Author Topic: Buying term life insurance  (Read 7250 times)

La Bibliotecaria Feroz

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Buying term life insurance
« on: August 28, 2014, 03:33:54 PM »
We are nowhere near FI and it occurred to me that having life insurance only through our jobs is probably, you know, a bad idea. We are 33 and have young children, so I'm thinking 15-20 years of coverage.

Any tips about term life insurance, or is it pretty straightforward? Pitfalls I should watch out for? General advice?

MDM

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Re: Buying term life insurance
« Reply #1 on: August 28, 2014, 05:36:46 PM »
..having life insurance only through our jobs is ... a bad idea.

We are 33 and have young children, so I'm thinking 15-20 years of coverage.

Any tips about term life insurance, or is it pretty straightforward? Pitfalls I should watch out for? General advice?

Kneejerk response to the first line quoted is "no, you're wrong, it is probably a good idea because you are getting a good group rate for 1-year-at-a-time term insurance."

But looking at the second line - are you thinking you will leave your job(s) before you outgrow the need for life insurance?

If you buy a 20 (or so) year term policy, the main consideration is the likelihood that the company will still exist and be able to pay if needed.  Once you have the field narrowed to reputable companies, it's a commodity so pay the lowest price you can get.

In sum, I'd guess you are getting a better rate for 1 year term through your company than you can get as an individual - but you should check that while you are looking at longer terms.

bearkat

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Re: Buying term life insurance
« Reply #2 on: August 28, 2014, 06:35:51 PM »
I agree with you not waiting to have ONLY  the life insurance through your employer, especially depending on the amount of life insurance they offer you. (i.e. if they only let you have up to $100,000 of coverage and you want $250,000+ etc.)

One tip to save money would be to AVOID convertible term policies as those are more expensive. They allow you the option to convert your term to a permanent insurance over the course of your policy. (But this is something you probably don't want).

La Bibliotecaria Feroz

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Re: Buying term life insurance
« Reply #3 on: August 28, 2014, 08:41:06 PM »
To answer MDM's question--we're actually talking about my husband's employer. He has never held a job longer than three and a half year; his norm is one to two years. Our two-year-old is now living in his third state. Chances we will reach financial independence while he's still working there, approximately 3.5%. A quick search suggested that the rates he was being offered were no better than the open market, so I saw no reason to get it there.

Thanks for the tips!

mxt0133

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Re: Buying term life insurance
« Reply #4 on: August 28, 2014, 09:40:33 PM »
I have a policy that is independent of my job.  Usually term life insurance policies trough your employer will end as soon as you leave.  You need to lock down the rate as young and healthy as possible.  If you wait until you are older and start to develop health problems like diabetes, high blood pressure, or cancer, your premiums will skyrocket.  Also get it before you start doing risky activities like sky diving, ridding a motorcycle, or smoking.

Second choosing a company that has a AAA credit rating and a good reputation.  I would shop around they are pretty standard and only vary with things like being able to get 1/2 the policy amount in the event you are diagnosed with a terminal condition, ect. 

I would also consider getting a policy for your spouse even if they are a SAHP, take into account how much it would affect your finances if you had to start the kids on daycare, full-time nanny, ect.
« Last Edit: August 28, 2014, 11:38:15 PM by mxt0133 »

Mr Mark

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Re: Buying term life insurance
« Reply #5 on: August 28, 2014, 11:29:03 PM »
If you have liabilities you can't self insure via your huge stash, buy term life insurance to cover those risks. If you are relatively young,  peanuts.

Avoid all other insurance on your life.ie whole life, varaiable life, universal life, term annuity life, etc etc etc

Basic term life, you die inside the term, they pay. This is good. Great if you have a mortgage supported by a wage earner.

JoJo

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Re: Buying term life insurance
« Reply #6 on: August 29, 2014, 07:46:15 AM »
Another tip: buy it while you're actively employed if you want larger amounts.  It might be more difficult to be underwritten if both of you are not working.

usmarine1975

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Re: Buying term life insurance
« Reply #7 on: August 29, 2014, 07:51:24 AM »
Paying an annual premium instead of monthly will also drop the cost of your coverage.

merula

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Re: Buying term life insurance
« Reply #8 on: August 29, 2014, 08:24:11 AM »
Another tip: buy it while you're actively employed if you want larger amounts.  It might be more difficult to be underwritten if both of you are not working.

Why would you need life insurance if you're not working? The whole idea is to replace your income so your survivors aren't destitute. If you're FIRE, your death doesn't seem likely to cause financial hardship.

andyInCT

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Re: Buying term life insurance
« Reply #9 on: August 29, 2014, 08:46:54 AM »
i went through this recently.  i had insufficient group coverage through work, and the underwritten term policy i ended up with is much cheaper.  I'm about 6 years older than you, but i was able to get the best risk category (after dieting hard).  I then dropped my group plan at work, which offsets about 33% of my new policy premium.  the new policy is about 8x my old group coverage.   

Another point here is most (all?) insurers will let you reduce your coverage at any time during the initial term as requirements decrease, while keeping the original rate schedule (e.g., drop from an initial $1M to $500k after your house is paid, etc).

Hvillian

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Re: Buying term life insurance
« Reply #10 on: August 29, 2014, 09:29:43 AM »
If you buy a 20 (or so) year term policy, the main consideration is the likelihood that the company will still exist and be able to pay if needed.  Once you have the field narrowed to reputable companies, it's a commodity so pay the lowest price you can get.
Agree with this.  There are quite a few websites that will compare quotes for you with basic information.  You can even find ones that don't require you to sign up or give an email address.   I would recommend a large and well known company.

[. . . ] i was able to get the best risk category (after dieting hard).

I found that getting into the best (or a better) risk category can save you 10-25%.  So if possible use it as an opportunity to lose a little weight and take care of any outstanding health problems (if needed).  For large coverage amounts, many insurance companies are going to send a nurse to measure you and take your vitals along with a blood/urine sample.  Make sure you are prepared for this - fasting (if recommended), resting, avoiding caffeine and other drug, etc.

Also, play around with the rate calculator.  There are quirks in pricing based on what they can sell or re-insure.  For example $400,000 in coverage can be more expensive than $500,000.  And larger amounts costs less per dollar of benefit (premiums won't double going from  $100k to $200k in coverage).

RelaxedGal

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Re: Buying term life insurance
« Reply #11 on: August 29, 2014, 09:38:09 AM »
I agree it's a good idea - we just bought 20 year term for ourselves this summer.  We checked rates through our car/home insurance agent, through a broker via our financial adviser, and I did the SBLI get a quote page. (Disclaimer: I work for SBLI, but don't get a discount).  Insurance through our car & home insurance agent was the most expensive, the range from the broker was interesting.  I would normally go with the cheapest, but familiarity with the company made me go with SBLI - which surprisingly wasn't in the list from the broker.

What we didn't buy, but I'd consider, is Waiver of Premium coverage.  During your 20 year term it's not cost effective, basically insurance on your insurance.  At the end of the term you can continue the life insurance coverage at a hugely inflated rate.  Healthy people don't do this - they get new underwriting and a new policy, if it's still needed.  If you are disabled though, and have Waiver of Premium covering your premiums, suddenly you have free life insurance to age 85.  It's still a long shot, so I didn't go for it, but our financial adviser was a proponent.

And good to know: the underwriting process feels like it takes forever.  In the digital age I expected a determination in a few days.  We had to wait over a month to hear if my husband's borderline high blood pressure was considered "controlled" so he'd get the Preferred Plus rating. 

Hannah

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Re: Buying term life insurance
« Reply #12 on: August 29, 2014, 11:32:29 AM »
Another tip: buy it while you're actively employed if you want larger amounts.  It might be more difficult to be underwritten if both of you are not working.

Why would you need life insurance if you're not working? The whole idea is to replace your income so your survivors aren't destitute. If you're FIRE, your death doesn't seem likely to cause financial hardship.

frugalparagon only works part time, but she takes care of some very young kids full time. I would definitely have life insurance to cover at minimum a few months pay, the cost of daycare until the kids are school age, and funeral expenses. Maybe $100K.

For me age 26 healthy female, one kid, the cost is $16/month for $500K which is a pretty random amount. I've actually seen some cheaper introductory rates, so seriously this should be less than your phone bill (if you want less than 500K for you).

GGNoob

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Re: Buying term life insurance
« Reply #13 on: August 29, 2014, 12:01:00 PM »
When I was changing jobs and lost my life insurance, I realized it would be a good idea to get term life insurance. So my wife and I each have a 20-year term life insurance policy that is enough to pay off all debt in case something happened to the other one. We have no kids and no plans for kids, so that's all we needed. I also have a free policy through work with a little extra for $5 a month for both of us.

I recommend zanderins.com for your life insurance. They were easy to deal with and you can compare prices from a lot of companies online.

Bose

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Re: Buying term life insurance
« Reply #14 on: August 29, 2014, 12:16:34 PM »
I'm still a MMM neophyte, but FWIW -
We're a single income family with 3 kids.
At some point in the past I went to Zander insurance and had them shop around for me.  Ended up getting 400k for ~$20/mo (I think it was a 30 or 40 year term, in retrospect I would have probably been good with a 20 year policy).
If I'm gone all of a sudden I'd rather there not be a money emergency on top of everything else.


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heartygrain

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Re: Buying term life insurance
« Reply #15 on: August 29, 2014, 12:27:27 PM »
One bit of advice I can give you from personal experience is to know your health numbers before applying.  I had no idea that my blood pressure had been running high as it had been just fine at the doctor's office a year earlier so I didn't even consider that it could have gone up.  Once the visiting life insurance nurse wrote it down on that piece of paper I was essentially locked into paying a higher rate.  I have lost weight since then and it is a bit better but now it is a total hassle to get the rate changed.  If I had known it was high before she came I could have gone for a run an hour before she got there and shown a nice low number (my bp stays low for hours after a run).  Very costly mistake, but at least I know now to watch my bp.  You can get an automatic bp monitor for 30 bucks.

La Bibliotecaria Feroz

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Re: Buying term life insurance
« Reply #16 on: August 29, 2014, 01:46:35 PM »
frugalparagon only works part time, but she takes care of some very young kids full time. I would definitely have life insurance to cover at minimum a few months pay, the cost of daycare until the kids are school age, and funeral expenses. Maybe $100K.

For me age 26 healthy female, one kid, the cost is $16/month for $500K which is a pretty random amount. I've actually seen some cheaper introductory rates, so seriously this should be less than your phone bill (if you want less than 500K for you).

One of my most vivid memories from childhood is when I was maybe seven or eight and asked my father why my mother needed life insurance. (She was, and is, a teacher with an awesome career, but we all knew that at that time, Dad was the real breadwinner.) He was never one to bullshit a kid and just seriously explained that if Mom were to die, we would have to hire a housekeeper.

Anyway, this is all excellent advice. I'll head over to that Zander site and maybe later pop into the pharmacy and stick my arm into that blood pressure thing. Nothing I can do about being asthmatic...

RelaxedGal

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Re: Buying term life insurance
« Reply #17 on: August 31, 2014, 10:33:52 AM »
Nothing I can do about being asthmatic...

This is where a broker can help.  Insurance companies each have their own underwriting guidelines.  Having Asthma might rule you out of the Preferred Plus rating from one company, but "well controlled" asthma might be allowed with another.  A broker usually knows which company is best for you (at least your known issues).

La Bibliotecaria Feroz

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Re: Buying term life insurance
« Reply #18 on: August 31, 2014, 05:29:42 PM »
Not another decision! How would one go about choosing a broker?

I'm choking on amount of coverage needed. We do not own a house right now, but plan to buy one in 1-3 years, so I don't know exactly how much our mortgage will be and so on. And I do not have a job OTH right now, but plan to in the foreseeable future. How did other people make these decision? Do I just guess that I could probably make ends meet with a quarter million? Our mortgage might be more than that at first, but I don't want to spend 20 years paying for the amount of insurance I would need at one very specific point in our lives.

usmarine1975

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Re: Buying term life insurance
« Reply #19 on: August 31, 2014, 07:27:39 PM »
I would ask friends who they use. Referrals are the best way to find a broker. Good ones do exist you just have to look for them. A broker can help you determine amount. A good one will listen to you and will allow you to decide. 

Don't just sign paperwork in your first meeting.  You should not feel pressured or have the feeling your broker isn't interested in helping you.