Life insurance is something that is vital for every adult, and some children. Life insurance provides a death benefit when one is needed most, when someone has died. There are multiple types of life insurance including term, universal life and whole life. Within those broad categories there are certain subsets like annual renewable term insurance, variable universal life insurance, indexed universal life insurance, blended whole life insurance etc. I try to help people understand how much and what kind they might need to research.
Life insurance is usually one of those personal finance topics that people set and forget. Similar to investment accounts, debt contracts and other monthly nut items I believe that your life insurance should be audited and reviewed.
This year’s audit is particularly meaningful to me as I lost a friend of mine to pancreatic cancer. He was 40 years old with 3 children. As much as I have been involved in the life insurance, financial planning and estate planning world for the past decade or so, this has been the first time that someone so close to me has died leaving young children. First thing I did was take a look at some my recent life insurance audits:
It was in the 2018 life insurance review I wrote,
A friend of mine was recently diagnosed with stage 4 pancreatic cancer. He has 3 children 7, 5 and 3. The 7 year old is in the same grade as my son which is how we got to know the family and the 3 year old has become good friends with my daughter. To say it is an awful situation would be an understatement. He is putting up the good fight, and I know he has done some survivorship planning as a responsible husband and father, but I am not privy to what amounts (nor should I be). If you find yourself in a similar situation, please research your options with a guaranteed life insurance policy.
This terrible situation made me want to audit my life insurance, both regard to products and amounts.
Unfortunately, he didn’t make it. The specifics of my particular situation do not matter as much as the message – LOOK AT YOUR OWN FAMILY’S SITUATION AS SOON AS POSSIBLE.
An Overview of my Life Insurance Policies
I own a variety of life insurance policies. I am not a “buy term and invest the difference” kind of person, because virtually no one actually invests the difference! If it were the case that everyone who bought cheap term insurance and invested the rest our savings rate wouldn’t trail the rest of the world.
- Convertible Twenty Year Term – This policy has a current death of $850,000. Originally, this was a $1,000,000 policy before last year, but I converted some of it already (see below).
- Blended Whole Life Policy – Sometime last year, I converted $150,000 of the $1,000,000 death benefit above into a blended whole life insurance policy. Instead of converting into a pure whole life I did a 50-50 Blend wherein I basically bought a $75,000 whole life policy and $75,000 of term. The term is slowly getting converted to the full whole life. Currently the policy has a death benefit of $150,052 (2018 – $150,052) and cash value of a $47 (2018 – $12).
- Non-Convertible Twenty Year Term – $1,000,000. Cheapest I could find on the market knowing that it will eventually expire.
- Ten Pay Whole Life Policy – This policy was started way back in 2013; it is pretty amazing to think that in 4.5 years I’ll have this completely paid up. Currently, there is a death benefit of $45,758 (2018 – $45,392) and $6,942 (2018 – $5,709) of cash value.
- Pure Whole Life Policy – Plain vanilla whole life policy with a current death benefit of $110,109 (2018 – $108,179) and cash value of $7,931 (2018 – $6,509).
Not counting any supplemental plans I may have from work I have $2,156,769 of death benefit up from $2,153,623 in 2018 and $2,152,609 in 2017. Given the new home mortgage and property taxes, I think I am a bit underinsured. While I think I’d rather be converting more and more of my 20 year term, I think I am going to have to suck it up and buy some more term insurance as the amount is way important than the type.
I currently have $14,920 of accessible cash in my policies. In 2018 I had $12,230 of cash surrender value and $9,560 in 2017 .
Life Insurance Policies on The Wife’s Life
- Convertible Twenty Year Term – Death Benefit of $500,000.
- Tiny Whole Life Policy – I bought this policy to help out a buddy who was new to the business. He gets credit for a new policy and I get another whole life in place. It currently has a death benefit of $26,549 (2018 – $25,646) and cash value of $328 (2018 – $90).
- Blended Whole Life Policy – Another blended whole life policy. It currently has a death benefit of $250,066 (2018 – $250,041) and cash value of $5,850 (2018 – $4,845).
- Pure Whole Life Policy – Currently the death benefit is $123,154 (2018 – $121,599) and cash value is $3,046 (2018 – $1,914).
The Wife currently is insured for $899,769. In 2018 she had $897,286 of death benefit and $871,957 in 2017. Again, given our new home mortgage she is underinsured. I think I am going to have to pick up more term insurance for her as well.
Currently there is a cash surrender value in my wife’s name of $9,224. This is up from $6,849 in 2018 and $4,429 in 2017.
Life Insurance on My Children
I am a big proponent of life insurance on children’s lives for two reasons:
- If something were to happen to either of my kids, I am not going to work for a while. Do I have enough death benefit to retire? No, of course not, but do I have enough to take off for a bit of time to find out what new normal looks like.
- Each policy has a rider on it that allows the child to increase the death benefit a number of times as they get older without underwriting. If either of them were to become uninsurable for any reason, I have guaranteed them a way to protect their future spouse and my future grandchildren without breaking the bank.
- The Son’s Whole Life Policy (payable to age 100) – Current death benefit of $136,911 (2018 – $136,474) with cash value of $3,026 (2018 – $2,543).
- The Daughter’s Whole Life Policy (payable to age 65) – Current death benefit of $137,266 (2018 – $136,716) with cash value of $382 (2018 – $80).
Protection doesn’t really matter (hopefully it never does), but cash may be used at a future time and there is currently $3,408 of cash. In 2018 these two policies had $2,623 of cash surrender value while it was $2,070 in 2017.
Life Insurance Audit Results
Given that our new home’s mortgage is well into the $600,000 mark I believe we are both underinsured and will be looking into cheap term options to close the gap.