Life Insurance: To Buy or Not to Buy?

Today’s post comes from JW at If you’re unfamiliar with JW’s story then I’ll recommend checking out his great site or following him on Twitter @TheGreenSwan1. In short, The Green Swan is a metaphor coined to describe a deliberate approach to managing and investing money with a major effect: wealth accumulation, financial independence and early retirement.

Now, onto today’s guest post:

Hello everyone!  Let’s talk about Life Insurance: To Buy or Not to Buy?  That is the question…

Spoiler alert, I do not own life insurance… and I have a wife, a kid, and a mortgage!  Am I dumb, or just stupid?  You can feel free to let me know in the comments, but let me explain myself first.

Before I get into it, while this post considers the need for me to have life insurance with my wife as the beneficiary, we made the same analysis for her.  It’s just easier for me to write it based on my considerations. In the interest of full disclosure, do not rely on this post for your own decision making; I am not a financial advisor or planner nor a life insurance expert.  Be sure to talk it over with a professional before making a dumb or stupid decision!

Whether or not to buy life insurance has always been a question in the back of my mind.  Coming out of college, I even interviewed for a sales position with a popular life insurance company.  So I’ve heard the pitch before, and I’m pretty sure the hiring manager was selling me on buying an insurance policy even during the interview.

I didn’t take the job, and I didn’t buy insurance that day either, but wouldn’t that had been something?  Go in to interview, come out with life insurance!?

Once in the workforce, I heard some of my other peers telling me about how they just bought a policy and they explained it to me but at that time I just heard, “blah, blah, blah.”  I wasn’t interested and didn’t care.  I thought to myself, “Why would I need to life insurance and why would I want to pay that extra money to have it?”

Is it just me or does it always seem like whenever someone is talking to you about buying life insurance that you are being sold a bag of goods?  I never liked it, probably never fully understood it, and ultimately never bought it.

And even though I didn’t know much about it at the time, I knew my employer did provide me $50K of life insurance as part of my benefits package so I did feel somewhat protected (my wife’s employer actually provided a $50K policy as well).

I could have also bought more insurance through my employer for what seemed like a surprisingly low cost.  It made me wonder, if life insurance can be bought for fairly cheap, they must not view it very likely that I’ll be dying soon (and neither did I)… so how badly do I really need it?

Now that my view of life insurance has “matured” and I understand it a bit more. Let me explain:

You can buy life insurance in all sorts of different sizes, shapes and colors, but let’s boil it down to its real purpose.  And its purpose is not to serve as an investment vehicle or to build a cash value I could access later, not in my eyes anyway, that’s what my retirement accounts are for!

So do not try to sell me something that’s an “investment” or “investment like”…I have an investment philosophy and life insurance isn’t part of it, so I’m not paying anything extra to have it!  I don’t care if you tell me it is a really good deal, because I wouldn’t believe you.

Rather, the purpose of life insurance is to be there to pay off any liabilities I may leave behind, support children that rely on my income, and to put me in the ground.  Simple as that.  I did not have any liabilities right out of college (I was fortunate) and no kids at the time. In addition to that, I was starting to accumulate some investments, and I had a $50K life insurance policy through my work.  That was more than enough to put me in the ground.

Plus, I always remember one lesson my Dad taught me.  He’d say, “Son, you never want to be worth more dead than alive…that just gives people a bit extra motivation…”  Keep in mind, he was half joking when saying this, but it always stuck with me.  You can never be too safe… just kidding, Lucy, I trust you…

So, life goes on, things change… Lucy and I bought a home and got a mortgage!  The time came to reassess the situation.  That is a significant liability for just one person to be responsible for, so maybe it was time to buy life insurance now?

Nah, you can call me dumb, but I’m not stupid.

If I passed, would Lucy really need a boatload of cash?

Nah.  She had options.

First, her income was sufficient to maintain the mortgage payments and still provide a comfortable living standard.  Second, if I passed, she would likely no longer want to live in that house.  She would not need all that space so downsizing the home would be an option as well.

Keep in mind, I did still have a $50K policy through work which would help her out, and our investment accounts, which were still growing, would be  there for her to ultimately rely on as well. By the time we bought the house, our investments amounted to almost $400K, so, not shabby.

So life goes on, things change…we had a kid!  Congrats, huh?!

How about life insurance now…nah.  It was time to reassess again, but yet again I decided against it.  Same considerations were made, but ultimately Lucy’s income was sufficient to cover her cost of living without my help.  She would have been able to afford the mortgage, daycare for the toddler, as well as a comfortable lifestyle.

On top of her income, she would also have the benefit of the investment accounts all to herself (and the kiddo).  At the time of having the little one, it was well over $500K and growing.  This would help supplement Lucy’s income if needed, as well as provide for junior’s college education.

Rest assured, at the time mini-me was born, we did put in place a will & testament and double checked the beneficiaries on all our accounts.  This made sure that if one of us, or both were to pass, that the other would get all assets and Junior would be taken care of financially.  We never wanted to leave it up to the State or the probate.

Note that without a will, your estate can be handled in a number of different ways and it depends state by state.  Make sure to look into this to ensure your assets would go where you wanted them.

In conclusion, I just want to reiterate that I don’t think life insurance is a “bad” product.  It serves a great purpose, although, I would say it does not ever need to serve as an investment.

Ultimately, for my wife and I, we have just never had a use for it.

Why buy extra life insurance if it isn’t necessary?  And each year our investments are growing larger and larger, making it less and less necessary for life insurance.

Is this being frugal to the point of fault?  Am I dumb or just stupid?  Do you have life insurance and what were the main considerations you made?  Let me know your thoughts in the comments below.

Thanks for taking a look!

The Green Swan
Work Harder, Work Smarter, Retire Earlier and Find Your Beach

8 comments… add one
  • Martin - Get FIRE'd asap Jun 29, 2016, 5:51 am

    I’m totally on board with what you say JW. This insurance thing seems to be a hot topic in the community at the moment. If I can get away with a shameless plug here, I’ve just published a post on my site covering insurance in general including life.

    I’m no fan of insurance at the best of times but life is one I consider necessary only in one or two situations. And having it if you don’t need it is money down the drain in my opinion.

  • The Green Swan Jun 29, 2016, 7:10 am

    It has been a hot topic lately! I think most people have come to a similar consensus on whether it is necessary. It is important for everyone to be thoughtful in their analysis and take into consideration their own unique life circumstances. Thanks Martin.

  • [email protected] Jun 29, 2016, 8:18 am

    This is a very interesting and timely post. We are in the “no life insurance” group. We are “self-insuring” through a variety of diversified investments and we have made the choice not to buy it (maybe I need to do a post with a decision analysis about that…) My family has always been against insurance of that type (and of most types) but it is a good product for some. Again, it is all about your goals and life situation.

    • The Green Swan Jun 29, 2016, 8:50 am

      That’s good to hear you are also in the “no life insurance” group. While I may be at a bit more risk with a mortgage and young child, it is reassuring others are thinking of it similarly. Plus, I like the idea of “self insuring”, it sounds fancy! Thanks for the comment Vicki!

      • [email protected] Jun 29, 2016, 8:58 am

        We’ve always had multiple rental properties (and more than one child most of the time) – and never had life insurance. We just communicated about what life would be like if anything did happen – and we took that risk. Having a plan makes a huge difference.

  • FinanceSuperhero Jun 29, 2016, 8:05 pm

    I’ve been waiting to read this post all day, Green Swan (and Matt). I knew about several of the specifics of your situation, but this post makes it clearer to me.

    I agree that the purpose of life insurance should not be to invest, but as you said, to cover existing liabilities. Personally, I also look at it as a means of replacing my income for my wife if I were to pass away early. For the record, I currently hold over 10X my annual income in term life policies.

    In your situation, you are essentially self-insured, so a term life policy isn’t necessary for you, IMO. However, for the equivalent cost of a monthly deep dish pizza, you could leave a sizeable chunk of money to Lucy and Junior, which is a pretty small sacrifice. Again, this isn’t necessary, it is more a matter of preference.

    • The Green Swan Jun 30, 2016, 7:12 am

      Very good points, FinanceSuperhero. I agree and think it is great that you have chosen to provide a salary replacement, I may be just being a bit to stingy and taking on a bit of risk. This is something I will continue to evaluate annually in case my preferences or life circumstances change. For instance, if my wife and I don’t grow our assets quickly enough and we have a second kid, we may need some short term policy to provide cushion. But hopefully, our assets continue to grow and provide more and more of a buffer.

      Thanks for the comment!

  • Financial Slacker Jun 30, 2016, 10:22 pm

    Green Swan,

    Good article. And while I see your perspective, my view differs. Similar to FinanceSuperHero, both Ms. Financial Slacker and I have life insurance that serves as income replacement in the event one or both of us dies.

    My goal is that if something were to happen, I don’t want my family to feel the need to downsize. I want them to be able to remain in our house. I want them to be able to attend school and college. And because I won’t be around to help out, I want my spouse to be able to either cut back her work or hire help.

    Maybe these are more emotional needs than financial needs, but losing a parent (or a spouse) is a massive event to deal with and I want to do everything I can to ease the pain of the situation.

    Once the kids are through school, I don’t see much need for life insurance, but until then, it’s an important part of our financial planning.

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