Life Insurance

I don’t know why, but life insurance is a hot topic with some folks. Some strong opinions about what kind of life insurance is best, how much you should have, and what it’s intended use is.

There are two main types of insurance:

• Term
• Universal/Variable/Whole Life

Universal/Variable/Whole Life Insurance

Let’s talk about the universal/variable/whole life first. These combine an investment with insurance and they build cash value. I’ll be honest, I cringe when I hear someone mention they have one of these policies. If you want an investment vehicle, there are many other (much better) ways to do so. Investments should be kept separate from your life insurance needs.

Here are some of my thoughts around why I don’t care for whole life type policies. First, the benefit amount (when you die) is generally low and not enough to cover the amount you should have. Another reason is the fees involved. There’s a reason why insurance agents push this type of policy, they get some sweet commissions off of sales and the annual fees associated with administering the policy are high. When you run through and figure all the fees involved, your rate of return (which is low to begin with) is reduced even further.

In my opinion, you’re better off putting your money into a term policy for your life insurance needs. For investments, put your money in an investment account. With a little research you have a shot at better annual returns than that universal life policy. Remember, the stock market has a historical rate of return around 8% over the long term. Go ahead and try to find a policy that will give you that.

Term Life Insurance

Term is pretty straight forward, it’s just what the name implies. It’s in effect for a set period of time and only pays out in the event of death. It’s the simplest and cheapest form of life insurance you can buy. And the type of policy I would say everyone who should have life insurance should have. No, not everyone needs life insurance. We’ll get into that later.

How much?

As far as how much is a good amount of life insurance to carry there are several things to consider. Are you younger, older? Is your home paid for? Do you have a lot of financial obligations? For me it comes down to how much of an impact your missing income will be to the household. Generally, the younger and more obligations you have, your replacement should be higher. I shoot to be covered for 7-10 times my annual income. If my income were to disappear today, I want to ensure Nicole and the kids have enough to cover what my income would have been needed for. But maybe you’re retired, your home is paid for, your kids are financially independent and you have regular monthly income which would pass along survivor benefits. Probably not a big deal for those in that type of situation to even have life insurance.

Where to buy?

All of my coverage as well as Nicole’s comes through my employer. They have really good term rates for myself and spouse coverage. I price it out at open enrollment time every year and it’s a better deal than I can find elsewhere. That may not be the case for everyone so do your homework.

But there are plenty of places out there to shop including; State Farm, Progressive, AIG, USAA, Met Life and many many others. Personally, my first stop would be State Farm. I’ve had State Farm for insurance since I started driving and have the same agent to this day. We’ve priced it out a few times over the years. Sure, there are a few places who are a little cheaper. But to me State Farm is worth the few extra bucks. The times we’ve had to deal with them, it’s been really effortless on our part. Their help and follow-up has been great and they work to not make things an inconvenience to you. You’re damn right, I’ll pay the little extra for better customer service no matter what the industry.

Conclusion

You’ve heard me say it many times in other posts, do your homework. Check into the different types of coverage, ask a lot of questions and research a good insurance provider.

Disclaimer: I am in no way affiliated with State Farm, nor am I employed by them or compensated by them to publish content found on this site.