Oct 1

Oct 1 Personal Finance Challenge - October - Get Life Insurance

Debt, 2019 Finance Challenge

Welcome to the Living That Debt Free Life 2019 Personal Finance Challenge!

If you are new to budgeting, paying off debt, and managing your finances, you’ve come to the right place! I’ve compiled 12 monthly challenges to get your 2019 financially on track.

Each monthly challenge contains one of the many steps I’ve taken to help me pay off debt faster.

If you’ve been paying off debt for a while, the information in these challenges is probably nothing new to you.

But, if you’re one of the hundreds who ask me each month how I’ve managed to pay off so much debt, then this is going to be so helpful to you!

The challenge is completely free to join! Each month, we’ll complete the challenge together and chat about it here on the blog in the comments down below and on Instagram.

I’ll announce each monthly challenge here on the blog and on my Instagram Page.

If you are participating, please feel free to leave a comment down below and let me know how it’s going! And, be sure to tag your challenge-related IG photos with #TDFL2019Challenge, so I can find you and cheer you on!! (TDFL stands for That Debt Free Life, my Instagram handle).

For all the monthly challenges, click HERE.

Prior Monthly Challenges

If you have done the rest of these monthly challenges, then you have tracked your expenses, made a zero-based budget, and eliminated one recurring expense from your budget. You’ve also tried using cash envelopes to keep yourself in budget, going 15 days out of the month without spending, and reducing your eating out budget, and setting up your sinking funds.

If you haven’t done the previous month’s challenges, that’s ok. You can complete these challenges at any time. Here are the challenges from January, February, March, April, May, June, July, August, and September.

Ready to get started? Here’s this month’s challenge!

Life Insurance 101: Why you need it, what kind to get, and how much to get.

October 2019 - Get Life Insurance

This month’s challenge is to get life insurance. Read on to find out the answers to some of the most frequently asked questions about life insurance.

Do I Need Life Insurance?

The purpose of life insurance is to replace your income after you die for those who are financially dependent on you.

The general rule is that you need life insurance if you have dependents—someone who depends on you financially. Typically, when we think of dependents, we think of children who are too young to support themselves. But, dependents can also include spouses who depend on your income for support (whether they bring in a separate income or not), spouses who depend on a service you provide (like staying home with the kids), or even ailing family members or other relatives whom you support financially.

If you have anyone in your life who depends on your income (or services you provide at a free or discounted value), you need life insurance.

You may need life insurance even if you are a stay at home parent. Just because you aren’t bringing in an income in a traditional sense doesn’t mean you aren’t contributing financially to the household. If you are a stay at home parent, you likely provide endless contributions to the home in the form of caring for children, cooking meals/shopping, home maintenance, cleaning, etc. If something should happen to you, and your spouse couldn’t financially take on all that you do, he or she would need to hire someone outside the home to get those tasks complete.

Daycare costs is the main expense to consider here. Think about how much it would cost to send the kids to daycare if you suddenly lost your stay at home spouse. If you can’t afford to take on those additional expenses, that stay at home parent needs life insurance.

If you have no financial dependents, and no one is counting on any services you provide (free/reduced childcare for a family member, for example), then you likely don’t need life insurance. At most, all you would need to do is to be able to cover funeral and burial expenses.

Should I Wait to Become Debt Free Before I Get Life Insurance?

If you need life insurance, do not wait to get it! You should have life insurance no matter where you are in the baby steps.

Even if you are still paying off debt. Even if you don’t have an emergency fund saved up. Getting life insurance is priority one!

The reason is because disaster can strike at any minute. Tragedy doesn’t wait until you’ve saved up an emergency fund or become debt free. You need to be ready NOW. Seriously, stop and think about what it would feel like knowing your family had $500,000 or $1,000,000 to depend on after your death. Getting life insurance in place is one of the most thoughtful, loving, caring steps in any financial plan. Protect the ones you love by getting life insurance TODAY.

How Much Life Insurance Do I Need?

Most experts agree that you need 10 times your annual income in life insurance to be able to adequately provide for your family after death. This 10-times-your- annual-income rule is not just some random, arbitrary rule. Don’t forget that the purpose of life insurance is to replace your income after your death.

Assume you make $50,000 per year and have a $500,000 life insurance policy in place. The surviving beneficiary could invest that money into good mutual/index funds at an average of 10% annual return, and withdraw $50,000 a year from that investment to replace your income—all without ever cutting into the principal.

Stay at home parents should do their best to value the amount of services they provide that the surviving spouse would have to pay for upon death. For example, if childcare is the only concern, multiply the cost of annual childcare times 10, and get that much coverage on the stay at home parent.

Should I Get Term or Whole Life Insurance?

This is a topic I could devote so many separate blog posts to (and will in an upcoming post), but for now, I’ll do my best to break it down for you here in summary form.

There are two main types of life insurance on the market today: term life and cash value or whole life. The only type of life insurance recommended by financial guru Dave Ramsey is term life, and I agree with him on this 100%. Let’s break it down.

Term life insurance is insurance that is in place for a specific duration, or term. If you get a 20-year term policy, you are insured for a 20-year term. The purpose of term life insurance is to replace your income when you die. It’s simple and straightforward. If you buy a 20-year, $500,000 life insurance policy, your beneficiary will get $500,000 if you die within those 20 years. It’s the most affordable option for life insurance there is.

Cash value or whole life insurance policies aren’t for a specific duration or term, but are in place for life and include a cash value savings component. With a cash value plan, you pay for the insurance and fund a savings plan inside the insurance policy at the same time. They are far more expensive than term policies for that reason. They are also far more profitable for insurance companies, so those insurance guys push these policies way more than term policies.

While it may sound good to have a cash value policy with the savings component, the reality is you never want to use an insurance plan as an investment. The average returns on cash value plans are historically low: 2-7% on average, compared to 10-12% for the stock market. Quite simply, they aren’t good investments.

But here’s the real reason cash value policies are a terrible idea: The cash value component serves only as a living benefit for policyholders. As a living benefit, any cash value may be drawn upon by the policyholder during their life. But once the policy holder dies, what happens to all that “cash value” built up in the policy? The insurance company keeps it! It doesn’t go as a benefit to the beneficiaries! Say what? What’s even the point if my beneficiaries can’t access that money?!

The better route would be to buy term insurance, invest the difference, earn 10-12% on it in the stock market to leave as an additional benefit to your beneficiaries upon death.

So, save yourself, friends. Don’t overpay for life insurance by getting a whole life policy, with a cash value that will provide your beneficiaries absolutely no benefit upon your death. If you already have a cash value policy, get term life insurance in place first, and then cancel that whole life policy immediately!

If you don’t have anything in place, get term life insurance in place TODAY!

How Long of a Term Do I Need?

Most experts recommended a 20-25 year term, and that’s probably all you need (depending on your age and the age of your dependents).

After the 20-25 years, assuming you are following the baby steps, (which of course, I highly recommend), you should be debt free, have investments, and have built significant wealth. Any kids you have will be 20-25 years old or older, and should (arguably), be fully capable of supporting themselves and/or be given an inheritance from whatever wealth you’ve built in those 20-25 years.

Can I Even Afford Life Insurance?

Term life insurance is so very cheap, you wouldn’t even believe it. The amount you pay will depend on your overall health, how young you are when you first sign up for the policy, the length of term you select, and how much coverage you want. The younger you are when you get it, the cheaper it will be—which is another reason not to delay getting your term life insurance in place.

In general, you can often get $500,000 - $1,000,000 of coverage in place for $30 or less per month.

I’ve Got Life Insurance Through My Employer, Isn’t That Good Enough?

No! Lots of people think that if their employer provides a life insurance policy as a benefit, then they don’t need to get a separate policy. This couldn’t be further from the truth.

There are two reasons an employer-provided life insurance policy isn’t good enough: (1) it only lasts as long as you are employed there and (2) it probably isn’t significant enough to meet your family’s needs after you die (in other words it’s probably just enough to cover funeral and burial expenses).

If you have a life insurance benefit at work, it likely only lasts as long as you are employed there. The moment you leave the job, you have no coverage. If you wait until after you leave the job to get coverage in place, the prices will often be far higher. This is because term life insurance is cheaper the younger you are when you get it.

Additionally, whatever policy you have in place with your employer probably only provides a small benefit—somewhere between $10,000 - $25,000, on average. That amount of money is not nearly enough to provide for your family after you are gone and usually is only enough to cover any funeral/burial expenses. As stated above, you need at least 10 times your income to provide for your family.

So, even if you have life insurance provided by your employer, take steps today to get your own policy in place.

Let’s Do This!!

I challenge you to go get that life insurance in place TODAY. If you don’t know where to start, reach out to Zander Insurance, recommended by Dave Ramsey, for a quote.

Final Words

Don’t forget to tag your social media photos with #TDFL2019Challenge!! I want to encourage you and cheer you on this month! I want to congratulate you on taking steps to protect your family! Let me know once you got life insurance in place, how little it cost, or any stories you have about how having life insurance has provided you (or your friends and family) peace of mind!

Then meet me back here next month for November’s challenge! Good luck, everyone!! You’ve got this!!

Oh! And, as always for bonus points, complete January’s Challenge and February’s Challenge, again this month, in connection with October’s challenge. That’s what I’m going to do!