Monday, February 20, 2012

Let's talk Life Insurance

A little unknown fact about me is that I am, and have been, a licensed Life & Health insurance agent for the past 8 years.  Even though I'm licensed, I don't currently sell these products (nor have I ever sold for any individual companies - I previously worked for a benefits consulting firm), so I figure now is a good time to offer my unsolicited advice on insurance since I have nothing to personally gain.

Do you have life insurance?  Do you  have a family with young children?  If the answer to the second question is "yes", then the answer to the first question should also be "yes".  Not sure how to get started, which products are the best, or if you have enough?  Here are a few tips, and this is your chance to ask questions to someone who has nothing to gain by selling you something!

  • Whole Life Insurance - too expensive and not worth it - don't waste your time.  Most insurance agents push Whole Life or Universal Life/Variable Life (below) because this is how they make their money.  Don't fall for it. 
  •  Universal Life Insurance or Variable Life Insurance - these are a blend of Whole Life Insurance and Term Life Insurance policies.  Still to expensive, don't waste your time or money.  A better plan is to invest your money in mutual funds/stocks/etc., and then purchase a Term Life Policy (below).
  • Accidental Death & Dismemberment (AD&D) - NOT life insurance.  These policies are CHEAP b/c they're not really life insurance - they ONLY pay if you die in an accident or are dismembered (two things that statistically are extremely rare, which is why these policies are so cheap).
  •  Term Life Insurance - this is good for a set period of time, usually in 15, 20 or 30 year increments (meaning if you're 30 when you purchase a 30 year term-policy, then it will last until you are 60).  Term Life Insurance is what I recommend, because it is the cheapest, and gets you through the time that you really need protection for a young family.  The point of life insurance is not to leave an inheritance to make someone rich, it is to protect your family members who would need help if they lost you (usually a spouse with young children). Generally speaking, you want 7-10 years living expenses for your family.  So, if your family is bringing in/living on $50,000 year right now, you need $350,000 - $500,000 in life insurance between the breadwinners in your home.  Something to remember with a term policy - SOME is better than none.  If you can't afford a $500,000 policy for your spouse, but you can manage a $250,000 policy,  then do what you can manage, because at least some will get your family through until the other spouse can work, etc.  Remember that you may also have a term policy through your work, and that you will probably be getting some social security benefit from a spouse that passes away.  You need to figure in all of this when determining how much you need in a policy.  Also something to know is that often times you may have a number in your head, thinking you want to purchase, say $300,000 through a Term Policy, but the company that gives you a quote may have their price breaks at $250,000/$350,000/$500,000, so a $350,000 policy may cost you the same as a $300,000 policy - SO, the important thing to know it to ask for quotes on a range of policy amounts so you can determine what makes the most sense financially. 

Term Life Insurance can be purchased through just about anyone - your bank, a broker, AAA.... everybody sells this stuff.  To get a quote, you fill out a short application, and then the insurance company will pay for a lab to send someone to your home, draw some blood, and ask you a bunch of medical and family history questions.  After they test your blood, they'll send your results along with you family history and application to their underwriters, who will determine how high a risk you are/how much your rate will be.  After you're notified what your rate is, you have the option to continue the life insurance policy OR to cancel with 100% back on your money. 

Something else to remember about getting life insurance - it gets more expensive as you get older, so if you can buy when you're young & healthy you'll be able to lock in the best rate. 

My husband and I purchased individuals policies when I was pregnant with our first kid.  We used Matrix Direct (a broker), and ended up with policies through AIG.  We have 30 year term policies, so they'll be good until we're 59.  We purchased "Return of Premium" policies, which means than if when the 30 years is up we are still alive, we get 100% of the premium we paid over the 30 years back.  Return of Premium policies are usually $10 - $20 more per policy per month, but we're hoping that if we're still alive it'll be worth getting all of our money back in the end. 

Life Insurance isn't a fun topic to think about... but it really is important.  Got a question?  Ask me in the comments section below and I'll do my best to answer. 

No comments:

Post a Comment