Do you need life insurance after Financial Independence? That’s a deceptively simple question. If you have reached financial independence, then you don’t really NEED life insurance. Financial independence means you don’t have to work anymore to support your lifestyle. By that definition, you don’t need life insurance because your family already can maintain their lifestyle without you. However, real life is usually more complicated than that.
For example, let’s look at me. If I pass away suddenly, it would a huge change for my family. I hope this won’t happen anytime soon, but who knows the future. Anyway, let’s focus on the financial part for now. We are comfortable financially, but it is complicated… Mrs. RB40 doesn’t want to deal with all these complications and it would be best to simplify our finances a bit. By the way, my plan is to simplify our lives by the time we’re 50. It’s definitely a work in progress.
Life is complicated
- Rental properties – She does not want to be a landlord. She should sell our rental properties, but it will take time. The taxes will also be very complicated and she will need to find a good tax accountant to help with the transactions.
- Childcare – I’m a stay at home dad and Mrs. RB40 will need help with our kid. She’ll need to pay for afterschool care or find a part time babysitter. Alternatively, she could retire and become a SAHM. That could work out, but who knows. She may not like staying at home all day.
- Dividend stock portfolio – Our dividend stock portfolio is pretty simple. We mostly have solid dividend growth stocks. These should do well for many years, but you still need to keep an eye on them. Mrs. RB40 will need to learn more about dividend stocks or gradually move the money into a passive index fund. You don’t want to do this quickly because there would be tax implications.
- My condo in Thailand – This condo isn’t worth a huge amount, but it’s another thing to deal with. She is not a Thai citizen and that will make it very complicated. I guess we could transfer it to my brothers.
- Various miscellaneous accounts – I have accounts with Prosper, Kickfurther, Digit, and Loyal3. She’d need to track them down and sell them all off. These are just complications that she doesn’t want. I also have a small pension at Fidelity and a few shares of the old employer stocks at UBS.
- Retire by 40 blog – I have no idea what she’d do with Retire by 40 if I’m not around to run it. Ideally, she would take it over and keep it running, but I doubt that would happen. If she doesn’t update the blog, I think it would still bring in passive income for a while. But, her best bet would be to sell the business. (Note to Mrs. RB40: Talk to J Money if you need help with this.) She’d also need to track down my various business banking accounts, PayPal, and credit cards.
Our finances are complicated because I set it up to generate cash flow to help fund our early retirement. If Mrs. RB40 moves everything to a passive income fund, I’m not sure if there would be enough income to cover her expenses. This is especially true in this low yield environment. Vanguard Dividend Growth Fund only pays out 2%. The fund just closed a few months ago so that’s not even an option anymore. She’ll need to find a good fund and that can be daunting for beginners. She probably should get a good financial advisor to help her figure all these things out.
Cash is King in uncertain times
When life is uncertain, cash can help to smooth things out. I have a $250,000 term life policy and it will be very useful for my family. All the things I listed above will take time to deal with. Having some extra cash to help pay for unexpected expenses will let Mrs. RB40 take her time with them. She could even payoff our mortgage if she chooses to. That way, her monthly expenses will be quite a bit less and easier to cover.
Oh yeah! I almost forgot about my Social Security benefit. I just checked my online statement and my family will receive the following survivorship benefit from Social Security:
- My child (until he is 18): $2,070 per month
- My spouse who is caring for my child (until child is 16): $2,070 per month
This is actually a significant amount and it will cover over 90% of our monthly expenses ($4,500.) The rest should be easily covered by the dividend income. The cash flow equation looks good when we take Social Security into account.
What about Mrs. RB40’s life insurance?
Mrs. RB40 has life insurance through her employer. Her coverage is 5x her annual income. That’s a lot of coverage for a very affordable cost, but she will only be there for a few more years. She is 42 and it’s probably best to get some life insurance coverage outside of work very soon. The rates for term life insurance increase as you get older.
I could probably handle our finances if I was alone, but I would be very stressed out. I know I’d be in a deep depression if something happens to Mrs. RB40. I wouldn’t be able to deal with the finances for a while. At least, her accounts are a lot less complicated than mine. She only has a few retirement accounts under her name.
Let’s stay healthy
Dying sounds like a ton of trouble for my family. I’d better stay healthy and live another 42 years. Mrs. RB40 needs to do the same. That will give us time to simplify our finances. There are different levels of financial independence. I feel like we’re just a beginner in the FI world. In 10 years, we will be more comfortable and we might not need life insurance then.
Do you think you need health insurance after financial independence?
Getting Life Insurance
If you need life insurance coverage, you should get it sooner rather than later. The rates will increase as you get older and your health won’t get any better either. I prefer term life insurance for simplicity and affordability.
The term – I selected a 20 year term because that’s the crucial period for my son. Once he’s old enough, he can take care of himself.
Coverage – This really depends on your financial situation. I picked $250,000 because that would be enough to pay off our mortgage and leave a little extra for the family. If you don’t have any debt and already set enough aside for your kids, then you probably don’t even need life insurance.
Getting a quote – Getting a quote is fairly simple. One company that can help is SelectQuote. I filled out their online form and they called me right back. Mrs. RB40 has some existing conditions so they needed a bit more detail. Here is the rate for a 20 year term life insurance for her.
- $250,000 coverage for $51 per month
- $400,000 coverage for $79 per month
Wow, that’s more than what I’m paying now. I pay just $25 for my $250,000 policy. I didn’t have any existing conditions when I got the policy and that makes a big difference. I was younger, too, when I got my policy. That’s why I think it’s better to get a life insurance policy sooner rather than later.
You can get a free quote in just about 10 minutes by filling out the online form at SelectQuote. They have been in business for over 30 years and has expertise in finding the lowest cost life insurance option.
*This article was sponsored by SelectQuote, but all thoughts and opinions are my own.
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