When I got married, my husband and I met with a life insurance agent. We each got a term life policy and a whole life policy. Over time though, we recognized that though life insurance has its advantages, we also came to realize it isn’t always the slam dunk it is made out to be. In this post, I share why we got life insurance in the first place and what made us change course.

Why is Life Insurance Important

There are a lot of different reasons to have life insurance. To me, anyone whose income matters to their family, should have life insurance. Ask yourself, when you pass, will someone you care about suffer financial hardship? If that’s true in your case, life insurance should definitely be a consideration.

Another layer is added when considering the fact that life insurance can be a catalyst in wealth-building. This is especially important in communities with people of color. While black wealth is significantly lower than white wealth in America, for about $30 a month or less, you can potentially leave someone you love >$100,000. They can use that money to invest in a business, the stock market, real estate. They can use that money to pay down debts or fund schooling for more income building potential.

My husband and I saw a lot of potential in obtaining life insurance. We were both just getting started in our careers and had little in the way of assets. We saw this as a wealth-building opportunity for each other and/or our backup beneficiaries.

How Much Life Insurance Should You Have?

I’m not here to tell you what to do. There are tons of articles out there that will help you to determine how much life insurance you should get. One thing I encourage you to do is to find this information outside of a person or entity that will benefit from you getting a policy. So instead of asking a life insurance agent how much you should get, perhaps ask an independent fiduciary financial advisor or consume personal finance articles or podcasts that don’t sell those products. The idea here is to get an unbiased opinion based on your circumstances. A life insurance agent is likely going to make money selling you products you do not need.

READ MORE: Do You Need a Financial Advisor to Manage Your Money?

So we didn’t know any better at the time. The life insurance agent came over and created a picture of our finances by looking over our income and assets. Like I said earlier, we didn’t much at the time but he saw it fit that we each get a convertible term policy and a custom whole life policy. We could afford it and the potential was enticing.

Life Insurance: Whole vs Term

So there are two main life insurance policy types: whole and term life. They have different types of each which you can discuss with your provider.

Whole life policies cover you for your entire lifespan. These plans, in my experience, tend to have the added benefit of dividends or increasing cash value. So each year, I get notified of how much my policy made in the last year. This money gets tacked onto the value of your policy. So if your initial policy value is $100,000 and your policy adds $300 in cash value or dividends annually, then every year your policy value grows by $300. Once you have initiated this policy, no matter what happens, your premiums will remain the same. As a result, these policies tend to cost more.

Term life policies cover you for a period of time. Typically, this is for 20 years but this can vary based on your provider. If you pass before the policy expires, then your beneficiary gets paid the value of your policy. If you outlive this policy, then the policy expires and no payout will be made unless you renew the policy. These premiums tend to be much more affordable. According to Investopedia’s article on term life insurance, “A healthy 35-year-old non-smoker can typically obtain a 20-year level-premium policy with a $250,000 face value for $20 to $30 per month. Purchasing a whole life equivalent would have significantly higher premiums, possibly $200 to $300 per month.”

Since most people will outlive their term, these policies are significantly cheaper. This can be discouraging but it is a much more affordable option that has the potential to turn your family’s finances around if you pass.

Your job may come with whole or term life benefits. In my experience, term life tends to be about 2x your annual salary for as long as you’re employed with that company. That benefit goes away when you are no longer with that company. If your job has whole life as an option, you could buy into it. The premium comes out of your paycheck before you even see it. If you choose to buy in, just make sure it is a plan you can take with you after you leave the company.

Who Can Do Without Life Insurance?

Life insurance is a powerful financial tool. However, some people truly do not need it and could take it or leave it. These are typically people who don’t have dependents.

Also, in my personal finance journey, I learned that self-funding your passing is possible. Growing up, I never imagined I would save up thousands or even $100,000. As far as I knew, no one in my family had that kind of money. So to me, the only way my family could get their hands on that kind of money is for a relative with life insurance to pass. Listening to personal finance podcasts taught me that not only is managing my money possible but it could eliminate the need for me to have life insurance.

Think for a second of a rich guy or gal. Let’s be modest and say they are valued at $1 million dollars. Using the Investopedia example above, why would they pay even just $20 a month for their family to inherit $250,000? That $20 a month could go toward whatever helped them to make the million in the first place. In doing so, their net worth continues to increase. So now that I have saved $100,000 and counting, life insurance is becoming less and less valuable to me.

READ MORE: Check out How I Made My First $100,000

So I Broke Up With My Agent

I contacted my life insurance agent and advised him that I wanted to cancel a policy. At this point, I had 3 life insurance policies. I had one term life, one custom whole life, and one variable universal life. The variable universal life I initiated when my provider offered to convert some of my term life benefit into a variable universal life policy. This was introduced to me as a way to invest in a tax-sheltered account. Whenever I pay a premium, part of it will go toward the life insurance and the other part will be invested.

In the last year, I realized that I was decreasing my ability to invest by sharing the money I had available with my variable universal life insurance policy and the market. Let’s say, for example, my premium was $200. Instead of my investing the full $200 in the market, $50 was going toward my life insurance and $150 went into the market. “Losing” that $50 every month makes a huge difference over time. Also, my job had whole life I could buy into that was significantly cheaper than what I was paying. The benefit was just a few thousand dollars less than the policies I had. Since I started my savings journey already, that didn’t matter so much.

I did not want to cancel the term life policy because it was so cheap. So I told my agent that I wanted to cancel my variable universal life or my custom whole life policy. When he came over, he was insistent that I keep all my policies. I told him what my goals were and he was not having it. He said he wouldn’t recommend it as our financial advisor. That was a surprise to me as the last time we discussed our financial picture with him was when we initiated our policies almost a decade ago. All his information about our assets and income was outdated.

So I asked him again, which policy would benefit me the most to cancel and in a huff, he told me to cancel the variable universal life policy. He practically threw the cancellation form across the table to me, claimed he didn’t even know how to complete it (guess I was his first official breakup) and said he couldn’t “help” me anymore because I don’t listen. And this is why you don’t take advice from someone who stands to make money from you. I guess, technically, he broke up with me. I could not feel freer!

Life Insurance Goals

Now that I know it is possible to save the kind of money I hope my beneficiaries will inherit, over time, I plan to eliminate these policies one by one. I want to save and invest as much of my income as I can for as long as I can. The only debt I have is my mortgage so I will want to make sure that is covered as well.

Your turn. Do you have life insurance? If so, how did you determine how much of it you wanted? If not, what are your reasons for not having it? Share in the comments below.

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