How to Buy Life Insurance for Your Family
Life insurance is no one’s favorite subject, but no family financial plan is complete without it.
1. Figure out how much you need.
Life insurance serves one single purpose: to replace the income of someone who dies OR to replace the value of the work done by an unemployed spouse (like a stay-at-home parent). There are excellent life insurance needs calculators all at the tip of your google-finger. I like the one here at Lifehappens.org, but definitely try more than one to be sure your results are accurate. As much as I hate having to even think about it or mention it, I never recommend life insurance be purchased on children. Unless your child is the next Tiger Woods, what income would you be replacing?
2. Figure out how much you already have.
Does your employer offer your family life insurance? If they do, most companies will give you either $50,000 or one year’s salary, but double check your employee handbook to be sure. Also remember that most people get sick before they die and if you aren’t an “employee”, these policies are moot. Also add up any other policies you’ve purchased. While you’re at it, double-check the beneficiaries on your policies. The last thing you need is a surprise. (Like one client – the one with four kids under five years old – died and left his million dollar life insurance policy to his single, child-free EX-wife).
3. Buy term life insurance.
“Whole life insurance” is basically just a life insurance policy bundled with an investment product. The problem is that the bundling itself is ridiculously expensive and some of the highest, most obscene commissions and fees can be found in Whole Life policies. Not to mention that every policy is different, which makes it almost impossible to compare such products against one another. My advice is to buy your insurance AS INSURANCE (term life) and your investments AS INVESTMENTS (personally I like no-load index-based mutual funds). This means “term life insurance” is the only way to go. It’s cheaper, easier and you can buy it directly without having to pay a middle party.
4. Start shopping
Again, start googling and comparing prices at places like www.wholesaleinsurance.net and www.intelliquote.com . Request an application from the top-ranked company with the lowest price. (These sites will rank the companies for you.)
5. Be honest
Never lie on an insurance application, not even about your weight. First of all, they’re going to send a representative out to your house to take some blood, check your vitals and WEIGH you (they actually bring their own scale!), so almost any lie is going to be revealed in those tests and would be a waste of your time. And lying on an application can often nullify your policy and may even get you stuck in litigation, so beware.