#081 | Everything you need to know about life insurance

January 25, 2021

Episode Summary:

In this week’s episode, we talk about all things life insurance. What type of life insurance do you need, and what type should you avoid? (hint: you need term, avoid whole life) When should you get life insurance? How much life insurance do you need? How much will life insurance cost you? How can you get the best rates? We think life insurance is ideal for most people to have, and you should understand how much you need and how it works. And it’s worth your time to shop around to get the best pricing and avoid over-insuring yourself.

Episode Notes:

We start by discussing our own experiences with life insurance, and then we dig into all of the details and common questions around life insurance.

Three basic types, with the first two being the most prominent:

Term Life

Pay a monthly premium for a fixed payment made upon your death with a fixed term. Pretty inexpensive.
It’s simple and can be purchased everywhere.

Whole Life

There’s no term, but you get a payout at death as long as you keep paying your premiums.
It’s pretty expensive.
Pretty scammy. Salespeople get massive commissions because it’s incredibly profitable for insurance companies.
Positioned as an investment, but only after many years is the plan worth more than you’ve put it. And even the payment upon death isn’t as good as you could get just investing.
Many people who have already bought a whole life policy would still benefit from canceling it and cashing it out now. It is not the sort of thing where you should just stick with it once you get into a whole life policy.

Accidental Death and Dismemberment

Only pays upon death or gruesome injury caused by accident.
It’s not technically life insurance, but we include it here because it’s the cheapest option by far, and for healthy people, you’re much more likely to die in a car accident than of natural causes.

There’s also something called Long-term disability insurance. Many would argue this is more important than life insurance. It protects you from a loss of income if you become injured or sick and can’t work. We’re not going to cover this in-depth, but it’s something to consider, and we’ll do a show on it in the future.

Do you need it?

Like all things, it depends.
It’s peace of mind that your family will be taken care of if something happens to you, so for most people, that’s worth it.
If you’re already financially independent, then you don’t need it. The whole point of life insurance is to make sure your family is taken care of if something happens to you. If something happens and you already have the amount a policy would be for in the bank, then you’re fine without it.

How much will it cost me?

It could range from $10-200+ a month – The cost varies based on your age, # of years, current health, and the company quoting you.
It’s like all things, do your research and shop around for the best rates. If you have access to USAA, they have some of the best rates.
If you already have life insurance, it could still be worth it to shop around five years into a policy and it might still be cheaper.
Most companies offer a basic plan at no cost and additional coverage, which is subsidized or at a better rate. Remember that life insurance often goes away instantly the minute you no longer work for the company. We think of this as just extra icing on the cake, but it’s not the cake. Don’t rely on this. We suggest avoiding adding additional coverage through your employer and going through a personal policy for any life insurance needs you have. It can also take a couple of months to get a new policy in place, so you can’t just be covered the day you find out your lost your job and replace your work sponsor’s life insurance.

When + how long should I have life insurance?

If you have other people depending on your income to live comfortably, then you should consider life insurance.
Think about the quality of life you want for your partner and children if something happens to you. Do you want their college paid for, the mortgage to be paid off, etc.
Get it priced out at different options, and then think about what’s important to you. For $1M it might cost you $65 a month, and then for $500K it might cost $40. Decide if it’s worth that extra $25 a month for you to have twice as much for your family. This is a personal decision.
You can’t increase the length without redoing your entire policy, but you can reduce the length by canceling it whenever you don’t want it anymore.
You can stop paying on a term policy at any point, and it will cancel. This means if you get a 20-year policy and then become financially independent in 10 years, you can just cancel your policy.

Where do I get life insurance?

Like all things, shop around!
You can call a few companies to get quotes, or you can use a comparison site like policy genius to get a bunch of initial quotes. Beware, when you fill out forms on sites like these, you’re often going to get a ton of follow-up emails and phone calls, as you’ve just given your info out to lots of companies who sell insurance.
If you’re eligible for USAA, we highly recommend you check that out. If you have a family member who was in the military, you may be eligible. We’re eligible because my father-in-law was in the military.
Like with all things, make sure you choose a reputable company with high ratings. Nerdwallet has a good listing of best-rated insurance companies.
The process includes a fairly lengthy application, usually online, with lots of questions about your medical history and lifestyle. Then there’s an in-person physical, and most companies send someone to your house to take vitals, blood, etc. They often will require copies of medical records if you have certain conditions or have had recent procedures.
The shopping process and then getting your medical appointment and approval can sometimes take a couple of months, so don’t delay and get started today!