Like I mentioned in my term insurance vs. permanent insurance post, I went through a detailed thought process in making my insurance decision.
In an effort to get ready, I decided it was time to buy life insurance (crossing off steps on my to-do list in my financial planning for a new parent post).
In that post, I talk about the need to get life insurance to protect my family in the event I die. After reviewing the insurance options, I went with a term policy.
Why, you ask? See below…
1 – Term Insurance is Easy to Understand
Term insurance is easy to understand. I buy coverage for a set number of years (typically ten years, 20 years, or 30 years). If I die during that set number of years my beneficiaries receive a death benefit. If I live past the stated term, my beneficiaries get nothing.
2 – Term Insurance Leverages Your Premium Most Efficiently
With term insurance, I buy the largest death benefit for the lowest annual cost (all else being equal). Paying less is good.
Paying less means I will have more money available to do things I want. Or in “N”‘s case, buy more jeans (because in her words she “needs” them).
3 – The Cost is Fixed
I am young”ish” and healthy now. By purchasing life insurance today, I am locking in my annual premium payment for the length of the policy. The amount I pay today will be the same amount I pay in ten years, 20 years, and 30 years.
4 – My Need for Life Insurance is Temporary
Eventually, “O” will be grown and financially independent (I have written it once, and I will write it again—come on future professional athlete.). At that point, will I have a need for life insurance anymore? Most likely not.
By that point, I hope to have saved enough that “N” will be set financially when I pass away. She would not need my insurance policy anymore.
5 – Permanent Insurance is High-Maintenance
Permanent insurance is a high maintenance friend, girlfriend, and/or partner – complicated and expensive.
There are too many moving parts that affect the outcome of the cash value and death benefit. It may seem like a great option on the surface but when you dig into the details it may not be worth your time.
Of course, everyone’s situation is unique . What works for me may not work for you. It’s best to engage a financial expert who looks at your entire financial picture, and who isn’t simply looking to sell you insurance.