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- My husband and I had a 10-year term life insurance policy that expired several years ago.
- We paid $45 a month for it when we bought it in our 40s; in our 50s, coverage would be much more expensive.
- We decided to buy a universal life insurance policy instead since we can cash it out if we need to.
My husband and I bought a 10-year term life insurance policy in our 40s. At the time, retirement and being over 50 seemed far into the future. We purchased a plan to cover my husband with a death benefit of $300,000.
We assumed we would pay off our mortgage by the time the policy expired, and we also imagined that I could draw on his retirement and our investments if something happened to him.
Life, including our financial life, doesn’t always go as planned, and time has a way of passing, ready or not.
As the policy expired, we still had at least 10 years on our mortgage, and we aren’t going to retire in the traditional sense, even though my husband will leave his full-time job in less than 10 years (we plan to pursue other work opportunities after that time). So we found we still needed life insurance; if something happened to my husband, I would still need a lump sum of cash to pay off the mortgage on our condominium.
The problem is that life insurance premiums at 30, 40, or 50 are different. When we purchased our policy in our 40s, it was already way more expensive than if we had bought it in our 30s, but with a health check and a reduced rate for being nicotine-free, we ended up paying about $45 per month. Which I found to be reasonable for peace of mind.
We settled on a universal life insurance policy when our term insurance expired
When our term insurance expired, and we discovered we needed a new policy to cover my expenses, a policy with the same death benefit was much more expensive than 10 years prior. So, we decided to look at other options because we still wanted enough money to cover the mortgage and expenses of death and death-related costs in the worst-case scenario.
After looking at term, whole, and universal life insurance policies and what each offered, we decided not to renew our term life insurance and to buy a universal life policy instead. The premiums are much higher; we pay $342 per month for our new policy.
The difference is we are accumulating money (with interest) that we can take out if we have an unexpected hospital bill, the need for home health care, or any other unexpected expense as we age. The policy also has a $300,000 death benefit.
The policy may not seem like a great deal, but it’s worth it for peace of mind
We have been paying into the policy for almost seven years now. If we cashed it out now, we would have over $23,000 minus a surrender charge of approximately $7,000 and minus the fee they charge for the death benefit. That would leave us a lump sum of a little over $16,000.
If you calculate it, we have paid over $28,000 into the policy. It sounds like a terrible deal, but the longer you hold the policy, the less and less the surrender charge is until it finally (around year 19) is zero. So, for a higher fee, we are building another form of an emergency fund with a $300,000 death benefit.
I know this isn’t affordable for everyone, especially if you are still young enough to get inexpensive term insurance. Still, it gives us peace of mind that the mortgage will get paid if my husband dies, and we have an account we can draw from to pay unexpected bills if we find ourselves in a financial bind as we age.