Live Off Dividends

Passive Income and Personal Finance

Why I Started A $1,000,000 Life Insurance Policy At Age 23

Why I Started A $1,000,000Life Insurance Policy At Age 23

As much as we may not want to think about it, death is inevitable and it’s better to be prepared for when that time does come. Starting a life insurance policy at age 23 may seem absurd. But it’s not so much for the death benefits. Though, if anything unexpected were ever to happen to me my family would be more than covered with my policy. So why start a life insurance policy so young? There are a few reasons.

 

Term vs. Whole Life Insurance

Understanding the difference between term and whole life insurance is important when starting a policy.

Term insurance is just what is sounds like. Insurance for a “term” 5, 10, 15, 20, 30 years or sometimes until you reach a set age, 80 for example. You are only covered during this term and the policy gets more expensive as you age, especially past age 50. Term insurance only provides death benefits and it can also be converted to whole life insurance. Term insurance is much more affordable than whole life insurance.

Whole life insurance is also known as permanent insurance. Once you start a whole insurance policy you are covered for life, unless you cancel your policy. The beauty of whole life insurance is that your cash value is guaranteed to grow to set amount and you receive a dividend on top of that with any unaccounted for surplus. It generally takes at least 10 years to build up a decent cash value, but you are able to withdraw a portion of the cash value or even borrow against it during the life of the policy.

For both of these policies you need to do a health screening to determine your current health and risk for further health issues.

 

Non-Market Asset

To further diversify my portfolio I decided it was important to have a non-market asset. Life insurance is the perfect option to fill this void. My cash value is guaranteed to grow whether the market is performing well or not. It is important to me to have a non-market asset for when the time comes that I retire. If I have to endure an extremely down market where dividends are being cut and my capital is extremely devalued I don’t want to be pulling money out of the market. If an event like this occurred I would be able to pull money from my life insurance account rather than from the market. Hopefully long enough until the market bounced back.

 

My Plan

There are a couple reasons why I decided to start a $1,000,000 life insurance plan so young. I have some term insurance and some whole insurance. There’s a reason for this as well. I had to do a health screening to get both of these policies and I figured it would be wise to lock in my health now while it is near perfect. I decided to do a term-80 (term policy until I’m 80 years old) that way I’ll never have to do another health screening for my term insurance unless I decide to increase my policy. Of course the same goes for my whole life insurance, I’ll never have to do another health screening.

That’s important because your health rating makes a significant impact on the price of your insurance. As does your age. The older you are the more expensive your policy will be.

I really only want a whole life insurance policy but unfortunately there’s just no way that I could afford a $1,000,000 whole policy right now. But at the same time I do want to have a $1,000,000 policy. I feel that this amount would be more than sufficient if I were ever to pass unexpectedly. So the answer? Get two policies. $1,000,000 policy, $100/month (the amount I’m currently willing to spend on life insurance), with as much whole life insurance as possible.

When I’m ready to invest more money into my life insurance policy monthly I can simply convert some of my term insurance to whole insurance. I plan to do this slowly until my term insurance is gone and it is all transferred to whole. That will give me a $1,000,000 whole life insurance policy and a substantial non-market asset.

 

Who else started a life insurance policy at a young age?

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8 Comments

  1. Sounds like a good plan and a big one, everything takes time but knowing what you want is the real deal to actually get it. Good luck with that mate!

  2. Alot of people ignore or dont want to think about this, better to he prepared then have your family go in debt over you.

  3. Great post! I think it’s time I get a whole life insurance policy.

  4. Hey John , i would like to talk business
    sent you my email

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