should my young and debt-free partner get a life insurance?

May 6, 2008 6:51 AM

should my partner get life insurance? He is young and debt-free.

My partner is in his late 20s, and I am in my mid-20s. We have been together for 7 years. He is only 3 months away from being debt free. He has a well-paying job. He recently expressed interest in buying life and disability insurance as soon as his debt is paid off. He is considering paying around $200 a month.

It seems really counter-intuitive to me. We are not married, we do not have any children, we do not have a mortgage. He does not have an emergency fund, he has not started on his retirement savings. If he were to die, I do not have any debts, and would be financially fine on my own. I do not have any debts, and have $2,000 emergency fund, and another $2500 in retirement savings. One of his arguments is that life insurance would cover any funeral costs, and that he is partially doing this for me. Again, it seems silly to me to be paying hundreds of dollars for years for a one-time cost. Would it not be smarter to dump all this money into a registered retirement savings account, or even an easily accessible savings account?

Please let me know if one of us is right. Are there are any useful resources that you can recommend?

posted by esolo to work & money (20 comments total)

No, he does not need life insurance. He would be much better off putting the money into a savings vehicle. See: The Motley Fool
posted by donajo at 7:05 AM on May 6, 2008

So I wrote this big "No" answer, and then re-read the question. Disability insurance is probably a good idea. A few grand if saving is not going to matter in case of TPD (total, permanent disability).

Death cover, I would certainly argue against. It's like betting on a 4 in roulette. Disability insurance, I will not argue against.
posted by pompomtom at 7:06 AM on May 6, 2008

One of his arguments is that life insurance would cover any funeral costs, and that he is partially doing this for me.

So would his savings after a couple of years.

Again, it seems silly to me to be paying hundreds of dollars for years for a one-time cost.

You got it. Your partner is a victim of marketing. Long-term disability insurance, on the other hand, might make sense.
posted by grouse at 7:13 AM on May 6, 2008

Life insurance is normally a good idea if your earnings are supporting a partner or a family; it's pretty much essential when a mortgage is also involved.

Otherwise, you're right to think that the money might well be better invested in other ways; if he want to ensure that you benefit financially he should have a will drawn up - it's not expensive. He could also consider also whether the conditions might be right for investing the money in a mortgage. Maybe you could suggest that he seeks some professional investment advice before he heads down this path.

Even in the event of an early death, a simple cremation or burial is unlikely to stretch to more than a couple of thousand dollars.
posted by le morte de bea arthur at 7:13 AM on May 6, 2008

Life insurance doesn't cost $200/mo for a 20-something, but disability insurance sure does. I bet a small amount of life insurance (say, $50k) is practically free with the purchase of disability insurance. You didn't talk about the ability that you have to face the ongoing recurring costs of disability if he loses his salary.

Yes, generally it's dumb to buy disability insurance if you have no dependents. Disability insurance is a whole other ball of wax that you didn't explore in your post.
posted by crazycanuck at 7:14 AM on May 6, 2008

argh! It's generally dumb to buy life insurance, not disability insurance
posted by crazycanuck at 7:16 AM on May 6, 2008

The only reason to buy life insurance now is that in case he gets ill or hurt in the future, if he doesn't have life insurance now, he'll have trouble ever getting it. This is possibly or possibly not a risk he's willing to take. (I don't think it's worth it, but other people do.)

Life insurance is often included inexpensively with a disability plan, and occasionally required as part of one. If you do go for it, you want something renewable without a medical exam.
posted by jeather at 7:24 AM on May 6, 2008

It would be foolish to skip out on disability insurance if you have a good income. However, check your benefits at work. Many employers provide disability insurance.

As for life insurance, the pitch was always that the cash value would grow tax free. meh. 401k plans and IRAs grow tax free. Stock appreciates tax free, etc. The tax man always seems to arrive when you cash out though. It's an investment, just one with a bit more complexity in figuring out whether it is a worthwhile investment.
posted by caddis at 7:26 AM on May 6, 2008

He does not have an emergency fund, he has not started on his retirement savings. If he were to die, I do not have any debts, and would be financially fine on my own.

N-thing no life insursance. In my experience, the only people who recommend life insurance as an investment are life insurance salesmen.

Also, I want to emphasize the fact that an emergency fund and retirement savings should be a huge priority for you guys right now. You are in great shape already just by being (almost) out of debt, but you have a great opportunity to take whatever extra money you have and start building some wealth. It already sounds like you have a lot of good financial sense already, so it should be a matter of doing a few very common-sense things.

I would suggest start by saving up at least 6 months of expenses in a high yield savings account. Most of the things that can get you into financial trouble are small, and having as little as a few months expenses in the bank can be enough save you from a major financial disaster sometimes. Once you get that saved up, I would suggest trying to save at least 10% of your monthly income for retirement. The earlier you start, the longer the magic of compound interest works to make you money.
posted by burnmp3s at 7:41 AM on May 6, 2008

nthing the YES vote on disability insurance. My family was saved from financial ruin because of disability insurance. Sometimes the worst possible scenario is one in which you *don't* die.
posted by mccxxiii at 7:42 AM on May 6, 2008

I would tend to agree with everyone who says it is likely unneeded. Having just gotten life insurance however, I wanted to point out something that is likely blindingly obvious to everyone, but wasn't to me for some reason.

You want TERM life insurance. That's the cheap one. When I first asked about life insurance it was something like 200 (or more!) a month and I couldn't figure out why. (mid thirties, good health). I shelved it for a few months then realized one day that...DUH...its expensive because there's no end date. If you decide to do it, pick a short/medium term and it will be silly cheap.
posted by Wink Ricketts at 7:46 AM on May 6, 2008

I'm guessing the bulk of the payment is for the disability portion of the insurance, which can be a good idea. If he's interested in life insurance, perhaps suggest that he look into a term life policy with a rider that allows him to lock in his rates/coverage as he gets older? Term life is very inexpensive at his age, especially if purchased in conjunction with a disability policy.
posted by snickerdoodle at 7:50 AM on May 6, 2008

No to life insurance; yes to disability insurance. Notwithstanding all the marketing/sales-pressure hype, life insurance is something best designed for people who have family/children and then, in my opinion, only if your accumulated assets are insufficient to meet those needs. If you die with a million bucks in the bank and your children are out of college, then I think life insurance is a waste of your money. On the other hand, if your child is 2 years old and your spouse doesn't work, with you being the only wage-earned, then yes, you might want to consider life insurance to help them survive the loss of the income. In your situation, I would say, no to life insurance.

As for funeral costs, others have suggested cheaper alternatives than life insurance and they are correct. But here's one that hasn't been mentioned that I sometimes tell my clients (I am a lawyer) if I need to lighten up an estate/will-signing session: "Don't claim the body." There's no legal obligation on you, whether married, family-related or not, to dispose of someone else's remains. Let the county/state do it.

Emotionally/socially unacceptable? Yes, perhaps.
Legally obligated to pay for burial/cremation/disposal? No.

Oh, and if you have no estate that you're passing on and no family/spouse that they can go after, think about going massively into credit card debt the billing cycle before you die. Of course, this requires the knowledge that you will be dying on a date certain.
posted by webhund at 8:00 AM on May 6, 2008 [1 favorite has favorites]

A lot of books on building wealth recommend basically the same steps: pay off credit card debt; assess your insurance needs; build up a 3-6 month cushion of savings... you know the drill. If he is about to become debt free, he may be reading this stuff and thinking about life insurance. It's all good advice, but the thing to remember is that you need to ASSESS your insurance needs, not necessarily run out and buy life insurance that would be more appropriate for someone 15 years older than you, with kids, at a different life stage.
posted by selfmedicating at 8:47 AM on May 6, 2008

I'll speak counter to the general advice...

Life insurance provides an instant estate. He should carry enough term insurance, which is super cheap at his age, to settle any debts he may carry for the foreseable future, and to provide for any beneficiary he may choose. (I had several non-profits and some close personal friends as beneficiaries for a while. Now, I have an actual estate and sufficient wealth to do without it. The non-profits and personal friends went over to my will.)

In general, the common recommendation from most financial advisors is to buy term insurance for specific purposes as long as it's cheap. (I am in my 50's, and was paying 500 bux/year or so for 250K, so at age 25, it ought to be damn near free.)

Life insurance isn't an investment. It is a vehicle for beyond-the-grave influence in the world you leave behind. As long as it's cheap, it's a good way to leave an impact if you die unexpectedly. It shouldn't be used for a college fund, a retirement vehicle, etc. but it does play a part in overall lifetime financial planning.

When young, spare money should go into higher risk growth investments, descending in risk and return all the way to easily accessible emergency funds. Boy should work from the bottom up in this pyramid, removing debt and establishing emergency funds first, then growth investments for retirement. The term life insurance crap is totally optional, but it may fit his desires and for the amount of money you are talking, it won't make any significant difference in his long term financials unless he dies.
posted by FauxScot at 9:13 AM on May 6, 2008

Being in his 20s, he could probably pick up a term life insurance policy for up to a million dollars for probably just $200-300 a year, but as others have said, it only makes sense when you've got a mortgage and family to support (who would get the windfall if you died).
posted by mathowie at 9:15 AM on May 6, 2008

Find out how much $500k, $750k or $1M in TERM insurance would cost. You are in your early 20s and probably still healthy. However, in the next 5 to 10 years, either of you could gain weight, have a doctor diagnose depression, develop high blood pressure, have a major illness, etc. I'd reckon that you'll both start making major life decisions and have a mortgage or even kids one day. People often start making major life decisions together and you should consider that, too. I've sent you Mefimail.

I am not an insurance salesperson, just someone paying higher rates than they would have.
posted by acoutu at 9:28 AM on May 6, 2008

While fauxscot's basic ideas or sound, it's important to note that life insurance is not intended to create instant estate, or to settle debts, but quite the opposite. One of the main points of it is to create a pool of money that bypasses one's estate and goes directly to the beneficiary, immune from one's creditors.

(There are exceptions: one's estate can be made the beneficiary of one's life insurance if you want, and creditors can invade life insurance benefits if the policy was bought specifically to defraud them, such as an indebted very old or sick person buying a large quantity of insurance with a benefit close to the premium.)
posted by MattD at 10:01 AM on May 6, 2008

Just another note to consider term. My husband and I each got a $100,000 30 yr term policy right before we turned 30. It only costs $33 a month for us both, and that's a little high because his blood pressure was a little high. We got it when we didn't have children or assets, but knew that we would soon. (I have "glass is half full" tendencies, and wanted to be sure that there'd be some insurance if I died in childbirth.)

Now that I've been diagnosed with a chronic disease, I'm glad that we'll have this cushion from now until the kids are out of the nest. I'll cancel it once I feel that our savings are built up more.
posted by saffry at 4:04 PM on May 6, 2008

My bank will give me a $10,000 life insurance policy if I would only sign the forms. Presumably their upside is they get a cut from all the people who buy the upsell to a bigger policy.

Marketing..isn't it grand?
posted by wierdo at 12:44 AM on May 7, 2008