One of my October goals is to have some of the insurance stuff sorted out - I met up with the agent with SO last week, I have asked the agent to show me the different options for a Life Insurance plan for moi. He had made 4 different payment plans, the insured amount + insured age + terms being the same for all plans. The plan was, of course, not for me (I'm not a beneficiary but my parents will be).
I did the math at home, the shorter the payment cycle is, the smaller the overall amount I need to pay in total. The 4 different payment plans can be paid monthly or yearly, in essence the math is:
(1) $113,860 per year x 5 years = $569,300 i.e. $9,488 per month.
(2) $59,680 per year x 10 years = $598,600 i.e. $4,973 per month.
(3) $41,660 per year x 15 years = $624,900 i.e. $3,471 per month.
(4) $34,720 per year x 20 years = $694,400 i.e. $2,893 per month.
................That's a tough math! But what in life isn't?
Option (1): As much as I want to pick this, there's hardly any money left for savings per month after all my expenses are deducted, and we're talking about 5 whole years without savings (!!!). This is out of the question I think?
Option (2): It's thinkable, it'll leave me a bit of wiggle room for savings (down by half than I plan to save per month), but shall I decide to buy a house, it also means the down payment sum will be smaller/slower than I want it to be.
Option (3): Not so much different than (2) above, but even more wiggle room for savings. Not the most ideal but thinkable.
Option (4): This one is easiest to manage, if I can stick to my budget each month, I'll still be able to achieve the minimal savings goal set per year, albeit I have to keep telling myself I"m walking a tight rope. Here we are talking about 20 years of payment so things will become easier when I get raises across years. BUT, I don't like the thought of owing something and paying something for 20 years (except mortgage)!!!!!! Also, bear in mind that the difference of the total sum between Option (4) and Option (2) is > 98,000!
If you know PJ, PJ is the sort of person that if she wants something done, she wants it to be done quick, neat and efficiently (cost, energy, effort).
In 5-7 years time, I plan to buy a house and get mortgage. I don't have exact figures or plans yet but I know I want to do that, better as soon as possible. I also would like to add that anyone of my age should easily have at least 300k net worth and I'm falling far behind.
Have you faced such dilemmas? How and what did you end up deciding?
I'm a bit confused about your plans here, maybe there's another post I could read? You have a significant other but the beneficiary of your policy will be your your parents? I'm guessing that you're supporting your parents in some way now and that they would depend on the income stream after you pass away. But your SO wouldn't? Is that right? Also the numbers seem HUGE to me. But, I think that's just because I'm reading this as Canadian dollars? We've bought enough insurance for the sole income earner to pay for the funeral, pay off our mortgage and to cover expenses for a few years until our daughter is in school. I'd be surprised if we pay $50Cdn a month.
ReplyDeleteHello SimpleCheapMom!
DeleteYes you read it right - the beneficiary would be my parents at this stage but it could be changed to anyone (SO, future kids). My parents asked me to consider getting life insurance about a year or two ago - i never doubted why but I will start to think about that now. If I pass away there will be no income stream coming in for my parents.
My SO has no plans to get life insurance yet (he says he might consider when we have kids). He thinks I don't need this type of insurance at this stage - but idk.
The numbers are quoted in HKD :)
It might help to understand the picture that i'm the sole child of my parents, they will be retiring soon and living on their pensions. Otherwise, it'll be some pocket money I'll be giving them each month :)
DeleteJust another thought: 10 years of your salary is a lot of pocket money for your parents!
DeleteHi PJ! I'm going to echo CheapMom above. Are you supporting your parents in full? Because you need to factor in how much support you actually give them as well as what money/people they have access to who can help them if you were not here. Also look at the payout amounts to your parents. Does it make more sense to just save a lump sum for them.
ReplyDeleteBe very careful before signing up to anything long-term. Make sure you can cancel. Also, if you get married and still have to pay you need to make sure it is an expense you and your husband can afford.
In the States, life insurance seems to be a lot cheaper too.
~ Pru
~Pru
Hi Pru!
DeleteI'll be the one who's paying because the funds will be for my parents, and if needed be, the beneficiary can be changed to my SO or the kids (if we have in future).
The agent and I came up with the insured amount based on my annual salary x 10 years, it can be tuned down to fit my budget though...still deciding... :S
I talked to my SO about it (he has no plans to buy this now but says he might do one in future for the kids), and he wasn't too in support of this idea of me getting life insurance. It was actually my parents who asked me to do something like this - but I really don't know if I should? The payment will increase with age so most people get it sorted out as soon as they can here?
There might be some cultural differences here, but for us, we're working on being self insured. So, when we're old and premiums are higher we won't need to buy insurance.
DeleteIf your parents are able to live off their pensions, and your SO can support himself, my suggestion would be to just get a policy to cover your funeral costs until you have enough net worth that your estate would be able to cover it. Life insurance isn't a lottery to make people rich if you die, it's an expense you pay now in case you leave loved ones alone and not able to support themselves.
If you're set of insurance, have you looked at long term disability insurance? If you're young, you're more likely to be seriously injured and unable to work than to die. Something else to think about.
Also I think your premiums might be high because you're looking at whole life insurance policies. Term insurance is much cheaper and is the actual insurance portion. Whole life insurance includes a savings portion as well, but you could probably do better investing for yourself.
Thanks for the input here ladies! I like your allusion to a lottery! I could trim down the insured amount to make it just adequate for the necessary expenses - and this will be easier on my wallet per month too.
DeleteI've looked at term life insurance (just wrote a post on it) and its idea don't seem to appeal to me vs. whole life insurance. Disability insurance i'll surely look into - it falls under "accident" insurance and medical insurance part too.