess every carrier has different risk levels at different times. The same thing goes for some banks who suddenly offer extremely competitive CD rates to capture more deposits. There are windows of opportunity every year.
At the end of the day, all we want is to feel financially secure. After creating my death file and setting up a revocable living trust, getting affordable life insurance was my last outstanding item. Now I can just focus on living!
I felt so much relief getting a new term policy. As a result, I finally decided to take a flight, after 2.7 years, to see my parents. The holiday visit alone was priceless. And I'm glad I got them to fly over for Thanksgiving after three years.
Take Action To Protect Your Family
If you're looking to get affordable life insurance, I highly recommend checking with Policygenius. In just minutes, they'll show you custom, real quotes after filling out what you need. From there, you can choose the best policy that fits your needs.
Both my wife and I used Policygenius to boost our cover and save on premiums. Now that we both have affordable life insurance, we feel relieved. As parents who also have a mortgage, squaring these things away is huge.
Finally, I believe getting life insurance is one of the top financial moves I've made to reduce anxiety. This feeling of less stress is worth way more than the monthly premiums I pay for my new policy.
Readers, do you have a story where you overcame a health issue to then get a better life insurance rate? If you were able to get a affordable life insurance policy with no medical exam, how much is the coverage?
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I’m also in the SF Bay. 43 male. Just got a 30-yr term $2M policy for $2820 a year. Reading your story, I am grateful for my luck.
How have you structured the beneficiaries on your life insurance? The attorney I met with to do a will is asking me to rethink that. Currently, my spouse is the primary beneficiary, and my 3 kids are contingent, with my parents and my sister having a small share. However, my attorney says that minor children cannot be recipients of a life insurance policy. The attorney is going to create a testamentary trust in my will (not discussed in your recent guest column on trusts), and I’m debating whether that should be the beneficiary. Or if I should go to the trouble now to create a revocable trust, which my attorney doesn’t do. The attorney is through my employer’s legal plan, so at least I’m not paying for it.
Thanks for this, looking for a similar no exam term policy and also Gen X….any idea if Policy Genius is cheaper than directly going through SBLI? Thanks.
It could be. However, then you wouldn’t know whether there is another provider that is cheaper than SBLI.
Every situation is different. So you might as well punch in your information on PolicyGenius and have them get free competing quotes.
I’m not sure, but I’m sure it has something to do with the brain waves and the software. It’s very relaxing. The reviews are remarkable. My husband stopped using them for awhile (a few weeks ag0) and I didn’t know it. I wondered what happened and asked him about it. He went back to them and the snoring and apnea were gone. He just picked it back up and I was so happy! It truly makes a difference. The only thing that ever has worked in ten years!
Thanks for all the great info you give in your newsletter.
I wanted to return the favor and let you know that my husband also suffers from severe sleep apnea. He’s had surgery for it, didn’t work. Tried CPAP, nope. Tried biofeedback and just about everything else. Researched everything more and then… tried BOSE Sleepbuds II. It changed both our lives. He gets a restful nights sleep, and so do I. It’s seriously changed our lives after suffering for 9+ years. Good sleep is EVERYTHING!
Great tip! Will check them out! I just got the airpod pros which are great.
What do you think was the reason with the BOSE Sleepbuds II worked?
Your death would not create an unexpected tax liability because the surviving spouse would receive a step up in cost basis on all appreciated assets.
For what it’s worth I was in the same boat as you a few years ago. Two young kids. Just lost my job and company life insurance at age 41. Overall good health. I paid $838 annually for 20 year term $1M policy no accumulation value. I reluctantly bought it to placate my wife.
Had I known I was going to increase my net worth so much in the intervening years I would have fought harder to skip this losing bet.
Howdy MR,
I’m trying to find where I said it would in the post.
I wrote “ Selling our investments would create an undesired tax liability. Hence, life insurance also acts as a tax shield, especially since the death benefit is also tax-free.”
Is this what you refer to? Does your statement change if we are above the estate tax threshold?
Thanks, Sam
Be careful. If your individual estate is worth over $12.06 million, then you probably will have to pay taxes on the payout.
I disagree with life insurance in general. It only has value compared to the opportunity cost if you can find a service that is a non profit with low operating cost. Otherwise when looking at the cost to the odds its better to skip life insurance in a dual income family. While i see the need for the product in a single income family you just cant get pas the point its a bad deal compared to the odds of dying overall. This is why being a life insurance salesman and life insurance company is so profitable
Sounds good. What are some strategies you used to protect your family in case something bad would happen? How old are your kids now?
What are some nonprofit services that you mention I can help with the financial security of a family that costs less? Thanks
I live with the risk because the risk of failure, in this case death is not such that i should not be fearful. The top close tactic in closing life insurance is to sell somebody on a fearful outcome even though the math says you should not fear that outcome. I just feel the product is not that good unless again it has no profit motive in which case it makes sense. While the joy of having income is so that anyone can purchase what they’d like, i do believe that individuals should always have a point and counterpoint when purchasing a product where at the end of the term they just have a cost (premium) with out a product or service. Said another way while a individual who does have a death is better off because of life insurance. As a collective if every family just invested money that went to life insurance. families would be better off with the investment rather then the premium over a lifetime and much better off after 3 generations with those investments.
Cool. I also invest, so it’s not mutually exclusive.
Did you not feel any desire to get insurance once you got kids? If not, maybe there is a net worth threshold or a lack of debt you achieved that helped you feel like insurance wasn’t a risk?
I’d love to learn more about your personal story so I can better understand where you are coming from. Thanks!
Sam, I don’t think David has any children, which is why he is not answering your question.
As you probably know, having children is a game changer and we parents want to do everything possible to protect them.
What do you think about paid up whole life? The cash value can be borrowed against to invest. Let the investment pay back the loan on the cash value all the while it’s growing tax free at a rate of 4% while you are using it to invest somewhere else.
Thank you for being balanced and being one of those people who say “get life insurance at any age, even when you are in college”. Otherwise, I would’ve bought life insurance straight out of college on top of the one that I already get through my company.
If I do get life insurance, I will definitely look into a 30-year term when I’m 30. The prices can only keep going up so locking in a low rate isn’t a bad idea.
Glad you found a solution to extending your life insurance at a reasonable rate. At 37 years old and my first child on the way. I just purchased a $2 million 20 year term policy for $115 a month through Ladder insurance, who goes through Allianz. They are A+ rated through AM Best. No medical check or blood work needed. I was approved online in minutes. I’m in perfect health but I do snore too! A 30 year policy would cost me $200 a month but I decided to skip that. It would cost an additional $45,000 more over the term of the policy and I figure the difference will go to my children’s 529 and other investments. After 20 years my family would be able to live off me and my wife’s investments if anything were to happen to me. As you wrote the ideal time for a person to get term life would be 30 years old for 30 years. That would certainly offer the best rate and policy amount. That’s something I will relay to my son in the future!
We timed our term policies and let them lapse when our youngest was in college and our assets outweighed our debt plus gave them a nest egg. It doesn’t make them financially free, but it gives them security and given that they’re in their 20’s and can still make their way on their own, we felt that was the best move. In the meantime, in lieu of life insurance premiums, we’ll keep investing and managing our portfolio!
A few years ago my net worth had increased enough, and I had saved enough in a 529 for my teen son’s college, that I questioned the need for life insurance. I had bought various whole life products over time, and figured out that they were just not good deals. The “increase in cash value” was more than the new premium I was putting in, which the sales people use to make it look like a great deal; but considering the accumulated cash value, and the small cost of the actual life insurance component of these whole life products, I realized it was just unnecessarily complex and not paying off. Buying new limits as an “investment” sacrificed huge commissions up front, making it nearly impossible to do worse on other stable investments. So I actually started cashing them out. I paid taxes on the increase in value (in one there was almost NO increase over ten years!) and figured at least now I have an actual asset I can invest and consolidate with a sensible plan. The whole life yielded a speculative set of projections on cash value plus death benefit my family no longer needs. So I think I now get like $100,000 in free life from my part-time job, which is fine; but I don’t pay for any life insurance any more. My wife and I (57 years old) have a debt-free situation, $450,000 in a 529 for one kid, and about $9.5M in assets. My wife and son just don’t need a life insurance windfall when I finally die. So good riddance to the intentionally complex financial product of life insurance.
You could have also shortened your term. Insurance for men starts to skyrocket after age 55, so a 15 or 10 year term should have been much cheaper for a 40 year old.
I got a 20 year plan at 32 because it was much, much cheaper than a 30 year plan, and I figured by the time I was 52 my kids would be out of the house, the mortgage would be paid off, and I probably wouldn’t need insurance.
Definitely a possibility. Good to play around with the different terms to see what the premiums would be.
My main focus is on having a term long enough until my kids turn 22. After that, they *should* have enough maturity to operate under their own. It is my mission to teach them as much as possible before 22.
The beauty of time and investing is that we tend to get wealthier. Just like how a mortgage seems to cost less and less each year that goes by since it’s fixed, the same goes for life insurance premiums. In 15 years, my life insurance premium today will probably feel like half off.
I’m way past the age to need life insurance of any kind but we did buy long term care insurance. I was a little irritated that they ran the premium up because I’ve had transient global amnesia. Its very rare and considered harmless even though they do not know what causes it. However regular amnesia which has no known connection to TGA is a known high risk condition. So because the word “amnesia” was in my response they upped the quote, even though I never had it. Or maybe they are scared of any rare syndrome with no known cause? For a guy as young and as fit as you are severe sleep apnea is pretty rare I’d think. It usually plagues old overweight guys. But I do have one very fit weight lifting friend who has is.
Congrats! So smart to take the initiative to do another sleep study and try again to get a better rate quote. Reminds me of the expression if at first you don’t succeed, try, try again! This reminds me I need to schedule a doctor checkup of my own…another thing to put on my to do list, but it’s important.
Sam, I am relieved to see that you went the term route over a permanent life policy. I remember reading prior posts some time back on permanent life and wondering if you would decide to go that route. I cannot make sense of permanent policies in 99/100 situations (except avoidance of the estate tax). Candidly, based on the financial situation that you have shared, I am surprised that you desire term coverage past your sixties, as your kids should be through high school and into college. At that point, your joint portfolio should provide more than enough wiggle room for your wife and kids. I would be curious to know if you have run a Monte Carlo analysis to determine when the optimal end of coverage; have you done so?
For term, I can always cancel the policy on my 60th birthday if I wish. What is your thought process of not having insurance at 60 when my son might be a sophomore in college and my daughter will be entering college?
By then, college will cost over $100,000 a year per person.
The sad reality is that tuition likely will reach that point. However, with both kids out of the house and you gone, would your wife consider downsizing the family home? That there would produce substantial assets to cover the cost and more, and by then, your investment portfolio should be huge and have doubled twice, assuming no additional savings. Plus, you are funding their 529 plans, which, even with inflation, should cover most if not all of the costs if you continue maxing them out, assuming a 7% growth rate. Further FS will still have ad revenue, and your wife could consider selling it, further bolstering her war chest to cover the costs of retirement and school. So, to me, you have plenty of avenues to approach the dilemma with and should be okay with only a slight chance of failure. But you know the exact details of your plan better than I do. Just my two cents!
Sounds good. Thanks for sharing your thoughts on my plan with me.
What is your current plan about life insurance, debt pay down, And paying for college?
The current plan is to save in a 529 plan prior to having our child that is registered under my name. Presently, we both work still (part-time for myself) since we enjoy our jobs. My partner has term insurance through work, and I currently don’t have any. Our investments more than cover all of our debts and then some. Furthermore, statistically, the chances of death at our ages aren’t high.
Given that, we are comfortable with the risks posed by our plan. We expect to have a child in 3 years. At that point, I may consider a small term policy that would last for 20 years (we are in our young thirties). But even then, I believe that insurance is to protect against things you cannot afford, and we are currently not in a situation warranting it, and by then, our investments will likely be even more significant.
Sounds like a good plan. You are lucky your wife has life insurance through her employer.
Definitely let me know how you feel about protecting your family and your finances after you have children. You may feel differently than the way you do now.
I recognize my feelings may change, and if they do, fortunately we will still only be in our mid thirties. I will certainly let you know and I’m glad you found a solution that works for you and your family!
A 30 year policy at 30 is a good average. I think the sweet spot for above average savers is a 20 year policy much cheaper. I set up a basic 20 year policy when I got married for 1MM which cost $36/mo. The next step is if you are about to have a child and there could be a shortfall another 20 year plan covers you until they are out of the house. I found the no exam fast approval insurance plans work for 1Mm and under and for policy lengths of 20 years and less where about 90% of people bypass the exam. The 100% guarantee no exam policies were about 25-30% more expensive and not worth it for me.
Were you able to time the kids right soon after getting married and getting the policy?
What is the logic of covering until kids are out of the house vs when expenses are done?
I see some parallels here to the decision between a 30 year fixed versus a 7 ARM. I haven’t seen a sufficient discount to the ARM (and occasionally even a premium!) vs the 30 to outweigh the risk. You’ve argued that rates will remain low for the next decade or longer. I always suspected the fact that you could cover the mortgage if your rate did hike substantially factored into that thinking.
For the term rates, I suspect the sweet spot is for the 20 year, though that would also depend on the age of the applicant. Looking at my company’s rates for supplemental insurance in rate/1000/month.
15-34 – 4 cents
35-39 – 6 cents
40-44 – 8 cents
45-49 – 13 cents
50-54 – 21 cents
55-59 – 40 cents
60-64 – 64 cents
65-69 – 115 cents
The company provides the (fairly typical) 2x earnings, and the plan allows for a supplemental up to 500k without an exam. It was a simple exam (vitals, blood, urine collection at home) to extend to just over a million, so my combined would cover the mortgage and then some.
Group rates won’t be the most competitive for those passing the inflection point in the 40s, so a healthy person would do better to shop, and especially women. I’ll cancel the supplemental soon after 55 as there won’t be much more income to replace before planned retirement.
While whole life is viewed as a way to transfer wealth without taxes or the estate limit (by some), I don’t see the point to continuing term life when its not needed to protect the family. You shouldn’t need this 750k coverage in 20 years.
You’re lucky you have company supplemental life insurance. I recall getting 3X salary free and paying 5X salary for not much each paycheck.
Now we po unemployed folk gotta figure out affordable solutions for ourselves. But it’s pretty affordable at 44, at least what I’ve found.
I don’t need life insurance now, but I want it to provide continuity if I pass. Don’t want to ever sell assets and incur tax liability to pay off debt.
my supplemental is supposed to be portable after leaving the company, though I really should verify if that means at the described rates or not.
Hi Sam, I think your net worth is sufficient for you to forego the added expense of life insurance. This because the value proposition of life insurance, esp term life insurance, is strongest when the payout fills a financial gap for your loved ones that cannot otherwise be filled. In your case, the impact of the payout would make little difference to the lifestyle of your beneficiaries, thereby negating the necessity of life insurance, leaving what remains of the value prop a diminishing ROI the longer you live and continue to pay the premiums (assuming you and not your beneficiaries are paying the premiums). The ROI could improve for you personally in such a case of “hacking mortality” through someone other than yourself paying the premiums! Anyway, the point of my comment to your post is not to say insurance in your case is worthless, just likely unnecessary.
Thanks for your thoughts. What is the net worth cut off and composition where you think life insurance is not necessary?What is your net worth and do you not carry life insurance with kids?
I think it’s great if people feel comfortable enough not to insure.
For me, I love the peace of mind. I hope other people will share their situation and reasoning as well.
I do have children and my net worth is enough that I no longer require life insurance to provide for them when I’m gone. I think the net worth threshold sufficient to forego life insurance is tied to what subjective impact the insurance payout would have, i.e., will your beneficiaries struggle without it or be just fine, albeit with a somewhat lighter inheritance? If it’s the latter, then it makes sense to self insure, esp if the premium cost is relatively high compared to the actual risk being insured against. Extreme examples illustrating the logic are most extended warranties on appliances or vehicles, or damage waivers on rental cars, for instance. In those cases, the insurance cost is exorbitant given the low risk exposure, thus making a strong case for self insuring (which just means one can easily afford to absorb the minimal risk on your own instead of paying an insurer for such a super high profit margin policy, which merchants love to offer whenever possible because they are such). The fear of loss is an extremely strong motivator, much more than the promise of gain, as you well know from being the Finacial Samurai! Insurance trades on this subjective perception by protecting against such fears of regret, but the key I think is to soberly weigh both the impact of the payout and the real amount of risk you’re paying to mitigate.
With no specific numbers, then the decision is a subjective one. Therefore, nobody can say how much life insurance or whether one should get life insurance or not.
The decision purely rests on the person getting the insurance.
The irony is, the higher your net worth, the cheaper the insurance premiums feel and the easier you can afford life insurance even if you may not “need” it.
Yes, the value of insurance is certainly subjective for the consumer. I try to think like an actuary when I’m weighing the value of an insurance policy. Insurance companies are fortunate because many of us will pay a “high premium” for peace of mind regardless of the real threat to that peace. Recall those insurance TV ads that highlight some obscure incident, like a load of cement falling onto your car or a gopher absconding with your wedding ring. Such examples are dripping with irony because those things almost certainly will not happen, making insurance against them super cheap to offer, while simultaneously feeling of high value to the consumer because it’s easy to imagine the horror if they did happen without coverage. On the other hand, people often resent paying for insurance if they never make a claim, perhaps missing that that’s a good problem to have, like having to pay more taxes when you make more money; the insurance actually did pay off when viewed from the perspective of having received that protection in exchange for the premiums paid. Anyway, I thought this was an interesting topic given how weighing risk and reward is so key to the value prop you are delivering with your thoughtful analyses on a wide range of topics.
Off the subject of insurance but for me Sam, Sleep Apnea was a source of many health issues that went undetected. It has proven to me that CPAP machine is game changer as thank God have enjoyed not even getting a cold now! BUT, machine takes a lot of getting used to, lol.
Congrats as always and Mazal Tov for 2022!
Hi Sam,
For our situation we took out 2 750K 25 year policies when we purchased our first house (pre-kids) similar to what you are recommending. 2 years ago we cancelled one of the policies. Out logic was once the kids are old enough to not require expensive daycare and the retirement savings are greater than the mortgage. It no longer seemed necessary. If your youngest child is old enough to make money babysitting the second policy seems less critical. I considered cancelling both policies but decided to keep one for a while longer. I will revisit cancelling the 2nd policy once the college situation is better understood or just keep if for the full term.
Interesting logic about using your saving rate, not amount as a metric.
The reason why we both have life insurance is because we both care for our children and both have keys to the castle, business, etc.
We can’t control which one of us may die prematurely, so we both have insurance. Further, we try to match the death benefit amount as close to equal as possible.
Just a thought: what if you get another $250k policy for 10 years. It gets you to your $1mm goal now and you sleep better. Hopefully in 10 years your mortgage is below the $750k policy.
That is a good thought! I will inquire because I hadn’t thought or planned on it. Might as well see how much a $250K/20 term costs.
I was just so elated and relieved to get life insurance that I just relaxed. Right now, I have $1.75M of life insurance until Jan 2023 bc I’m keeping my original policy of $1M until it expires.
How strong is the insurance company? Did not see that in the article but it is very important to know.
Strong. Can bench 1,000 pounds 20 times and go again 3 minutes later!
“Since SBLI was founded in 1907, we’ve always stayed true to the core values of our founder, Supreme Court Justice Louis Brandeis. And today we promise to live up to Justice Brandeis’s high standards with every customer we meet and with every policy we issue.”
The financials seemed strong last time I checked.