Life insurance is kind of wonderful and kind of sad at the same time. The only time someone sees the benefit is because a loved one has died, but on the flip side you died and had things in place so that your loved ones are taken care of. How cool is that?
Term life insurance is the cheapest form of life insurance. The reason it is so cheap is because unlike permanent life insurance, term life insurance is only good for a set period of time, usually 10, 20, or 30 years. During the “term”, which is the period of time you have chosen, you have a locked in price in exchange for the insurance company promising to pay your beneficiaries a lump sum if you were to die. The crazy thing is that term insurance is so cheap that if you are in your 30’s, you can probably get $500,000 of benefit for less than $30 per month.
If you buy a 30 year term policy when you are 30 and have it in place for 30 years, you will pay in only $10,800 for that 30 years to have $500,000 of insurance, which is only just over 2% of the value. So your downside here is that you just wasted $10,800 over 30 years to make sure your family would be taken of.
There is an old saying that the best life insurance investment is the insurance you bought yesterday if you died today. So please don’t get me wrong. Term life insurance is not a wealth building investment, but it is an essential piece to your financial life.
We are building a house right now and to me life insurance is like the footings of our house. We just watched the crew carefully measure out and pour concrete along the entire perimeter of the house. When the house is completed, those footings will be buried underground and never to be seen again. However, without them, our entire house would literally sink or at the very least not be level. So like the footings of our house, term life insurance is very unexciting too. I hope that you will never need it or even have to think about it, but knowing it is there is knowing that you have built a strong foundation for your financial life.