Life Insurance
Finding The Meaning of Life (Insurance)
There are several things that make life insurance unlike any other form of coverage or investment.
First, while most of us aren’t necessarily eager to get sick, have an accident, or need to replace our homes, we accept that these things sometimes happen – but hold out hope they’ll never happen to us. Death, on the other hand, comes to us all, eventually. Ironically, that makes it harder for many of us to think about it or talk about it in the way we do things that might happen.
Second, the major life insurance policy types and how they work aren’t as intuitive as most forms of vehicle insurance or health coverage. The many different types of life insurance are often confusing and can be a bit overwhelming. How do we even begin doing our own life insurance comparison if we’re not sure we fully understand the things we’re comparing?
Third, and perhaps the hardest to admit, it’s the one form of insurance we won’t personally have to do much with if and when it becomes time to collect. However much we love those we leave behind, some part of us assumes they’re figure it out one way or the other. Life insurance companies have procedures and rules and know what to do, right? It will work out, probably. And besides, we’ll be… you know… gone.
Let’s just accept up front that life insurance is no fun to talk about. It makes us think about dying and that stinks. It can be frustrating trying to make sense of the numbers and terminology and what happens if this vs. what happens after that. The reality is, however, that for many of us, it’s the most responsible thing we can do for our families or others we leave behind. We may not know firsthand what happens after death, but by now we’ve had some experience with what happens with those left behind. It’s a bewildering, exhausting, and – let’s be honest – expensive time.
Nothing we can do will make the experience easy, but we can prevent it from being harder than it needs to be. That’s not the job of the life insurance companies or medical professionals. That’s on us. Not everyone needs to get life insurance, and not everyone who does needs the same things. Let’s at least consider a few options.
Different Types Of Life Insurance and Other Questions
If we strip away all the details and small print, there are two basic types of life insurance plans: term life insurance and permanent life insurance. Whole life is a type of permanent life insurance and covers many of the most popular types of permanent coverage, so you’ll often see the two main options framed as “term” vs. “whole life.” However one categorizes the options, their fundamental purposes are the same – to help take care of your family financially if and when you’re gone.
+ Term Life Insurance Plans
Term Life Insurance is the more basic of the two. It insures your beneficiaries against your death during the life of the policy, meaning if you die while covered, they receive the amount specified by the policy. In most cases, the payout is tax-free. Term life insurance is the type of coverage most like vehicle coverage or renter’s insurance. Your premiums (the amount you pay monthly) are shaped by your age, health, lifestyle, sex, and other statistical factors, much like auto coverage. Also like more familiar types of insurance, if you choose to let your policy expire, those payments are gone – there’s no accumulation of wealth involved.
Because it’s fairly “no frills,” term life insurance tends to cost less than whole life when other factors are equal. Most policies give you several options when their term is about to expire. You can extend the existing policy, although in most cases your premium will be recalculated based on your current age, health, and lifestyle. You may be able to convert it to more permanent coverage without starting entirely from scratch. Or, of course, you can simply let it end.
Term life insurance is sometimes a good choice for couples with younger children or who recognize the need for coverage but can’t afford more comprehensive policies. It’s easier to secure substantial coverage at an affordable price, then reconsider in a decade or two when the kids are grown (and can better take care of themselves) and you’re in a better position to pay more for a whole life policy of some sort. Or, perhaps there are other factors one can reasonably expect to change by the time the policy has expired and it makes sense to pay less now while things play out.
Your employer may offer group term life as one of your benefits. This group coverage has the advantage of costing you little or nothing, and isn’t as dependent on your age, health, or lifestyle. Because it’s general coverage meant to encompass a large group, however, these policies tend to be fairly limited and aren’t always an adequate replacement for a privately purchased policy. Coverage does not generally follow you if you leave the company.
Any term life insurance comparison should consider not only payout amounts, but options for conversion or extensions, as well as any details which might impact claims in specific circumstances – accidents, natural disasters, suicide, etc. Most term life policies are fairly straightforward, but anytime you’re asked to sign a contract, there’s a reason. Every line of small print says something and has a purpose, whether it’s merely fulfilling a bureaucratic regulation or clarifying a major policy issue.
+ How Much Life Insurance Do I Need?
No matter what type of coverage you choose – from the most basic life insurance to a more comprehensive family life insurance policy or universal life insurance coverage – you should start by figuring out how much income would have to be replaced if you were suddenly out of the picture.
If you’re not sure where to begin, start with your total income right now and approximately how much you’re likely to bring in over the next five years. Then, add all outstanding debt for which you’re responsible – mortgage, vehicle payments, credit cards, student loans. Add those to the total. You’ll want to allow for funeral and other end-of-life expenses, so include several thousand dollars or more for those as well. Just to be safe, it’s a good idea to bump up the final total by 20% or more to cover miscellaneous expenses.
This isn’t a final total, you understand – just a starting point to give you an idea of what you should be considering as you examine different types of life insurance plans. Most of the time, we’re surprised by just how expensive “replacing” us could be.
+ Permanent Life Insurance Plans
Permanent Insurance, as the name implies, is meant to last for the life of the person insured. You’ll often hear the terms “permanent insurance” and “whole life insurance” used interchangeably, but they’re not exactly the same. Whole life is a type of permanent insurance, but not all permanent insurance options are whole life.
Most permanent policies allow for the accumulation of savings over time and are thus considered investments as much as they are insurance policies. In many cases you can borrow against them tax-free, making them even more flexible and appealing. These policies generally cost more than term policies and come in a bewildering variety of options. Permanent life insurance plans are typically considered in four basic sub-categories:
Whole life insurance is by far the most common. Whole life policies generally have a fixed premium which you pay each month for the life of the policy. This means locking in terms while you’re healthy and younger can have serious long-term advantages. There’s a fairly wide range of options and other differences between various whole life policies. Any meaningful whole life insurance comparison is about understanding and comparing features as much as it is premiums or payouts.
Universal life insurance is less common, but often preferred by higher income individuals. They offer protection for loved ones in the event of the your death while doubling as a relatively flexible investment tool. Universal polices have flexible premiums and allow overpayments or sometimes the ability to skip payments. If you’re primarily concerned with affordable, practical life insurance options to make sure your family isn’t left destitute should anything unpleasant occur, it’s unlikely that a universal policy is what you have in mind.
Variable life insurance is arguably the riskiest of your life insurance options. You have more control over how your funds are invested, and the amount paid out upon your death is dependent on how well your investments perform over time. As with universal policies, it’s good to know these are available, but they’re not what most middle class families or individuals are looking for when shopping for affordable life insurance.
Variable universal life is, as its name suggests, a combination of the universal and variable structures. You have some flexibility with payments and coverage amounts, but slightly more security than with fully variable policies.
+ What Determines My Premium?
Much like with vehicle insurance, it all comes down to statistics. The insuring company uses complex algorithms to crunch as much information as they can compile about you and everyone else to determine their best options for making a reasonable profit while still remaining competitive. That means that they can sell a basic life insurance to a young, healthy female with a conservative lifestyle for far less than they can sell that same policy to an older, overweight chain-smoking male who loves racing cars and bungee-jumping.
Some elements you may be able to control. Certain policies offer discounts for joining a fitness program or taking other steps towards health and longer life. Other times, you’re simply at the mercy of the numbers. Don’t take it personally – it’s just statistics.
Making Sense Of All The Different Types Of Life Insurance
It can be a bit confusing, if not entirely overwhelming. How do you shop for value or do a meaningful life insurance comparison if you can’t even keep all the different options straight? And we haven’t even talked about specialized policies or policy “riders” – the “add-ons” you may choose based on your specific circumstances. What about accidental life insurance (which is actually accidental death insurance)? Family life insurance? When does a policy for critical illness cover me and when will it not? What about long-term care? What about—
The reality is that we can’t make the industry as easy as we’d like to navigate. The good news is that most of these options exist because they’re the best choice for some people – meaning whatever your circumstances, there are probably good options out there for you. Here’s what we can do to help you make the best life insurance decisions possible.
First, we’ll continue to dive into detail on the Insurry blogs about both general coverage options and specialty coverage.
Check our existing library for information about accidental life insurance policies or the advantages and disadvantages of universal life insurance. We’ll also be spending more time comparing some of the major providers you’ve no doubt come across in your research.
How does State Farm compare to Protective Life Insurance Company in terms of customer service and price? How does Protective Life Insurance Company hold up compared to Prudential? Who has the best family life insurance options? Where can I find the cheapest basic life insurance? How do I even know it’s time to get life insurance if I don’t have it already?
Second, we’ll soon be unveiling our revamped and re-imagined insurance calculators to help you determined how much coverage you’re likely to need and what different options will do to the cost. From a basic term life insurance comparison or whole life insurance comparison to more detailed calculations involving age, health, weight, and other specifics, we can’t make the decisions for you – but we can help you make more informed decisions for yourself.
Finally, we’re in the last testing stages of an technology we’re not even supposed to talk about just yet, but which we believe will combine easy access to relevant, plain simple English information, and real time offers and options from some of the top insurers in the country – all just as easily as you check social media or pull up your favorite driving music.
THE GOALRY WAY
We’ve always believed at Goalry that most people are perfectly capable of taking more effective control of their personal and small business finances if provided with useful information, the right tools, and the sorts of connections that it seems other people have when they need them.
Our unified finance mall brings together the worlds of real estate, budgeting, loans, savings, investments, and insurance because of that belief.
We don’t make loans, but we’re proud of our success rate connecting clients to the right lenders for their specific needs.
We don’t sell cars or homes, but we’re excited about the feedback we’ve already been receiving about the ways buyers have been using our information and tools to make their experiences more positive.
We’re not investment brokers, but we believe that investments – just like savings, debt, income, insurance, and everything else related to personal or small business finance – are all part of the same lifelong picture.
Maybe not everyone can be the richest kid in town, but almost anyone can do better and get closer to their goals with a little help here and there. Money isn’t the everything, but it certainly impacts everything – including the people and things which are most important to us.
It’s that same approach that’s led us to question why the same technology in our handheld devices that can connect us to other countries in an instant, juggle billions of bits just so we can watch a movie on our phones at lunch, or let us play games more advanced than actual gaming consoles could have handled only a decade ago, can’t be used to make it easier to categorize our spending, or maximize our investments, or find better life insurance. Technology isn’t at its best when it’s making decisions for us; it’s at its best when it’s juggling an overwhelming amount of information and bringing together just the parts we need, when we need it.