We started contemplating term life insurance about four years ago. LaLa had just been laid off from our company and we were about to close on our first house purchase. Oh, and having poured all our savings into the purchase, we had no emergency fund (can you tell the layoff happened after the purchase, and before the closing? It did.)
We thought about a modest policy to basically cover the mortgage in the event of my death. And then we kept putting it off. We were quoted at approximately $40 a month for what we wanted and though it was a reasonable expense, we just never made it a priority to follow through.
A year later I was unemployed (the company folded) and LaLa was working a part-time McJob because the bottom had fallen out of the MA tech market and there was a glut of web designers out there and no jobs. We literally felt we couldn't afford $40/month at that time (you can save the penny-wise, pound-foolish comments for the end...I promise I have a point)
Then after a year of unemployment, I was hired to do a job that includes occasional travel and we resurrected the life insurance idea. LaLa's part-time web design freelancing was taking off, but bringing in modest income. With me traveling and bringing in the large share of income it seemed to make sense. The plan was that if anything happened to me, the insurance would pay off the mortgage and give LaLa the flexibility to move or sell while not really worrying about money. Procrastination continued to be a theme. It's been on a specific "financial to do" list for a year.
That's right, Internet...a year.
A few days ago it hit me. We don't actually need a term life insurance policy on me anymore. (And maybe we never did?). As Early Riser pointed out in his recent Festival of Frugality post:
And the truth is that as much as a death would truly suck and turn our world upside down, we can now afford it...financially speaking.
We have probably about $100k equity built up in our home (give or take, but that's a fairly conservative estimate of what we'd net on selling) and neither one of us would chose to stay living here. We have no children. In a couple of months we will have an emergency fund of about $10k and in the meantime we each have Roth contribution money we could use in a true emergency.
So the upshot is that if one of us dies...we have enough co-owned or personal funds to bridge the gap until the house was sold. Our house is in a very desireable neighborhood in Boston so I don't think it's worth it to worry about it selling if that was a necessity. Priced right, our house would fly off the market if that was the priority. Also LaLa's income has almost doubled and continues on an upward trend so our income disparity might not last very much longer ;)
We discussed it and it all fell into place. We realized that given our own personal situation, we don't need life insurance right now.
I totally agree with you, peeing in a cup is so unpleasant!
ReplyDeleteand thank goodness a personal finance blogger has finally explored the cup-peeing issue in such an in-depth, sensitive way.
ReplyDeleteSounds like a good decision. I think many people just insure themselves and their possessions to the hilt out of irrational fear. You seem to have kept the fear at bay in order to make a rational decision.
ReplyDeleteGood post!
Jeanine and I have been having the same discussion lately... and this is what we concluded. What happens if I die in three years and our house is now worth less than what we paid for... including the 20% down payment. It could happen.
ReplyDeleteWhat would Jeanine and the kid do? Selling wouldn't help in this scenario so she would need money to buy time in the house. The uncertainty with the housing market is what cinched our decision. I agree... don't over-insure, but I think some coverage is still smart.
once your estate gets over $2 million (and it will happen at the rate you're going- making those bread crumbs), or if you die in 2010 when the tax-free threshold will supposedly go back to 1 million, it might make sense to buy insurance to cover the estate taxes only. otherwise it sounds as though you're doing the right thing avoiding that peeing...if this were a more enlightened government, you wouldn't have to worry about estate taxes as you could leave everything tax free to lala.
ReplyDeleteNina, I think your decision makes sense for your different situation: you are starting a family and you intend to stay in your house.
ReplyDeleteWe feel our days are numbered in this particular house (though we are fond of it) if not the Boston area as well. and we don't have dependents.
I think as long as folks are really evaluating the need for life insurance (and how much) instead of just assuming they need it (and buying too much) then that's a good thing :)
One thing that's not being considered and I'll throw that out is that death can be proceded by a lengthy illness. If you've only got the equity in your home and your Emergency fund, then that would leave you in a situation where that may all go to cover medical expenses.
ReplyDeleteThankfully, my wife and I have modest policies through my work, though I do probably need to get more.