Chris Huntley just launched a huge life insurance movement called the Whole Life Insurance Rebellion. Whole Life is generally pushed as an investment, but it is not a really good one…
As I have mentioned before, Mr. BFS and I purchased a 10 year term life insurance policy for each of us after we decided to both go self-employed. The reasoning was that we’d save enough in 10 years to be self-insured by the end of the policies. Or in the unlikely event that we decided to have a child, we would want to revisit the policies anyway.
The Whole Life Option
We did look into a whole life insurance plan, but the premiums were 7 times higher. It seemed to be like investing in a single company with A LOT of money with the hope of around 4% returns over 40+ years. In 40+ years, I would hope any children we had would be taking care of themselves and I could make better returns with our Roth IRA's or our SEP IRA. Higher premiums, no diversification, and worse investments returns than I was already getting with retirement accounts – NOPE.
Our Current Plan
Our current term life insurance policies cost us $32 total per month. It’s $14 for me and $16 for Mr. BFS. The policies are for $250,000 each in case of accidental death. It seems to only cover $37,500 each if we die from natural causes. Even though I didn’t exactly realize this little point before, this sort of coverage suits us right now since $37,500 would cover our funeral costs and $250,000 would cover the funeral and could even pay off our current mortgage. Or one of us could live off of $250,000 (or what’s left after the government takes its cut) for at least 4 years even if we completely stopped working.
Contemplating Our Options
As we get a little older, I realize that we may need to look into our options. If we decide to have a kid, we’ll need to raise our coverage. I’d want to make sure the surviving spouse has enough to live on with our kid for 2 years without working AND have at least a little to cover some of the larger kid expenses that will pop up like braces, a used car when they learn to drive, and even a little help with college.
If decide to stay kid-free, we still only have 5 years left of this plan. We’re probably not going to be so well off to be self-insured as I thought, although we do keep healthy savings just in case. I think another 10-20 year policy for each of us could do the trick though.
What do you think? Term life or whole life?