Life Insurance For Full-Timers
We are not insurance experts and will not pretend to tell individuals what levels of coverages or what combinations of products they need.
The goal of this page is to assist folks in their decision making by pointing out some basic life insurance questions to ask.
How Much Coverage Is Enough?
The usual answer to this question is "Buy as much as you can afford," but we are going to disagree with that concept.
The answer to the question depends a lot on how much you can afford, but unless you are wealthy enough to make all your dependents millionnaires, over-insuring can have dire effects on your budget and the full-timing lifestyle.
So let's take a look at your life insurance goals should the unthinkable happen. Depending on your dependents and their stages of life and what you liquidate to go on the road, you may be able to reduce your life insurance coverage and, therefore, your premiums.
Our Coverage Decision
For example, with the sale of our house and hitting the road completely debt free, we no longer needed our life insurance to pay off the mortgage or any debt. And we have no children that needed financial support, college funds, etc. As a matter of fact, we had to discuss whether we needed life insurance at all.
We finally determined that the only life insurance we needed would be in case something happened to one of us and the other wanted to get off the road. So we decided on $250,000 each. That amount would cover funeral expenses and would allow either of us the opportunity to purchase (or at least put a signficant downpayment) on a house. Or we could just set it aside, return to a normal life, and use the money as an additional safety net or investment.
So we were able to reduce our life insurance significantly. Before going on the road, we insured each other so that our mortgage would be paid in full and so that the surviving spouse could retain the lifestyle that we had become accustomed to without having to sell assets.
Determining How Much Is Enough
So in figuring out how much coverage you need, ask yourself these questions:
How much debt needs to be paid off?
How much needs to be left for children or other dependents for educational or other purposes?
How much will need to be available for funeral expenses?
What lifestyle do you want for a surviving spouse?
Is the surviving spouse able to earn income if necessary?
How much can you afford in premiums?
Obviously, there are other considerations, but you get the idea. Your budget may be tight, so you don't want to be over-insured and paying unnecessary premiums. Yet, you and your spouse need to agree on what minimum coverage you want.
What Kind of Life Insurance?
The age old debate is whether term life is better than whole life (also called permanent insurance).
Term life basically means that you are paying for a certain limited amount of coverage - period. Term life premiums are generally less than whole life.
Whole life basically is a product in which your premiums are "invested" and a "cash value" grows in addition to the face amount of the life coverage. The theory is that, unlike term insurance premiums, your whole life premiums are not wasted, but rather grow for you like an investment. The premiums are higher because there is the insurance aspect and the additional amount that is invested.
Again, we are not insurance experts, and we don't want to get lots of emails telling us about all the new permanent insurance products and how the investment options are better. But my research shows that the financial experts all agree that term insurance is the way to go, because the extra premiums you pay for permanent insurance could be invested more effectively elsewhere.
Our Choice Of Product
I worked as an accountant for a life insurance company, and I have seen the lousy cash values earned on permanent life insurance products. I have also listened to Dave Ramsey enough to know that term insurance is the way to go.
So it was a given that we were going to get term policies, and we had made the decision (with assistance of a trusted professional) about our level of coverage. The last major things that needed to be decided were the insurance company and the premium structure.
There are so many insurance products and options out there, but we wanted to be sure that our premiums did not increase. With all other expenses (health insurance, RV insurance, truck insurance, etc.) increasing each year with inflation, we wanted to take advantage of locking in our life insurance premiums for as long as possible. So we got quotes on 20-year and 30-year level premium products. Level premium means that the premiums do not change over the term selected. This is not the same as "level term" coverage - we made that mistake once. If you want level premiums, you must be very specific.
Now a disadvantage of level premiums is that you are paying higher premiums for your younger years than you would if your premiums were recalculated each year. But we felt that disadvantage did not outweigh the ability to lock in premiums for several years while we are healthy. So we opted for 30-year level premium policies for each of us at $250,000 of coverage each at $79.42 a month for both of us.
Life Insurance Considerations Summary
The bottom line with life insurance for full-timers is to do the homework so that the level of coverage is not too much or too little and so that the premiums fit within the full-timing budget.
It is not an exact science, but being over-insured can cause overpayment of premiums that could be used for other purposes (like food or better health insurance). Likewise, being under-insured can be disastrous for those left behind.
If you have been non-chalant about your life insurance in the past, make sure you understand it fully and make solid decisions before you start full-timing.