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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:
Once you determine how much insurance you need, the next big decision is what type: term or whole life.
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 Step, What Are the Odds and Triple Play. Follow Rick on Twitter @RConnor609.
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Interesting discussion. Coverage is often overlooked. I too relied mostly on group insurance, but had my family needed it, the coverage would have been way too little. Many people look to insurance before retirement, but then forget about what’s needed in retirement for a surviving spouse to live on. The stories I could tell from fifty years managing employer benefits.
Two points I would like to add. First, a good source of life insurance is term insurance through professional association affiliates. I became a member of IEEE (Institute of Electrical and Electronic Engineers) in college and started my first term life insurance policy through their affiliate New York Life. You get the benefit of group rates based on 5 year age windows and you can change employers without worrying about this critical family support system. This served as our primary life insurance throughout my career.
Second, determine at what point you are “self Insured”. As I turned 60 and was planning for early retirement we determined that we had reached that enviable stage of being “self-insured”; no debt, ample retirement funds based on longevity predictions and current assets and all event funding (college, weddings, etc.) completed.
For a lot of people whole life does not make much sense unless the policy is used as a vehicle to pay for long term care if the retiree does not have LTC insurance. So called Combo policies help pay for long term care services if required or a death benefit when policyholder dies if the long term care benefits are not needed.