Choosing Life

Richard Connor

NONE OF US WANTS to contemplate our own mortality. But we all need to think about it—including thinking about life insurance.

I was lucky enough to have a long tenure with a large company that provided term insurance at reasonable prices. My employer provided two times our salary in coverage and we had the option to purchase additional coverage equal to eight times salary. I was also able to buy insurance on my wife’s life equal to three times my salary. Together, this coverage sufficed for my growing family for 31 years, right up to early retirement. In retrospect, I realize how lucky I was to maintain continuous employment with a strong company offering generous benefits.

My program for the Certified Financial Planner designation included an excellent course on insurance. The first and biggest challenge is figuring out how much life insurance you need. There are two main approaches:

  • Multiple of salary. This is a simplistic approach. Insurance companies often recommend six to 10 times an insured’s current salary. This doesn’t consider the specifics of an insured’s financial situation and could leave a family over- or underinsured.
  • Financial need. This is a detailed analysis of the surviving family’s likely needs. It takes into account existing assets and sources of income, and it considers the needs during all phases of the family’s future life, including childcare, college, weddings and even the retirement of a surviving spouse.

Once you determine how much insurance you need, the next big decision is what type: term or whole life.

  • Term insurance is relatively inexpensive and provides protection for a limited period, perhaps 10 to 30 years.
  • Whole life—also known as permanent insurance—is designed to provide protection no matter how long you live. Permanent policies can be costly and complicated, and they require a fair amount of expertise to evaluate them.

Where do you get life insurance? Like me, many folks get coverage through work. It’s often the easiest route, though not usually the cheapest if you’re in good health. Why not? Employees can often get coverage without any medical underwriting and insurers price the policies accordingly. On the other hand, if you have health issues, coverage through your employer may be your least expensive option.

You can also buy life insurance through insurance brokers and agents. The latter are often associated with a major insurance company. Finally, there are websites that allow you to get quotes from multiple companies.

I’ve been thinking about life insurance recently for a couple of reasons. My youngest son and daughter-in-law are expecting their first child in a few months. I plan to have a discussion with them about insurance. They’re smart, successful and healthy, so I don’t think they’ll have any issues getting the coverage they need. They’re unlikely to spend decades with one employer, so it may make sense to get their insurance elsewhere.

I also recently talked to a family member about his need for life insurance. He’s in his early 40s, married and has two daughters. He’s had some significant health issues in the past that make him a greater-than-average risk. He owns a term policy that’s approaching the end of its coverage and he has the option to convert it into a whole life policy, but at significantly higher premiums. What about purchasing a new, standard-issue term policy? He likely wouldn’t pass the medical underwriting. He could qualify for a “simplified issue” or “guaranteed acceptance” policy—but, in both cases, he’ll face steep premiums. Someone in this situation would do well to engage a financial professional with expertise in hard-to-place life insurance.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Step by StepWhat Are the Odds and Triple Play. Follow Rick on Twitter @RConnor609.

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