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Most people hate to think about those finance issues related to death, such as estate planning, funeral arrangements, and life insurance. Not me, though- perhaps years of drafting wills has numbed me to the chill of confronting one’s own mortality, or maybe my affinity for Six Feet Under has hardened my sensibilities. Heck, maybe it was cartoon violence and video games that did the job. Either way, I not only finding these issues tolerable, I find them fascinating. If I wasn’t terrible with numbers and sloppy with details, I’m sure I would make a fine life insurance actuary. Recently, my wife and I met with my favourite insurance rep to finalize our new term life insurance policies. We had both been carrying minimal coverage for a while through our employers but decided the time was right to get a big boy policy and set things right once and for all.
The coverage question was one which we struggled with. We’re both gainfully employed with good jobs, and could both be pretty much financially independent. While I like to joke that wifey is my “sugar momma” who pays for my toys, the reality is that either of us would do just fine financially without the other. We don’t have any kids yet and our only dependents are a couple of cats. Our only debts are our mortgage and the remainder of my student loans. From one perspective, we could probably get by without any additional life insurance- if one of us were to be eaten by a bear, the other could more or less continue on financially, although the lavish lifestyle of brand name toilet paper and fresh milk we have come to enjoy may have to be scaled back a little. Even so, there’s no danger that one of us dying would plunge the other into the poorhouse.
But that’s not the legacy that most of us want to leave to our (current) spouse. There is some comfort in knowing that the partner left behind could continue to enjoy the same standard of living and pursue the same path as had been planned. Playing around with the life insurance calculator offered by Kanetix and the musings of Frugal Trader on determining life insurance requirements, it seemed that $250,000-$300,000 would be adequate for our current situation. This would take care of all outstanding debts and would allow the survivor to maintain the same standard of living without having to eat into our assets. It would also leave a little bit of extra money for a pretty sweet funeral, complete with an 80’s hair band like Poison or Twisted Sister and an open bar. If wifey gets to live debt free and gets the house to herself, then I get a send-off that includes head banging and screaming guitars.
So after crunching numbers, running projections and deciding that $250,000 would be a logical and prudent amount of coverage, we said “Screw it!” and upped our coverage to $500,000. That’s right, folks- to borrow the vernacular of Tony Soprano, my dead body is worth half a rock. Why the increase? It’s simple- we don’t want to have to do this again in a couple of years. We don’t have kids now, but they’re definitely in the cards for the future and that changes the projections significantly. $300,000 might be enough to let wifey live comfortably, but it won’t pay for Junior to attend some fancy dance school or to spend 5 years studying Buddhism in Tibet. For the sake of slightly increased premiums now, we know that we’ve got the coverage we need now and will need in the future. We’re not getting any healthier, either- I’m trying to eat more vegetables, but aging is a bitch and it’s unlikely that either of us will be in any better health if we had to reapply in a few years. We qualify for nice discounts based on good health right now, but we have no idea what tomorrow may bring. In a few years we may be unable to obtain additional coverage, or at least not at our current favourable rates. By planning our coverage not just for today but also for what we expect the future to hold, we remove that worry. I can go back to eating bacon with every meal and not have to worry that it may someday impact my ability to change my life insurance coverage. The moral of this story? Get yourself insured while you’re young, and future-proof your coverage as best you can. And keep your eyes on the obituaries for MGL’s funeral- it’s sure to be a hell of a party.
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{ 5 comments… read them below or add one }
MGL - When you do kick-off, I hope your spouse will post something here so at least we can party remotely!
Hey MGL, thanks for the link. Who did you get the term life from after?
@Mr. TML - I’m going to take that in the nicest way possible :). I’ll be sure to leave instructions to have my death posted here, although hopefully by that point the internet will have long been replaced by some new technology…
@ FT - We got our term life through the Canadian Bar Insurance Association, which I believe is underwritten by Manulife. Their rates were quite a bit better any other insurers. Oddly, for my wife the Professional Engineers and Geoscientists (PEG) plan was about 5% cheaper until she turns 30, but it evens out at 30 and eventually the CBIA becomes cheaper at age 40. For me, PEG was a little more expensive. We decided to go with CBIA because the long term rates were better, but it was more or less a tossup.
MGL — Good thinking.
After I recently applied for a pretty hefty term life policy, the insurer asked for additional questionaires and forms. While I was filling all of that stuff out, I decided that I never wanted to have to bother doing that again, so I increased my coverage by 30%.
Remember also that the premiums often decrease when you increase your coverage. The price per $100K of coverage probably decreases at $250K and again at $500K. For the extra coverage you’ve obtained, you’re probably paying proportionately less than the initial coverage you were considering.
You’re right that the Canadian Bar Insurance Association term plan is underwritten by Manulife. Excellent plan and phenominally low premiums, mostly since CBIA operates on a non-profit basis and actually refunds excess premiums based on the annual experience of the plan (i.e., claims paid).
Keep up the good work!
@Condo Lawyer- Another benefit of the CBIA plan is that they will refund a portion of premiums when they have better than expected years. I got a cheque for $11 on my disability insurance last year because they had a good year.