Let's put my life insurance policy to the scales, and consider it based upon the factors (see earlier post "Insurance: Is it REALLY Worth It? - Factors to Weigh" for a description of each of these seven factors).
- Cost of Premiums: About $10,000 for our 30 year term $300,000 policy on my life. However, the policy we purchased is a Return of Premium policy. This type of life insurance returns 100% of the premiums paid in, if those premiums are paid in for the entire length of the term (in our case, 30 years). With my return of premium plan, I am really paying much less than it seems. The cost to me is REALLY the interest I could be gaining on the premiums if they were invested, and inflation.
- Cost of Premiums + Deductible in Use: There is no deductible. The payout would be $300,000, regardless of how many premiums I have paid in. This means that if the policy paid out in the final month, the true return would be about $290,000 ($300,000 less the premiums paid in.
- Expenses If the Need Arises Without Insurance: With funerals averaging over $10,000, that would be the first expense. However, the life insurance policy is purchased to cover funeral expenses, and additionally allow my wife a grieving period before having to go to work, provide for our children's care and education, etc.
- Ability to Pay Without Insurance: At this point in life, there is no way I can provide the protection which life insurance would provide for my spouse. In the future, any protection my savings will provide can be supplemented through the protection of life insurance. A 30 year term purchased at this point and paid throughout that term provides protection for my wife and future children until after those children have reached adulthood and left home.
- Ability to Self Insure: If the premiums are invested at 10%, the $30 a month would build to $67,814.64 over the course of the 30 years. However, it would be within the 14th year before the self-insured account would reach $10,000. This means that the ability to self-insure is really non-existent.
- Return in Payment vs. Premiums Paid In: Unlike some types of insurance, life insurance always provides more protection then it costs.
- Other Considerations: The peace of knowing that if I die at any time over the next 30 years my wife and children will be provided for financially is worth a lot more than the interest and inflation. This type of insurance will remove unnecessary stress if I become ill or injured.