Dear Dave,
I just discovered you and your teachings a couple of weeks ago. I’m already on Baby Step 2, and I was wondering if I should buy life insurance now or wait until I’ve finished paying off debt. I’m single with no children, and I owe a total of $44,700. I have a $25,000 companyfunded life insurance policy through my employer. What do you think I should do?
— Elizabeth Dear Elizabeth,
If you have a life insurance need, it’s not a Baby Step. It’s a necessity in your budget and something you need to put in place as soon as possible. Butfromwhatyou’vetold me, you don’t have a great need for life insurance at this point. No one, except you, is depending on your income, and the $25,000 policy you have through your employer is more than enough to take care of any final expenses if something happened to you.
The main purpose of life insurance is to take care of those you leave behind when you die. If someone is financially dependent on your income, I recommend having 10 to 12 times your annualincomewrappedupin a good level term life insurance policy. That means if youmake$80,000ayear,you should have a policy worth anywhere from $800,000 to $960,000.
If I were you, I wouldn’t buy another life insurance policy at all right now. If you get married or have kids somewhere down the road, then buy it immediately. In that case, both you and your spouse should have 15- to 20year level term policies of 10 to 12 times your individual incomes.
And never buy anything except level term life insurance. The reason? That covers you until you’re out of debt—should a spouse bring some into the picture—and the two of you have so much cash piled up that you don’t need to pay for a life insurance policy anymore. It’s called being self-insured, and that’s a great place to be.
Good question, Elizabeth!
— Dave Dear Dave,
My husband is a union memberandworksatapaint factory near our home. His union’s current contract will expire in nine months. We have about $27,000 of debt left to pay off, and he makes a little over $80,000 a year. I’m nervous because his slow season is coming up between now and then. During this time, he usually gets about half the hours — and, of course, less money — than he does during the rest of the year. I’m a little scared, even though there hasn’t been a strike in the last six years. Do youthinkweshouldgoahead and pay off our remaining debt or hold onto every penny in case they walk out?
— Cheyanne Dear Cheyanne,
I’m going to tell you something that might just blow your mind: You two can pay off the debt and have some money set aside to live on in that length of time. If you do that, you’ll actually be more ready for a strike than ever before. You’ll both have to be on the same page financially and do things with a sense of urgency, but right now, I don’t think you’ve got too much to worry about.
The likelihood of them going on strike is pretty low. Chances are, they’re just rattling their sabers and talking big to posture for the negotiations. Most factories are behind right now, and the last thing they want is to get even further behind. Everything has been so screwed up by COVID-19 that unless the union demands some completely ridiculous stuff, things will probably work out fine.
I think you guys are going to be fine, Cheyanne. Should you be intentional and thoughtful about the situation? Absolutely. It’s alwayswisetolookaheadand plan for the future. Getting that debt paid off and saving up a bunch of cash will give you real peace of mind.