The FIRE-Minded Approach to Life Insurance

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The only life insurance that makes financial sense for most people is term life insurance, but there are occasional uses for cash value life insurance for a small percentage of individuals, and I’ll touch on those below.

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With a declining need for coverage, one can ladder multiple policies and save some money. Dropping the coverage altogether once FI has been achieved is another consideration for the FIRE crowd.

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The Purpose of Insurance

Insurance exists to allow people to share in the financial impact of detrimental events. For a relatively small monthly fee, you are protected from financial ruin if something awful happens to you or the things you own. In reality, your monthly premiums are used to pay for other people’s calamities and the overhead and profit of running an insurance company.

It makes sense to insure anything that it would be difficult to live without or replace without financial assistance. Insurance also helps protect you from damage inflicted not only on things you own, but also by things you own, like your truck, slippery sidewalks, or unfriendly canine.

We’ve established that life insurance is important when others are dependent upon you and the income you provide. If you have a partner and/or offspring to which you provide financial support, insure yourself.

The point of this stuff is to make sure your remaining kin can maintain a comfortable lifestyle in your absence. If you have achieved financial independence — meaning you’ve got enough money to live your desired lifestyle indefinitely without earning another cent — term life insurance is redundant.

Whole, universal, and variable life insurance policies and the myriad variations on them are different forms of cash value life insurance. Most of them are expensive to own, lucrative to sell, complex to understand, and inappropriately marketed and sold to people who would be better off keeping insurance and investing separate.

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