As expectant parents or parents of young kids, you’ve heard that you should get life insurance, even if you already have some through your job.
Maybe you even know a family who lost the primary earner in the household, leaving the family to scramble to pay medical bills and living expenses going forward? (I do, which is what inspired this post.)
Of course, you want to protect your family, but you don’t know how much you need, where to get it, or how much it costs. Frankly, it sounds complicated, and asking questions about it feels like inviting a pushy insurance salesman to sell you something. Besides, you are busy!
I’d like to take some of the mystery out of the process for young families. Let me break it down for you.
Do you need life insurance?
If you have kids, you probably do need to consider life insurance, even if you have a group policy through your employer. What you have at work is usually either a multiple of your salary (usually 1-2 times), or a set number that you request based on your family’s financial obligations. If you leave the company, you may be able to take over the policy, but maybe not. The problem from a financial planning perspective is that it may not be enough coverage ($50,000 won’t get your family far) and that you may not be able to take it with you if you leave the company (voluntarily or involuntarily).
What kind should you get?
Term life insurance is usually all you need. The “term” is the period of time that the insurance is in effect – 10, 20 and 30-year policies are common. At the end of the term, you don’t have insurance anymore, but that is okay because by that point the kids could be grown and no longer dependent on you anyway. You can also work to ladder your insurance policies to ensure that you always have some coverage, but that the amount (and corresponding premium) decreases as you age and get closer to retirement. (This can be a confusing and complicated strategy to coordinate – and it’s best to ask a financial planner before moving forward with it on your own).
What about permanent life insurance?
For permanent coverage, you can buy a “cash value” policy – whole life or universal life policy. This type of policy has both an insurance and investment component. There may be many options to consider, but it will generally cost much more – up to 10 times as much more – as a term policy with the same death benefit. For that reason, I strongly prefer term life insurance for most young families.
How much coverage do you need?
As much as needed by your family in the event that your income is unexpectedly lost. Consider the expenses of the family (including college) and the debt you would leave behind (like your mortgage). Consider your budget as well. It is better to get a policy you can definitely afford than risk losing your coverage if you are unable to afford the payments. You will want several quotes with different term and death benefit combinations: 30 year / $1 million, 20 year / $500 K, for example.
How do you get life insurance?
The process may seem daunting, but it is not that hard. Life insurance may be sold only by a licensed agent in your state. You can get quotes online based on your date of birth and self-reported height, weight and smoking history, but the policy will not be issued without “medical underwriting,” which means the insurance company will review your medical records to assess your health and their risk.
The process depends on the insurance company, but you can expect the following:
- Quote. Get several quotes from multiple insurers. You can do this online or from a licensed agent (yes, I am licensed, but I only quote life insurance for clients).
- Application. Once you choose the policy you want (carrier, term, face value and premium), your complete information is submitted to the insurance company.
- Phone Interview. The insurance company will conduct a phone interview, which includes questions about your occupation, financial statements, and medical history. This may take 20-40 minutes.
- Paramedical Exam. A nurse will come to your home or office, and takes your height, weight, blood pressure, blood and urine. It sounds pretty strange, but they are generally very efficient and the whole thing takes five minutes. Your blood pressure, cholesterol, and of course the presence of any nicotine or other substances in your system will affect your eligibility and the rate you will pay for your insurance.
- Medical Underwriting. The insurance company will review your medical records. This usually takes several weeks.
- Offer and Payment. The insurance company will make an offer. This may or may not be exactly what you were originally quoted, it depends on the medical underwriting results. Sign the paperwork, submit your initial payment, and congrats, you’re insured!
Not that hard, right? If all goes smoothly, the whole process should take 4-6 weeks. So if life insurance is on your list, go DO IT. You’ll be glad you did.
Note: The Stanich Group, LLC does not sell life insurance.
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