Day #4, Do You Feel Safe?


It’s Mike from Fabulously Broke, were you able to find some cash from the tip in our previous email? I bet you did! If not, shoot me an email at, we’ll work on this together.

I’ve sent you ways to find some money in your own budget because we will use it today towards the most important pillar of financial planning: insurance! Oh man… are we really going to talk about insurance? Stay with me a few more minutes; you’ll realize how important it is.

Day #4: Do You Feel Safe?

One of the very first things I learned in finance is that insurance is the most important pillar. It’s the most important due to the gravity if you need it and don’t have it. For example, if you don’t have an emergency fund and your car breaks down, you can always take out a loan or borrow money from your credit card to have it repaired. It’s not the ideal scenario, but you can get away with it. However, if you pass away and you weren’t properly insured and leave your spouse and children with a mortgage and no money to cover your funeral; there is no turning back. So, Pete, do you feel safe in case you were to pass away today?

The problem with insurance is that there are a lot of questionable advisors, a lot of poor advice and various complicated products! It’s quite easy to get lost in this universe and that’s why I wanted to give you some hindsight on how to determine if you need insurance or not and what type of product you need. Don’t worry; I’ll make it very simple.

Insurance Needs in 3 simple questions


The first thing you need to do is to answer the following question. If you were to die today, would you leave behind:

  • ü Debts? (you need to cover them with proper insurance)
  • ü Financial dependents? (someone who will require your financial assistance for a period of time like a child or a spouse with a low income)
  • ü Gifts? (some people want to leave more money than required as a sort legacy)

As you can see, determining your insurance needs is quite easy if you answer these 3 questions. Now, let’s see which kind of products should be used to cover these needs:

How to Cover Your Debts

A debt, such as a mortgage or car loan, should have a term or an “ending date”. Eventually, you will be done paying off your car or mortgage. Therefore, you don’t need timeless protection to cover your debts. For example, if you have a 20 years mortgage, your best option would be to look for a term insurance of 20 years.

Term insurance covers
a specific amount (lets say $100,000) for a specific period of time. You pay your premium during that period. Term life insurance will cover you for a specific amount in a specified time period, such as 10, 20, 30 years. If you die during that period of time, the insurance company will pay your estate or your heirs the amount of the insurance (the $100,000). This amount is not taxable and will be disbursed quickly. However, if you die after the term ends and you havent gotten a new policy, you will not be covered. Between the two options, its usually much cheaper in terms of premiums. On the other hand, if you die at the age of 65 and your mortgage has been paid off since you are 50, there is no need to maintain a life insurance policy to cover this need; it doesnt exist anymore!

In other words; term insurance is like a bikini; it only covers the important parts!

How to Cover Financial Dependants

Its sad to say; but you have an economic value. Your economic value is defined by the following equation:

Your Net Income  Your
Own Expenses =

Your Economic

Your economic value is the amount that your spouse and/or children benefit from your salary. Your own expenses are defined by what you use from your salary to live that would disappear from the household budget if you were to pass away (food, clothing, 2nd car, etc). Things like the mortgage payments and utility bills wont disappear. And this is what you are usually trying to cover with your insurance policy.

A rule of thumb says that you must have at least 7 times your gross income in insurance to prevent your family from a financial disaster upon your death. Now, you need to decide if you want term insurance or a whole life insurance policy to cover this need.

Whole life insurance will
cover you for your whole life. Therefore, no matter if you die at 30 or 99, you will be covered for the same amount. This could be very useful if you know that your spouse wont be able to recover the loss of your income in the household. This is why most insurance agents will try to convince you that you need a base of whole insurance combined with another larger amount in term insurance. You also have the possibility to invest money in your whole life insurance policy in a tax sheltered account. Ill get back to the main differences between term and whole life in another email; I dont want you to bore you to death today!

In other words; whole life insurance is like a good pair of shoes; they are always good for everything but might be a little expensive.

Term Life Vs Whole Life 5 Second Recap

Pete, are you still with me or did I lose you at the beginning of this email? If you don’t want to bang your head against the wall after reading this, just look at this quick recap and you’ll remember everything:


Term Life

Whole Life

Cheap Cost




Possibility to increase



Good for a specific period


Perfect to cover debts


Offer tax sheltered investments


What’s The Next Thing to Do: Get the Best Insurance at the Cheapest Price

My most trusted partner,, has developed a free tool that enables you to find the best insurance coverage at the best cost. Try it here. Through a simple questionnaire that will take you less than 5 minutes to answer, will guide you through the insurance universe and will find you the best quote for free. For Canadians, Rate Supermarket and Kanetix are the freetools that I personally use. Unfortunately, both sites provide you with the best insurance quotes but don’t assess your needs as Mint does. You can always assess you needs first, and then, shop with Rate Supermarket and Kanetix.

If you feel that you need for more advice on life insurance before signing for a policy, I’d suggest that you meet with 2 different brokers. I know, it’s a pain to talk to these guys but it’s definitely worth it. When I first got insured, I signed the first offer from the first guy I met. That was a huge mistake! I ended-up paying $50 per month more than what I pay now for life insurance that didn’t even meet my needs!  I was shocked when I realized how much money I was wasting!

Life is simple; life insurance should be the same ;-).

Speaking of simplicity, our next email will be all about it!

Stay tuned for Day #5: You Deserve a Better Life!



About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.