Today Karl and I took charge of our life insurance and made some changes for the better. It was a very empowering and grown up thing to do, let me tell you.
When Karl and I got married nearly three years ago (May 1st, 2010) we decided it was time to be grown ups and do grown up things like get life insurance. We hustled on down to our local credit union (we're credit union people, FYI), merged our accounts into one, and bought some super excellent variable life insurance for $150 a month. We may not have been planning on kids or a house in the immediate future, but we wanted to provide for each other should anything happen. That's love.
Fast forward to two and a half years later as Karl and I are going through Dave Ramsey's Financial Peace University (which we love, even though it means we have to budget now and don't get to buy everything we want when we want anymore). We hit the "Buyer Beware" lesson and had a bit of a wakeup call: $150 is way too much money to be spending on life insurance.
The thing that sold us on our life insurance plan is that, long story short, it doesn't go up in price ever. We pay $150 from the date of purchase to the day we're both dead and gone and get $300,000 should one of us kick the bucket, $600,000 total getting paid out when the other one of us keels over. Any time. Ever. For the rest of our long, fruitful lives.
The other life insurance option was to buy twenty-year term insurance for a significantly lower amount now and get the same coverage. The catch is that in twenty years when we need to renew it we'll be paying a heck of a lot more for it. The new amount? Less than what we're paying now. Twenty years after that, though, when we're in our sixties and much closer to death, our premiums will skyrocket and we'll be paying almost a thousand dollars a month.
That's the thing about life insurance; it costs more the closer to death you get. I mean, it only makes sense. That's why teenage boys have to pay more to insure their cars than anyone else, they drive faster than their common sense can keep up with.
The nice thing about our $150 life insurance is that the rates never change. Sure, for the next 40 years we'll be paying more than strictly necessary to insure ourselves, but think about the future! It also earns a savings value that we can get when we cancel it (approximately half the value, plus 1% earned interest). I mean, that's great, but we only get it if we cancel it. Which, you know, when you're dead you won't be doing. There's also some value that you can borrow from as income, up to $80,000 when we're in our sixties.
Naturally, young, immature, and newly wedded Karl and Anna thought that all sounded wonderful. Well, older, wiser, still immature, Karl and Anna know better. So today Karl and I went to talk to the lady who sold us our life insurance so many moons ago. We went in knowing full well it wouldn't be easy. Insurance people earn commission off what they sell you and the more you spend, the better it is for them.
While still being 90% pleasant, she basically informed us that we didn't understand what we were wanting to do, letting ourselves down, should not be taking advice from our account friend who is essentially mentoring us financially, and were going to seriously regret this choice later in life. She didn't like that we wanted to invest our own money and felt we could put the money we save to better use than the insurance company was. She also didn't like that we thought we wouldn't need life insurance in our sixties because, yes, we will likely die during that twenty year period, but won't need to rely on life insurance to leave our legacies and provide for the people we love.
We can take the money we'll save each month and invest it. The half of the money going into a savings for us has a 1% earned interest rate. That's embarrassing. That 1% is not going to cover the cost of the inflation. We can earn more than 1% anywhere else. Even our savings account at the credit union earns more than that. 1.2% > 1% and that, my friends, is simple math.
Eventually we convinced our provider that we were, in fact, sure of our decision and not going to keep our variable term life insurance. She did some number crunching and came up with $34 a month for $250,000 coverage. It's basically our old policy without the crappy part (thus the loss of $50K, but since we don't have kids or a house it's not a big deal). I got a little confused afterward, and felt even better about our decision to change our policy because the numbers started getting confusing me a bit. She told us that about half of what we paid for was for the future cash value that we could use. That leaves $40 floating around somewhere, probably a portion going towards her commission, that doesn't actually make our return earn 1% at all. It's a loss, no matter how you look at it.
So today we saved $116 a month by standing up for ourselves.
Boom. That's financial peace, fools. Whether you like Dave Ramsey or not, you can't deny that financial peace is a good thing. We're going to invest, save, and have our house paid off way before we're in our sixties. That's the beauty of a 25 year mortgage limit. With our plan of buying in the next 3 years or so, we'll be done for sure by the time we're in our early fifties. At the latest.
I drove a hard line and was not deterred by our provider's snide anti-accountant comments and lack of faith in our ability to manage our own finances. I mean, it's scary talking about investing, something we'll be doing in the next few weeks, but we actually understand what we're doing now. I'm not saying we're experts or anything, far from it, but we're no longer blindly walking into expensive long-term contracts that we don't need. Just because we're young doesn't mean we're incapable of making good choices.
1 Timothy 4:12: Don't let anyone look down on you because you are young, but set an example for the believers in speech, in life, in love and in purity.
Well, it's a start.