Making room for life insurance amid ever-present uncertainty

Events such as the COVID-19 pandemic serve to remind us of two things: one, that life is and always will be uncertain; and two, that life insurance, though often overlooked, is an essential element of your budget and your financial plan.

For while no one wants to think about death, it’s far scarier to think about the prospect of your family struggling to meet your ever-evolving financial obligations and goals -- from monthly mortgage and debt payments, to funding a child’s care and education, to saving for retirement -- if you and your earning capacity suddenly disappear.

The silver lining?

Whatever stage of life you’re in and whatever your budget looks like, it’s likely far easier to make room for life insurance than you might think.

Reality check on true cost of life insurance

One of the common reasons consumers put off purchasing life insurance is the cost, but it is much more affordable than most Americans think. For example, over half think a term life insurance policy costs three times or more than it actually does -- a healthy 30-year old man could get $500,000 in coverage for about a dollar a day.  

From this perspective, fitting life insurance into your budget isn't such a tall order. After taking a close look at your monthly expenditures, it might just take some very minor adjustments to your spending on nonessentials.

For instance, considering that the average American spends more than $20/month on coffee and more than $550/month combined on buying lunch, takeout/delivery and restaurant meals, you might be able to cover a policy by simply making your coffee or lunch at home a few times a week. Given our current circumstances, you might even be able to cover several years of a policy with just what you’re saving on your commute.

How to adjust your savings “musts”

But even if you’re on a tight budget and already have your extraneous costs under control, or if you’re at a stage in your life when retirement is a top priority, you may be surprised to hear that a slight adjustment to one or more of your savings “musts” is well worth the price of a policy as well.

Consider that the average American contributes $2,000/year ($166/mo.) to retirement, and as a federal employee you most likely meet or surpass this average given that your automatic contribution to your TSP grows with each raise or COLA increase. (Not to mention because you already have or will soon be receiving a stimulus check as a result of the CARES Act.) So whether you hold your contribution steady and put that next increase towards life insurance, or simply put a bit less of that stimulus check into your retirement, you will still be in great financial shape, plus meet an immediate need.

Secondly, while recent events such as last year’s government shutdown demonstrate that an emergency fund is crucial to guard against sudden income losses or unexpected bills (an impact of COVID-19 that the federal workforce has been very lucky to avoid), it’s important to realize that the permanent loss of income is the greatest financial emergency that your family could face. So, again, a slight reduction may be warranted.

Finally, for those who are or will soon be funding a child’s education, regularly contributing to a 529 plan is obviously a smart investment because it provides tax-free growth over time. But your family will be able to deal with a little less money in an education fund far more easily than a total loss of your income -- especially when financial aid and low-interest student loans come into play.

Getting the most bang for your buck

However you make room for a life insurance policy, finding one that gives you the most bang for your budgetary buck is crucial.

With that in mind, it’s always valuable to shop around and compare options based on how different companies set policies’ terms and do or do not evaluate certain health conditions or habits. And while getting a policy late is better than never, it’s ideal to purchase it when you’re young and healthy. First, because the underwriting process is much easier if you have no major medical or health conditions and, second, because you’ll have more affordable options to choose from.

It can also be quite advantageous to work with a trusted professional during this time -- for while you can do plenty of legwork and research yourself, an experienced financial advisor will likely know which carriers and policies will offer the best options to fit your needs and your budget.

For example, if you’re young and healthy, a consultant will probably tell you that a 10-, 20-, or 30-year term life insurance policy is a great place to start because it’s generally cheaper than a permanent policy and can efficiently and effectively protect the costs of specific financial obligations such as your mortgage or future college tuition costs for your children. For others, layering (or purchasing multiple) policies to cover specific needs or supplement an insufficient employer policy may be the best way to meet your unique goals.

Whatever policy you get and however you adjust your personal budget to get it, I promise you this: while your family will hopefully never use it and may never even know you have it, life insurance is one of the most important gifts you can give your loved ones – to protect them from the uncertainties of today, yes, but also from the uncertainties of tomorrow.

Shelly Giuliano is a product manager with the Government Employees’ Benefit Association (GEBA).

Reader comments

Mon, May 18, 2020 Pete Connolly

Shelly, Thank you for a great article. I always stress the importance of life insurance at mour FERS & CSRS Seminars. I have never delivered a death benefit check to a client and have them say my spouse had too much life insurance. They always wish they would had purchased more. Pete Connolly

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