The Heartbreaking Puzzle of Life Insurance

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I want to tell you a story about a friend of mine. I’m obviously going to alter some personal details here to protect privacy, but the core of this story is completely true.

This friend of mine spent the last ten years or so of his life in poor health. He lived for that time on his Social Security disability payments in a small apartment by himself.

Due to his low income and failing health, he was unable to acquire life insurance for himself. When he finally passed away, the value of his estate was not enough to cover his funeral costs, so the expenses were covered by his family and a memorial fund. The small amount left over went to his only living child, but there would not have been anything at all without some generous friends stepping in.

This friend wound up in this situation because he didn’t take care of life insurance at an earlier stage in his life. He believed, like a lot of us do when we’re younger, that he would live for a very long time and he could take care of it later.

Here’s the reality, though. Accidents and illness can strike at any time in our lives, and the loved ones around us are left with a disastrous situation if we’re not prepared in some way for that.

My solution was to buy a large term life insurance policy for myself. The term of that policy extends well beyond the time when our children should be out of the house and would provide enough money for my children to be safely escorted into adulthood without me. Sarah has a similar policy on herself.

This policy costs us a bit of money each year. Yes, it’s money that we could be using for other things. We’d love to be applying that money toward other things, such as saving for our home in the country.

But when we look at our children and think about what their life would be like if one of us died without anything left behind for them, our minds change. When we look at each other and ask the same question, the need for life insurance becomes really clear.

We chose term insurance because that’s all we need – life insurance. We don’t want to tie our investments in with our insurance package. We simply want the security that it provides at the best possible price and that’s what term insurance gives us. That’s what I would recommend to others as well.

We also chose a policy length that carries us into the adulthood of our children. If we obtain another policy after that – which is undecided at this point – it will be a much smaller one, one designed primarily to cover funeral expenses.

It’s never an easy decision for anyone and it’s made even more difficult by insurance salespeople who toss out misinformation or deliberately-shaded information to make the information we base those decisions on even more cloudy.

My sincere suggestion to you is to do your own homework when it comes to life insurance. One place to start is with The Simple Dollar’s own life insurance section. I’d also suggest taking a look at The Bogleheads’ Guide to Retirement Planning, which is just an excellent book from top to bottom.

I want my children to grow up in a secure fashion and I want Sarah to be able to enjoy at least some level of security regardless of what happens to me. Without an enormous bankroll, life insurance is simply a part of that equation.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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