A couple of years ago, a friend at work told me she was participating in a bake sale over the weekend. The husband of one of her best friends had died in a car accident and his widowed wife with three kids couldn't afford to pay for his funeral. Another friend's father passed away when he was young. His mother had no degree and no job. Within just a few months, she married a man who could take care of her family. Having married him after not knowing him long, she did not know he would be abusive. In each of these cases, death came swiftly and unexpectedly. Unfortunately, there was no safety net to catch the family when they couldn't cope.
When it comes to insurance, the number one question you usually want the answer to is how much does it cost? Everyone wants the benefits of it, but no one wants to pay for it. And when it comes to life insurance, the chances of you actually needing it are so low that you inherently want to find the best "deal."
Unlike health insurance, which is designed to cover medical bills, life insurance is designed to provide for your family in the case that you are no longer there to do so. Remember the word provide, because that's the reason why it's so important that you make sure you get a policy that is perfectly suited to you and your family's needs. It takes a little extra effort, but your family is worth it.
Online quote generators make it easy, looking up the lowest quotes for your age and medical class. Of course, it's all presumptive because it's not until the underwriter gets your medical information that a final decision is made. But nevertheless, the idea behind it is to get you the lowest price possible. And in the process, they get a nice little kickback from the company you ultimately choose through their website. Then there are the banks and property and casualty (auto, home, renter, etc.) insurance agents who can get you a multi-policy discount if you add a life insurance policy. You get cheaper insurance, and they add more premium.
But are they really acting in your best interest? Is your family being taken care of? Or is it just convenient for you and an easy sale for them?
When it comes to life insurance, there are so many different kinds of policies that it would be mind-boggling for the layperson to make an informed decision without an expert helping them. The main two types are term and permanent. For simplicity's sake, I'll only discuss term. There are two main umbrellas under term insurance: level and annually renewable. Level policies are set for a specific term - usually 5, 10, 20, 30, or 40 years - with a level monthly premium for the life of the policy. Annually renewable policies generally start with a lower premium than level policies but it increases each year.
As a former life insurance agent, I came across too many people who had policies that weren't in their best interest. Many of them did the multi-policy discount and were simply offered the cheapest alternative, which was usually the short level term policy. From an immediate cost perspective, it was optimal. But as part of a long-term financial plan, it was poor advice. For example, a 25-year old husband and father purchases a 10-year level term policy. When the term ends he must reapply for insurance based on his current age and health status. If his health changes drastically during the term, the new applied-for policy may be too expensive, or he may even get declined. If that happens, the risk suddenly becomes a much bigger threat to his family's well-being.
In this case, an annually renewable term may be a better choice. The premium starts out lower, but once it gets to the point where you would be paying more than a level term policy (this can be 10-20 years out,) you have the option of applying for a level term policy. If your health prevents you from getting insurance at a reasonable price (or at all), you can still keep what you have until that term ends which usually is until age 70 or 80. However, this isn't to say that is the best choice for every situation.
To summarize, this article is not meant to steer you in one direction or the other. Discussion of all the different options would be too exhaustive for this platform and would be much more appropriate in an advisory setting. This article is simply meant to inform you of the importance of meeting with an advisor or agent and making an educated decision. This may not be an exciting idea because of the perceived trustworthiness issues in the industry, but with enough research and the power of word-of-mouth referrals, you should be able to find an agent with whom you feel comfortable.
A last recommendation would be to work with someone who is willing to run other quotes for you, not just for their company. It may be that their company has the best policy for you, but there are life insurance companies that operate with a more compensative structure for their agents, which increases the premium, sometimes dramatically.
Make sure you are making an informed decision regarding your life insurance. Initially, it may not seem very consequential, but in the case that something does happen, you can truly save your family further heartache in a time of extreme hardship and desperation.
