My employer changed as of the 1st of the year. I work in the same job doing the same thing, but we were converted from contract to full time employees. As such, we were brought onto the benefits program of my new employer, and while the types of offerings were the same (medical, dental, disability, etc.), there were variations in each. All of them required some level of research and understanding, but none so much as the change involved with life insurance.
My former employee offered coverage that I felt was fully adequate for our needs. I was allowed to ‘purchase' ten times my salary as coverage for myself, and was allowed to purchase coverage for my wife up to a fixed amount. In looking at the ‘what if' scenarios that you hope never happen, we felt that if either of us died, the payout would offer enough coverage. The cost in terms of deductions per paycheck was very reasonable.
I always knew in the back of my mind that I would likely need to look at coverage, and when the conversion was announced, and we received information about the offerings, I knew that the day had come to better understand life insurance.
My new employer offered maximum coverage of just four times my salary for me, and the maximum coverage for my wife was 20% of the maximum from before. With two young children, plus the fact that my wife is a stay at home mom, I knew that both of these were below what would provide adequate coverage in the event that one of us died. If I were to die, my wife's profession would not allow her to replace my income, and the life insurance payout would likely not last more than 10 years. Conversely, if my wife passed away, I would have to start paying for child care, and so I was uncomfortable with the maximum payout being able to cover that in that scenario.
I had very little knowledge about life insurance, but after speaking with a relative (who has had knowledge of life insurance for a number of years), and several agents, I learned a lot.
Here are some of the more helpful bits of information I learned:
- Your needs are largely driven by your children – Our kids are 4 and 2, so when I started looking around, every agent told me that a 20 year policy was ideal. I had inquired about a 10 year policy on my first contact, and you would have thought I insulted the agents mother when I asked about a 10 year policy and told him how old my kids are. Turns out that while a 10 year policy would be cheaper, it would cost a lot more to get the same coverage 10 years from now, where we'll likely still need insurance.
- A term policy is the cheapest and simplest – There are policies where you ‘invest' and actually have a stake in what you pay in, but you'll pay more for those. A term policy is that you pay in for the life of the policy. If you die, the payout will get triggered. If you don't, then everybody just walks away. Simple.
- I'm not locked in – My twenty year term policy allows me to renew at the same rate and receive the same coverage for twenty years. But I don't have to. Say I found a cheaper option next year or my employer did offer more coverage at a better cost, I can simply not pay the premium and the policy will expire. However, once I allow it to expire, I would have to start all over at any point in which I did need coverage, and since I'd be older, there would be a good chance it would be more expensive.
- My former employer had it right – Multiple agents recommended that I get covered for ten times my salary, so the offering was correct. Knowing that this is somewhat of an industry standard, it's somewhat disappointing that my new employer does not allow coverage to this threshold. I'm guessing that they may be self insured, and this offers some protection to them.
- The timing might have been ideal – I'll be 39 as I sign up for coverage. This is a good age as insurance will get more expensive the older I get. No agent would give me definite numbers, but I figure even 40 might have taken me up in terms of cost. Considering that cost would go up for each of the twenty years I have the option for coverage, that difference could have been significant.
- You can't modify a term policy – One question I had was what happened if my salary went up, which I'm always hopeful, and how this would fit in from an insurance standpoint. Ten times my salary today might only be eight times my salary in a few years. The agent explained that you can make changes to your life insurance policy during the application process, but after it's signed, you can't add coverage to that plan. However there is an option if you need additional coverage: just take out another policy.
- Thirty times your salary is a de facto coverage limit – Going along with the point above, you can take out as many separate policies as you want, but if you have total coverage over 30x your salary, you generally won't be able to get any additional coverage.
- Your spouse is covered by your limit – Even though my wife doesn't work, her '30x' limit falls in line with mine, meaning she could get coverage up to 30x my salary before a company would refuse her additional coverage.
In the end, we signed up for coverage. The process is still ongoing, but with the information above, I feel a lot more knowledgeable about the process of signing up and what would happen if one of us died, than I did even six weeks ago. Learning about your coverage options is important, as is making sure your life insurance fits your needs.