Hindsight 20/20 on Life Insurance

 

Today is actually the eight -year mark of my seizure at Starbucks were Goliath first made his presence known.  The good part is that I am physically as healthy as I have been since prior to this day eight years ago.  The blog below was actually written quite a while ago, but I just have never posted it.  Mainly because its not a super exciting topic.  It like me is very practical.  I also just listened to a seminar about how to take advantage of the tax benefits that life insurance provides, so this just seemed like a good time to finally post this.  I hope this might push at least one person to take a deeper look at life insurance.

Life insurance is one of those things that most people never want to talk about. The entire process is sort of silly, you are basically making a bet with a major company on when you will die. You are banking on the fact that you will die before making enough payments to cover the payout your family will receive. On the flip side the company is actually betting that you live longer. So to “win” you have to die. Which to most everyone, dying is not “winning”. That in a nutshell is why people do not like to talk about life insurance. It requires taking about your own demise. Granted we all know that someday we will die, but that still doesn’t make life insurance a more palatable conversation.  Life Insurance is also one of those things that you need to get, long before you need it, because if you wait until you need it – you can’t get it.  It is also something where your need for it will change over the years, so you need to be constantly looking at it to make sure that it still fits with your needs.

Before Colby was born, I decided that Jessica and I needed to get responsible and get life insurance since we were going to soon be parents. We wanted to make sure that if something happened to one of us, the other and our soon to be child would be taken care of financially. Both of us were healthy and fit, and the concept of something happening to one of us was totally foreign. Not possible! On a side note: life insurance actually has some really cool tax benefits – the biggest one being that the proceeds are tax free. Thus if you are the beneficiary of a life insurance policy and receive the proceeds –  it is 100% tax free! Not a bad deal at all. The other really cool tax piece is that if you have a whole life policy (or some others that build cash value) you may have a way to borrow against the policy and again – no taxes are attached.  I don’t want to get into tax code in a blog, but I am happy to provide details on how to make this work if anyone wants to reach out to me.  I am totally capable of turning into a tax code nerd if asked.

My purpose of this blog is not to get into a conversation about the different types of life insurance policies and the pros and cons of each one. And as a disclaimer: I do not sell life insurance. I do recognize that there are some cool things about life insurance. Although my overall take is life insurance should be set up and should be part of a financial plan as a necessary component. However I am not too keen on people who try to sell life insurance as an “investment tool”.  In my opinion, it’s great if you get some other investment benefits by having life insurance, but that is not why you should buy it!  It should be bought to cover your loved ones when you die, or used as a way to protect assets and provide cash liquidity later in life.

The picture is from the summit of Dragonback Mountain in the Mt. Waddington Range, BC.  It’s doing things like this that increases life insurance rates, for someone like me.

Back to my point. We decided to be “grown-ups” and get life insurance. First off I was shocked at the cost point for me, since I was classified as risky because I climb mountains. We did a mixture of whole and term for Jess and then just term for me.  Women are cheaper than men too as they live longer. The idea was that we would increase the amount or convert my term into whole in the future, once we became rich and famous! Ha! Easy to say, but really hard to do.

We both got life insurance though prior to Colby’s birth. I really didn’t think much about it until November 2011. The difficult news – you have brain cancer. Which by the way means that you will now no longer ever be able to get life insurance and you will also be at-risk with health care for “pre-existing conditions”. There was a point when I totally went into panic mode about the life insurance as I knew that I just had term, which means that it will expire at some point and thus, when I die, my family would get nothing. Funerals are super expensive. I can remember after my Dad died, we were at the funeral home going over the burial costs and options and I just about lost it. The costs were crazy high and I was super angry. I was ready for a throw down with the funeral director. It felt like highway robbery. What are you supposed to do? You really can’t do anything  but pay them, as they have you, you are stuck. His plot was already paid for as well. Thus the costs did not even include the burial plot – which should be the most expensive part of the deal. They have all of these weird rules and things about what you must purchase, liners, vaults, etc. Needless to say, it’s expensive. Dying is a huge financial burden to those left behind. Which is why life insurance is so important to have. Months later after the shock of brain cancer, I knew that I had to deal with the life insurance issue. Thankfully the policy I had included an automatic waiver that allowed me to convert the term policy to a universal policy, within ten years, regardless of health or any other issues. Thus I was able to get some form of “permanent” life insurance, just no cash value option. They had also changed some of their policies on climbing – thus I was also able to be placed in a lesser risk class – which was all great news. They decided that I am not as risky anymore!

My reality is that now I can’t get more life insurance, which means the policy I bought many years ago, is all I’ve got.  For some types of cancer, if you go into remission for a certain period of time, you can become eligible again.  However I will never go into remission, thus I will never meet those parameters.   I can’t leverage things for my family financially with more life insurance after I die. The amount I have is not “enough”, much better than nothing but obviously not what I would have done if I had a crystal ball and knew that I would get terminal cancer. Probably the biggest “downside” is that we will be in our house for the duration of my lifetime – no new bigger house! The amount of life insurance I have totally works with my current mortgage. However looking to get more house and thus more mortgage, doesn’t fit in with fiscal responsibility that is needed now should something happen to me, especially given the current home prices in the area. Granted I do like our house, but I will say that it seems to get smaller every year as the boys get bigger.

The morale of the story is this, you never know when a life changing event will occur or your health status might change, thus be smart and make sure that you have more than enough life insurance. If you wait until you actually need it, then it’s too late. You can end up like me, with cancer at 34 and can’t get any more. I know that hindsight is always 20/20, but be smart, be responsible, and get some life insurance! The price of it only goes up the longer you wait. The rates are based upon your current health, lifestyle risks, age, and family history. Each year you wait, the costs only go up.  Thus be smart, and think ahead.  Don’t wait, as if you do it might be too late.

DH

DG

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