World Out of Control? Buy Peace of Mind From Your Couch
Term life insurance is cheap and most adults should have plenty
All right, we’re all freaking out about a global pandemic and the potential financial chaos that could follow. It’s beyond our control, which is frustrating. So, here’s one crucial financial planning item within your control that’s also inexpensive and easy to obtain: term life insurance.
Chances are you can buy a policy without ever leaving your shelter, er, home. Everyone knows deep down they need life insurance, but many households don’t have a policy in place. Some have insurance but not enough.
With a term policy, you pay an annual premium (you can also make quarterly payments) for a set period. That’s what term refers to. With a “level term” policy, the annual premium will never change. If you die during the “term,” your beneficiary collects the death benefit of your policy. A recent insurance-industry survey reported a $1,000 average annual premium for a 20-year level term policy, and the average death benefit was $500,000. That’s just an average; if you’re younger than 45 or so, and/or in very good health, your costs will likely be a lot lower.
If what’s holding you back is more emotional — you just don’t want to think about your mortality — consider an even harder scenario: You don’t take care of this, and something does happen, leaving your loved ones financially vulnerable.
Here’s how to provide financial peace of mind for anyone who is dependent on your income. (If there is a stay-at-home parent, that person should have a policy as well; consider the cost of hiring people to provide the caregiving that the parent now provides.)
Decide how long you need insurance. There are two types of life insurance: term life and a variety of “permanent” policies. Insurance agents love to sell permanent policies because they come with much bigger premiums that earn agents much bigger commissions. The thing is, most of us only need term life insurance to provide this “what if” protection for a set period, not permanently.
If you have young kids, you might want a policy for 20 years to make sure there would be ample income to raise them and educate them if something were to happen to you. Or if you are younger and have yet to build up your retirement savings, a 20- or 30-year policy would provide a financial cushion. Term is all you need. (Note: if you have a special needs child or anyone in your life whose need for your support will last their lifetime, then you may want to consider a permanent life insurance policy.)
Your employer policy isn’t enough. Typically your beneficiary would receive maybe one year of your salary. Make sure your dependents are going to be OK for a lot longer, OK?
A term policy with a death benefit that is equal to 10 or 20 times of your current income requirements buys peace of mind. Don’t worry — term life insurance is so inexpensive, the cost of all that protection is likely doable.
There are online worksheets to help you estimate how big a death benefit makes sense. The lifehappens.org website has a free worksheet. If you use the worksheet, just stay focused on the term insurance info; it’s an industry site and permanent policies are featured, too.
In 30 seconds, you can get a ballpark estimate of premium costs at Termforsale.com. For the most conservative/realistic estimate, choose “average” for your health, rather than excellent or above average. As explained below, the insurer will ultimately be the arbiter of your health status, and only a small percentage of applicants qualify with an “excellent” rating.
A policy that will pay out $1 million in the event the insured dies in the next 20 years might run a healthy 35-year-old non-smoker $30 to $40 a month. At 45 years old the cost might run about $80 to $100 a month.
Even if you’re 55 and in good health (that doesn’t mean you are in 10K shape), a policy that will pay out $1 million if you were to die in the next 20 years might run $200 to $250 a month. That’s not nothing, but given what’s at stake it’s also likely you could find the money with some budget trimming.
Online companies such as Accuquote.com, Policygenius.com and Quotacy.com make it a breeze to shop for term insurance. There is no need for a face-to-face meeting, and they specialize in term policies, so there will be no hard upsell for expensive permanent life insurance.
You’ll start with a detailed online questionnaire that will inquire about your health and work. Honesty upfront saves you time. Eventually in the process you will agree to let the insurer check a vast database of your health records, so whatever you don’t mention is going to show up. Want to see what they see? Request your Medical Information Bureau file.
If you have a history of cigarette smoking, that doesn’t mean you can’t get life insurance, just that you will pay more. The use of medical marijuana and the legalization of recreational use in some states is not necessarily a problem either. Go here for the particulars of marijuana use and life insurance.
Most insurers require a very basic medical exam — blood test, blood pressure, weight, etc. — but even that can happen at home, on the insurer’s dime. They will send someone to your home, though if you apply during the coronavirus crisis, this appointment could be on hold until we have the all-clear.