Right, we don’t want to jump the gun here. So before you get stuck into this blog, have a peek at “When should I think about life insurance?” Because you might not be ready yet. In which case, here’s 3 minutes of your life back. You’re welcome.
Done? Decided you’re in? Then let’s proceed.
You’ll want to ask yourself two questions. How much cash do my loved ones need when I pop my clogs? Insurance geeks call this ‘coverage’. And what premium can I afford? (Geek translation - how much that life insurance policy will cost you every month.)
Let’s take the first one first - how much cash will I need to leave behind? We’ll start with the big hitting items:
Whoever inherits your house will also inherit what’s left of the mortgage. You’ll want enough to cover that, so that they continue to have family gatherings in that kitchen you so lovingly renovated 10 years ago. While reminiscing of all the fun times you had together, of course.
… and they are a pretty expensive handful. Regardless, we’re sure you love them very much. If they’re at private school or university, there’s another big chunk of cash that’ll be needed.
And it all adds up. Holidays, decent grub, the annual handbag upgrade, something for charities and a good cause (if that’s your thing). You might want to chuck in a figure so the family can maintain their lifestyle.
Some of us (like David Bowie) don’t want all the bells and whistles for their final journey – a simple direct cremation will do the trick. But even the most fuss free funerals can quickly become really expensive. Check out our latest blog on the cost of a funeral in 2020, if you don’t believe us.
Add it altogether (plus some of the credit cards and loans you might have in addition to your mortgage), subtract any savings, multiply by how many years until retirement, and you’ll get somewhere in the region of the coverage you need.
Odds are it’s going to be a little less than the $212m life insurance that an unnamed Silicon Valley bigwig took out (just the $6.1m annual premium for that). If your only pleasures in life are a week in Center Parcs every summer and a Waitrose turkey for Christmas, insure accordingly. The key is balancing the cost of your premiums with the coverage you need. The bigger your legacy, and the older you are, the more it’s going to cost you.
But who knows how life is going to turn out? Maybe that new chutney flavour you’ve been developing in that beloved kitchen of yours is exactly what the world has been waiting for. Maybe he’s not so dreamy as you had thought. A global pandemic, anyone? Life - unpredictable curveballs are its thing.
And this is the problem with traditional term-life insurance (well, one of them). What you pay at the start is what you pay all the way through your policy, for the next 25 years or so. So your care-free 20-something self will be paying the same as old you, with all sorts of big and tiny humans relying on you to wake up every day. In other words, traditional term-life insurance will make you fork out for a whole level of insurance you just don’t need.
It’s sort of bonkers, when you think about it. With every other type of insurance, you know the value of the thing you’re insuring. But you’ve no idea what your life will look like in 5, 10, 15, 20, 25 years.
Term-life insurance couldn’t give two hoots, the swine. It’s all about grabbing as much of your money while you’re able to pay it. And don’t try to be clever by starting with a low premium, expecting you can bump up your coverage later. There’s nothing term-life insurance likes more than being inflexible. Expect to pay - a lot - for the privilege.
No wonder most people cancel their policies within 10 years.
At Dead Happy we thought this was all a bit rubbish. Wouldn’t it be better if life insurance adapted with your life, letting you start small, and adjust your cover every year as your life changes? And should you need the insurance, wouldn’t it be cool to use your cash payout for something more memorable than just paying the mortgage.
So that’s what we did. Some people seem to like it.