Oh goody, another insurance post!  (Said no one ever.)  Just kidding.  Well, kinda.  Anyway, we’re here today to talk about life insurance.  I know it’s one of those things that usually makes our eyes glaze over.  But stick with me, because we’re going to take a quick look at life insurance and try to answer the burning question: Is life insurance worth it?

Here’s the easy answer: YES.  Or NO.  Really, it totally depends.  (Come on, did you really think it was going to be THAT easy?)

Anyway, hang in here for a minute, and I’ll talk about the basics of the simplest form of life insurance and some factors you might want to consider when deciding if it makes sense for you.  I promise to make it as exciting as possible.  And I’ll make you a deal: if you read this entire post and don’t learn anything new about life insurance, I’ll give you your money back. (If you’re saying “Hey, wait–this is a free blog” then fine, you got me.  Instead of giving you a refund, I’ll buy you a cup of coffee next time you’re in my area, ok?  Just contact me next time you fly into John Wayne Airport.)

Let’s Talk About Death, Baby

I don’t talk a lot about my day job on this blog.  That’s partially because I am trying to remain anonymous, and partially because I don’t want to put you all to sleep.  But anyway, in my day job, I deal with death pretty much every day.  No, I’m not a mortician.  Or a hitman.  (But I like your creativity.)  But I am an attorney, and I do a lot of work in estate planning and probate, which means most of my day revolves around the subject of death.

Death is not something that most people enjoy talking about.  Unless you grew up in my family, where literally every family party involved everyone talking about death and taxes, and not in the context of the Ben Franklin quote.  We’re a family that plans ahead.

But assuming you’re from a normal family, it’s probably not something you talk about very often.  I get it.  Talking about it is strange and feels morbid.  But thinking about death and planning for it is a smart thing to do.  It’s the one area in life where a lack of planning can’t be compensated for by fast thinking or adapting on the back end.  Once you’re dead, you’re dead.  If the thought of that gives you anxiety, then good.  All the more reason for you to think about it and plan for it.  Just think of how much more relaxed you’ll feel once you’ve gotten your planning out of the way!

Should Life Insurance Be a Part of Your Estate Plan?

There are about a million ways to create an estate plan.  If you have a small amount of assets, you can handwrite a simple will and sign it yourself, and that may be perfectly fine.  If you have a large net worth, you’ll probably want to set up a trust instead.

But what about life insurance?  Life insurance might make sense for you—or not—regardless of the size of your net worth.  If you have a small net worth, your dependents might need life insurance to replace your income after you’re gone.  With a larger net worth, your dependents might still need life insurance to help pay off major assets, or to get them through the transitional period right after you die, especially if you don’t have a lot of liquid assets.  If you have no dependents, then maybe you don’t need life insurance at all.

Term Life Insurance vs. “Whole Life” Insurance

Let me clarify one thing quickly: what we’re talking about in this post is term life insurance.  There are other types of insurance products out there, including whole life insurance, that some agents will try to sell to you.  So far I have yet to hear from one smart person (who doesn’t work for an insurance company) who says that whole life policies are worth the money.

Term Life Insurance

Term life insurance is what most people think of when they think about life insurance.  In short, it’s life insurance for a fixed term for a fixed premium amount per month.  If you’re 30 years old, you might get a 30-year term life insurance policy, which would remain in effect until you are 60 years old.  Your monthly premium cost will stay the same through the length of the entire term, so if it’s $25 per month at age 30, it will still be $25 per month at age 59.

If you die during the term of the policy, your beneficiaries will receive the payout of the policy amount.  If you die after the term of the policy is up, your beneficiaries get nothing.  Other than the pleasure of your company for the entire length of the term, that is.

Whole Life Insurance

Whole life insurance is complicated, but basically it boils down to a term life insurance policy with an additional investment component.  When you’re young, insurance policies are cheap, and as you get older, they get more expensive.  So with whole life, you pay a fairly large amount per month (relative to term insurance).  But the benefit is that whole life insurance doesn’t evaporate after a set term.  It sticks around for your whole life.

When you’re young, part of the premium pays for the life insurance component, and the rest is added to the investment component, to grow over time.  Say you’re 25 years old and you pay $250 per month.  $50 per month might be applied to your insurance policy, and the remaining $200 might go into the investment component.  When you’re older, the cost of your life insurance will exceed your monthly payment amount.  Let’s say at age 75, your life insurance cost is actually $400.  You still continue to pay $250 per month, and that investment component of the policy covers the extra $150.

There’s a lot more to it than that, but that should give you the basic framework.  In reality, the numbers get a little fuzzy and growth projections and sales pitches are thrown in, and usually the end result is that whole life policies are not a great investment.  But that’s a topic for another day.

Should I Get Life Insurance?

This is something I’ve been thinking more about lately.  For a long time, I’ve thought that I didn’t need life insurance because I’m not married and I don’t have kids.  My boyfriend and I have been together for about four years now, and we live together, but he and I are both independent adults with separate finances, so he should be able to support himself even after I’m gone.  Besides, I’m planning to leave him some of my property, so that should help him get by until he wins the lottery or marries a rich chick.

But then I started thinking about it more.  I sat the boyfriend down one evening and said “What would you do if I died?”  Most people might think this was a trap, like they’re supposed to answer “I would die, too” or “I’d take your ashes to the woods and live in solitude for the rest of my life.”  Thankfully, the boyfriend knows me better.  He said “I don’t really know.  I guess I’d call your Mom and have her help me sort out all of your financial stuff.”  That’s not a terrible answer.  My Mom is probably the best equipped person to figure out where everything is and to get a handle on it quickly.

Think About the Transitional Period After You Die

But after having that conversation I realized that it’s not going to be as easy as I thought.  I will have plenty of assets to leave behind.  I’m not super wealthy, but there will be enough for my boyfriend to get a good chunk of money and for me to still leave some money to my siblings, niece, and nephews.  But the issue I hadn’t thought about was how it would all get liquidated and sold, and what that timeline might be.

When someone dies, it usually takes months—sometimes even years—to sort out their estate.  If I died, someone would have to figure out where my mortgage was held and stay current on the payments until my house could be sold.  Same for my fourplex.  At least the rents from the fourplex would generate income to pay its own mortgage, but the person in charge of my estate would need to figure out how to collect the rents and where they go.  (Thank goodness the rent will be automatically deposited in my accounts.)

The point is that all of that takes time.  I don’t want my beneficiaries to worry about not having enough cash to pay the mortgages until the assets can be sold.  I don’t want them to have to sell my house and fourplex at fire sale prices because they’re short on cash.  Ideally, I would have enough cash in my estate to cover the mortgages for a while.  But sometimes (like now, right after buying the fourplex and paying over $100k to renovate it), I have very little cash to my name.  Maybe I should look into insurance, at least just to cover that interim period and give my boyfriend time to adjust.

How Much Insurance Do I Need?

This really depends, too.  If your income is a necessary component of supporting your household, you might need to replace that income until your retirement age.  If it’s not as necessary of a component, you may not need that much.

Alternatively, some people aim for enough insurance coverage to pay off their debts or mortgages.  That way their beneficiaries can continue living in the family home without worrying about how to come up with the mortgage payment.  Or for rental properties, it can provide a healthier income stream with no debt against it.

In my case, the debt on my house is just under $250k and the debt on the rental property is around $580k.  That’s about $830k in debt.  Maybe I’m cheap, but that just sounds like a lot of coverage to me.  The more coverage you have, the more expensive it gets.

If my plan was to have the mortgages completely paid off so my boyfriend could keep both properties, it might be worth it to get insured for $830k.  But since my plan involves liquidating my assets and dividing them in some fashion between my boyfriend and other family members, odds are that the house or fourplex are going to be sold anyway.  So getting insurance to pay off the mortgage entirely seems less important.

Instead, I think I would shoot for about $250k in coverage, or $500k at the most.  That would be more than enough to cover the mortgage payments for a couple of years and leave a cushion to help cover the boyfriend’s living expenses.

So Now What?  How Does the Process Work?

Now comes the hard part.  Or so I thought.  I’ve shopped for life insurance only once before, when I was about 21 years old.  I didn’t do it then, because the longest term policy they offered was 30 years, and I didn’t think I was likely to die before age 51.

In the years after that, I’ve occasionally gone online and tried to get a free quote without having to talk to a human.  This is where I ran into some difficulty.  I’ve mentioned in earlier posts that I’m overweight.  Many insurers either flat-out disqualified me based on my height-weight ratio, or switched me over to a screen that said I was going to have to call one of their representatives to see if they would cover me.  The last thing I wanted to do was talk to someone on the phone, especially if it was to say “hey, I’m too fat for the system to give me a rate quote, so can you give me that information?”  It’s not a great feeling.

But here I am now, at age 37, and it seems like it might be a good idea for me to suck it up and act like an adult about it.  I’ve heard about this company called SelectQuote, so I figured I’d give it a shot.  SelectQuote is an independent insurance brokerage company that searches for the best rates among many different insurance companies.  They only rate among insurance companies rated A or better.  They’ve been in business for over 30 years, so that’s encouraging.

My Experience with SelectQuote

I decided to call SelectQuote instead of filling out the online form. Normally I avoid talking to people at all costs, but since I knew the height/weight ratio was likely to be an issue, I figured I’d just get ahead of the problem and call.

An agent (I think her name was Samantha) answered the phone.  She was very nice, and sounded like she knew what she was doing.  She’s licensed to sell insurance in California, and said she had 15 years’ experience doing it.  Her expertise showed.  I’ve spent an insane amount of time on the phone with home and auto insurance representatives during my life.  I hate to say it, but a lot of insurance agents aren’t very knowledgeable, and many will give you bad advice about insurance.  I never got that impression with Samantha.

The Interview; The Normal Questions

Samantha walked me through all the questions you would expect, and a whole lot of questions that I wasn’t expecting.  She asked whether I had ever used tobacco, or whether I had smoked marijuana in the past ten years.  (Nope and nope.)  Interestingly, I don’t think asked if I had ever used any hard drugs, like cocaine, crack or meth.  Maybe she did ask and I just didn’t remember it, but if not: good news for you hard-core drug users out there!

She asked about my height and weight, of course.  Once I told her, she asked questions about whether I had any heart conditions, diabetes, or respiratory issues.  I’m not sure if those questions are asked of all applicants, or just the ones who fall into higher risk categories based on weight.  Anyway, all good there.  Any current medications?  Nope.

She asked if I had any history of depression or anxiety.  Yes.  I’m not currently being treated for it, but I have been in the past.  Was I ever hospitalized for it, or are any medical records going to show history of suicidal thoughts?  No.

The Weirder Questions

Then we started getting into slightly weirder questions.  She asked if I had any traffic tickets or accidents in past 5 years.  She asked if I had ever had a DUI or ticket for reckless driving.  The answer is no, but I was surprised that ever having one would make a difference.  Take heed, young drivers!

She asked if I was ever convicted of a misdemeanor or felony.  Maybe criminals are more likely to die as a result of their criminal enterprises?

She asked if I had been on any international trips in the last 2 years, or any planned for future 2 years.  That was interesting.  Who’d have thought that international travel might affect your rate?  Maybe if I said yes, they would ask follow-up questions about which countries, and rate according to the destination.  Canada’s probably pretty safe, but Syria probably isn’t.

She asked whether I had done any extreme sports in the past two years, or whether I was planning to, like cliff diving, base jumping, or scuba diving.  Nope.  I asked if motorcycle riding counts.  She it didn’t count, so long as I wasn’t racing.  “Define racing,” I said.  I haven’t done any actual racing, but I’ve done track days before on my bike.  You’re not really racing anybody else, but you are competing to beat your own best time on the track.  She said that would count as racing.  Dang.  Luckily, I hadn’t done it in about 4 years, and wasn’t planning to do it in the near future, so it didn’t affect my rate.

Honesty is CRITICAL

Remember that when you’re answering these questions, just like all insurance policies, you HAVE to tell the truth.  If you don’t fully disclose everything to the insurance company, then you’re only hurting yourself.  When the day comes that you finally need to make a claim under the policy, if the insurance company finds out you made a material misstatement, they will refund your insurance policy premiums and deny coverage under the policy.  So you could find yourself having paid insurance premiums for 20 years, and when something finally happens where you need insurance, you get a portion of one year’s insurance premiums back in your pocket and NO coverage.  Don’t do that to yourself.  Disclose everything you need to disclose, and then some.

The Quote; Next Steps

After answering all of the questions Samantha asked, she was able to give me a quote.  The best price she found for $250,000 of coverage with a 30-year term, at my age (37) and with my height/weight profile, is $64 per month.  For $500k of coverage, it would be $121 per month.  There’s a slight break on pricing at the $500k and the $1 million marks.

If I wanted to go forward, the next step would be to give them some payment method to hold.  They would then send me to the insurer to go through their recorded phone call of questions to confirm my responses.  Assuming that process goes as expected, the insurer then schedules a medical exam.  Someone comes out to your house and takes your height, weight, blood pressure, and urine sample.  If all goes as planned there, then they process your payment and you’re off to the races.

Why Call an Insurance Broker Instead

I’m not always a fan of insurance brokers, but in this situation I was really happy to use one.  Car insurance is pretty simple, overall.  Life insurance gets more complicated, especially for people in my height/weight category.  I asked Samantha how much my height/weight narrowed down the number of companies who would insure me.  She was a little vague about it, but it sounded like the answer was that it dropped from 17 companies down to about 3.   That’s about 1 in 6 companies.  Imagine how frustrated you’d be if you had to call six companies before you could find one to insure you.  I’d probably give up after 3 calls.

The other problem with that is that by the time you finally got to a company who would insure you, at that point you’d probably pay whatever rate they’re offering, or just give up entirely.  Neither of those are great results.  Better to go to a broker who can screen the companies and give you the best rates available.

End Result: Is Life Insurance Worth It?

So, here’s the final question: Is life insurance worth it?

My general notion is that if you can self-insure for something, you save yourself a lot of money by doing it.  Insurance companies are in the business of making money.  If they charge you $20 per month for insurance, that’s because they know that they’re unlikely to have to pay out that much in benefits.

I still think that general rule is true, but sometimes it’s worth it to pay a little extra for security.  I wouldn’t insure for the maximum amount possible, because the premium cost would be pretty big and I’d be unlikely to have the policy pay out.  (Plus, you’re giving your beneficiaries an incentive to make sure you die earlier.  Here, have another cinnamon roll, Yeti!)  But I would strongly consider insuring for the smallest reasonable amount that would help make things easier on my beneficiaries.

Really Low Cost, But Probably Unlikely to Pay Out Unless You Die Young

I was pretty surprised at the fairly low cost of term life insurance for 30 years.  For some reason, I had this sense that $64/month would add up to a whole lot of money after 30 years.  If invested properly, it probably would, but if you take just the actual cash value over that many years, you’re only paying a total of $23,040 in premiums.  That’s not bad for $250,000 of coverage.  For $500,000 of coverage, the total would come to $43,560.  Still not bad, considering.

Why can the insurance companies give you that much coverage for so little money?  Because you’re not all that likely to die in that period of time.  At age 37, a 30-year term would take me through to age 67.  But a life expectancy calculator shows that my expected life span goes at least 10 years or more beyond that.  Remember that with term insurance, once the policy expires, you go back to zero insurance again.

That doesn’t mean life insurance isn’t worth it.  It just means you need to weigh the cost and benefits without assuming that you’ll get the big payout.  So far, I haven’t decided whether to pull the trigger on the policy or not.  I might do it.  I just need to think about it a little more first.

Have you thought about life insurance?  If so, have you decided to insure or not to insure, and why?

This article was sponsored by SelectQuote, but all thoughts and opinions are my own.