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Buying Life Insurance
Last year, my wife and I bought new term life insurance policies to replace our expensive universal life insurance policies. Those old policies weren’t earning me nearly as much money as I was told they would – but that’s the topic of another post. So we researched how much term life insurance policies would cost and decided it was the best decision for us to replace ours. Be aware that replacing a policy is NOT always in your best interest depending on how long you’ve had the policy and how much a replacement policy would cost.
We bought term life insurance policies
First, a disclaimer – I am a big proponent of life insurance. I think it is a very important piece of most people’s financial planning process. In fact, in my previous posts I have discussed the importance of insurance in general and the importance of life insurance for a stay-at-home spouse .
I am also a big proponent of term life insurance policies. Term policies are currently so inexpensive for most people, they can really enable you to buy sufficient protection without a huge yearly outlay. I’ve read about the different types of policies and I would maybe concede that for some very high-income earners, the more expensive whole life or universal life might be worthwhile for tax reasons. But certainly for the vast majority of us, I think term life insurance is the best value. In fact, I have a friend who has been a fee-only financial planner for many years and has never recommended that any of his clients purchase anything other than term life insurance.
First determine your life insurance need
Maybe this isn’t the best way to buy it…but I’ll take you through the process we used and hopefully that will be helpful to you. We started off our search by determining how much life insurance we wanted to purchase. There are a number of useful calculators you could use to do this, such as these at msnmoney.com or smartmoney.com . Honestly, though, they all seemed so complicated and nebulous to me (how do I know how much my wife and kids would need to live on in 20 years?), so I didn’t really use one. I just picked a huge number and used that (by huge I mean 20 times my salary – its seems like that should be enough).
You should also take into account other sources for insurance coverage as well. For instance, my company provides a little life insurance at no cost and I can also get up to 7 times my salary at very low cost. So, I took advantage of that to get very inexpensive life insurance. Be careful not to count on these employer plans for too much of your need, however. If you change jobs or lose your job you won’t have it any more (or, if you can continue it, it will probably be at a much higher price). Also, the price goes up over time and will eventually become too expensive. So, I took all of this into account and used this extra to supplement our coverage for the next few years while my kids are young. As they get older and we can build up our net worth, we’ll be able to let this employer coverage drop when its gets too expensive. Supplementing with these policies enabled us to purchase less private life insurance.
The final thing to consider with term life insurance is how long you want the guaranteed rate. I think you can purchase a policy that will not change premiums for up to 30 years. Obviously, that will cost more than a 10 year policy. So, if your mortgage will be paid off and your kids will be finished with college and out of the house in 10 years, you might not need a 30 year policy. Remember that your ultimate goal here is self-insurance and decreasing your expenses and increasing your net worth leads you there.
Start by looking online
We then turned to the internet with some online searches to get an overview on what insurance was available and how much it would cost. There are a number of popular websites to start with like insweb.com , reliaquote.com , selectquote.com , intelliquote.com . (Note that I’m not endorsing these – I found them via a search…I do think I used insweb though)
We ended up using a local agent
On some of the websites, you enter your contact information and some local agents will typically end up calling you. I took some calls and asked some questions to see if I wanted to use a local agent. I told them right away that I wanted $X of term-life insurance to see what they would say. One actually told me he wasn’t interested in working with me since if I only wanted a term policy i could just get it from any online place. I guess that’s his prerogative if he feels like its not worth his time to sell me a term policy (but what does that tell you about how lucrative for the agents those expensive policies are?)
I did agree to meet with an agent who came to my house and brought a bunch of quotes (the same quotes as I saw online so I was comfortable with them). So we filled out forms and he arranged all the medical exams and such. I felt like it was beneficial to meet face to face as he was able to answer the questions we had and we got the coverage we wanted (he didn’t even try to convince me to buy the expensive stuff). Plus, since it wasn’t any more expensive, it was nice to help out a seemingly honest local agent trying to make a living like the rest of us.
Our agent actually saved us some money too
For my wife, she was rated as preferred by the insurance company. Our agent was surprised that she did not get the absolute highest rating so he went back and talked to his contacts and determined the reason that she only got preferred. He also determined which insurance companies have different underwriting standards. He then re-submitted her application to another insurance company and we ended up saving a few hundred dollars a year as a result – that was very good bonus!
So just get some life insurance
Anyway, the main takeaway is … get life insurance. Yes, yes, determine if you need it first (you probably do). If you do, consider an inexpensive term policy and since it is so cheap, get a lot of coverage. Be cautious if you are replacing a policy – please seriously consider whether that is the best thing to do. Start your search online but also consider using a local agent who will sell you what you want, not what makes him/her the most money.
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I bought a term life insurance policy using ReliaQuote (mentioned above) and was thrilled with their service–definitely would recommend them to others. I’ve also heard good things about SelectQuote.com, but I can’t confirm that personally.
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