Getting A Grasp On Life Insurance

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 mb-201401abacusmaximum 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.

Stock In Obituaries: Enhancing Your Life By Insuring Someone Else’s

Life insurance is intended to provide for the income lost by a person’s dependents at the time of their death or incapacitation. Typically, responsible family leaders and heads of household obtain life insurance policies for themselves to safeguard the stability of loved ones should their ability to earn an income ever be lost. Life insurance policies can help those going through the most difficult transitions in life endure the process more comfortably and ensure that the crippling loss is not economic as well as emotional.

Having typed that, if you look at it the right way, it’s a bit like hitting the jackpot under the right circumstances. Yes, it is a tragedy when a close family member passes away even with the financial impact of a large life insurance payout, but if a distant, eccentric uncle that you last saw when he was gazing into your bassinet ends up kicking the bucket and leaving you with a pile of cash, it’s not so bad, is it? What if you could take it one step further and simulate the effect yourself? What if…you could take out a life insurance policy on someone you barely know without their knowledge?

It seems like a pretty good scheme, doesn’t it? Fill out a few forms, name the local old cat lady or some drugged-out celebrity as the policyholder, keep up with the premiums and play the waiting game. Pretty soon, life takes its course and there you are, cashing in and planning a vacation. It’s a fairly airtight plan, provided nobody screws it up and lives long enough to destroy your profit margin. Why don’t more people do it (besides that it’s pretty despicable)?

Well, as you might have expected, taking out a life insurance policy on someone without their knowledge is harder than it seems. First, you must prove to an insurance provider that you can claim an “insurable interest” in the party to be insured. This means that you are dependent on this person for your quality of life, and that your financial standing would suffer considerably were the person to die.

Perhaps you could manage to talk the insurance company into believing that that wino you see heading into the bar at 10 a.m. every morning is central to your economic health and that you will end up in the poorhouse when he dies of cirrhosis in a few years, but then you’ll have to prove your relationship with him. Establishing a relationship with the person you want to ensure is critical to your case.

Common relationship types accepted as proof of insurable interest are married couples, blood relatives and long-term domestic partners. If you can somehow make it appear as if you fall into one of these categories or are the high-functioning disabled child of the insurance target, you have a shot.

An life insurance provider will likely want to know what kind of health a policy holder is in, as it has a significant effect on their risk assessment, so another obstacle to buying life insurance in another person’s name is the medical exam that is often required. You may have some difficulty influencing a person to undergo a medical examination without asking a few questions. There are some insurance companies that do not require an exam before providing coverage, but these policies are typically more expensive than traditional policies, less comprehensive or both.

Perhaps the toughest part of getting life insurance in another person’s name is the consent required. Federal law mandates that insurance companies must get written consent from applicants before accessing their medical records, and even when an insurance company does not require such access, the insured party must sign off on the policy before it is active. It is possible that you will be able to get these papers signed unknowingly under the guise of asking for your postman’s autograph or something similar, but this may arouse some suspicion.

It seems nearly impossible to get a life insurance policy on someone other than yourself in practice, but there are some exceptions that make it easier. If you are willing to marry the target of your grand design for insurance purposes, it is possible to take out such a policy without their knowledge.

Some states allow a minor child age 15 or younger to be insured without consent. Interestingly, a financial stake in someone else’s life is considered insurable interest in some jurisdictions, so if you are the owner of a large company with employees that are worth as much or more dead or have a business partner in questionable health, you may also be able to profit from their demise.

It’s extremely hard to get a life insurance policy on someone else for a number of very good reasons. In most cases, it is illegal to obtain a life insurance policy for someone besides yourself. It is also immoral to do so, but there are some people whose plans neither sentence can appreciably impede. It is technically possible to effectively gamble with another person’s life through significant deception and an aptitude for bending the law, but remember: someone could be doing it to you as well.

How Do You Find The Best Life Insurance?

Readers, I need some help.  I am looking for your experiences with life insurance.

Long story short, my employer of the past seven years has offered enough life insurance that I have been able to provide enough coverage for both myself and my wife in the event that something happened to either of us.

mb-201312foldersSince we are being in-sourced, my employer will switch on January 1st, so we have all new benefits offerings.

Unfortunately, the maximum coverage available is substantially less for both of us.  The maximum available for me drops 60%, and for my wife it’s worse as her coverage drops 80% with the maximum coverage available.

This leaves a gap, so I’m curious what people out there have done.

I’m 39.  My wife is 31.  We’re both in good health, at healthy weights, and non-smokers.

I’ve done some looking around and I’m just not sure where to go.

  • Allstate – We have most of our other insurance through Allstate (homeowners, auto, etc.).  I contacted my agent, and he has someone else in his office that handles life insurance and financial type stuff.  I love my agent, but talking to this other agent didn’t give me a great feeling.
  • Online – I looked at which seemed to compile quotes from many different sources.

The online pricing seemed to yield some results that would cost us around $30 per month to get us to where we want.  However, that’s only a 10-year term, meaning that after ten years we would have to get new coverage, and since we’d be older, the cost would likely go up quite a bit. A 15 or 20 year term increased the monthly payment.

A brief conversation with the Allstate agent seemed to provide some higher prices (he had a ‘rough’ quote of around $50 per month), and he really tried to guide me to a longer term.  He also tried to set up a face to face meeting, and got a little uppity when I suggested that I would be the one to request that, not simply agree to let him come in before providing any quotes.

I guess I’m sort of looking for anybody who has gone out into the marketplace and purchased insurance, to find out your experiences and recommendations.


Have You Thought About Life Insurance Lately?

Life insurance is one of those things that most of us do not enjoy thinking about.  The reason is obvious: it’s centered around our death or the death of someone else that is important to us.

Even so, it’s something that everybody needs to think about and plan for adequately.

The few with no needs

Some people don’t need life insurance.  If you have no dependents, no liabilities that will need to be paid off, and assets that could be used to settle your matters, you might be OK without a life insurance policy.

The rest of us

Most people don’t fall into that category.  Most of us, if we were to die, would leave behind those who would greatly benefit and likely depend on a life insurance settlement.

I’m 37 years old.  My wife is 30.  We have two children, aged 3 and 1.  She’s a stay at home mom, which there are considerations that should be taken into account.

If I were to die, all of our household income would go away, leaving her with nothing to provide for herself and our children.  If my wife were to die, our income would not be affected but costs would rise as my children would have to be cared for outside the home, with costs likely.

Therefore, we both have life insurance coverage.  Because of the reasons stated above, my coverage is higher than hers.

How much is enough?

Having the right amount of insurance is important.  Your goal should be to leave enough behind so that your loved ones could settle all of your financial matters, and have the money left to cover the change in income or expenses that would result from your death for an appropriate time.  That time depends on your situation and everybody’s is different.

My coverage is roughly ten times my annual income.  This seems like a lot, but if I were to pass, I would expect that my wife would pay off our home and fully fund the college plans for our children.  This would reduce the amount left by quite a bit, but would also reduce the monthly costs associated with those.  It would likely last her for a number of years, during which I would expect she would re-marry or devise a new life plan to continue forward.  In either case, it would be a bridge.

It’s important to have a good estimate of what you might need.  You may think there’s no such thing as getting too much coverage, but there is.  Getting a $10 million policy if your household income is $50,000 per year is likely very much overkill, and you’ll likely find that it will cramp your lifestyle while you’re alive.  A good life insurance policy should not do that.

You’ll want to perform regular review of your coverage.  Any time you have a life changing event (new baby, kid going to college, divorce, etc.) you should do a thorough review, and you should so periodic reviews along the way even if nothing changes.

Who knows what our final thought in this world will be?  We won’t know until we get there, but if you have a good life insurance policy, you’ll at least know that it won’t be wondering how your loved ones are going to make it.