A headline hit me this morning. You know, one of those that sucks you right out or your routine and sends you off chasing rabbits of another color.
US News and World Report seems to have rifled through my blog posts and come up with 7 (only 7?) important things you should know about life insurance. While they definitely hit on some important points, let’s discuss those and a few they missed.
1. Thinking you have enough! There is a real tendency in our country to put a high value on toys and play time and then treat life insurance like, well, like your family’s future minus you doesn’t matter. It’s important to give some real thought, have some real discussion, about life without your income.
2. Not talking about it at all! Seems I may have offered a post on that very subject a few days ago. There is a real tendency, especially for men to want to ignore their own mortality and hope for the best even though the stark reality is that one sixth of men don’t make it from age 25 to age 64.
3. Relying on old rules of thumb! Most of the old rules of thumb for computing how much life insurance is appropriate have lost some of their key factors. Most of those computing methods used your projected savings and retirement accounts to offset the need for larger amounts of life insurance. Not sure about you, but that train of thought isn’t holding together to well for a lot of us right now. Another method made the assumption that your life insurance proceeds could be put into an investment vehicle that would produce 10% after tax income. Using that the rule of thumb was that if the death benefit was 10 x annual income, you could live off the interest from the death benefit and leave the principal intact. Lot of that 10% after tax stuff floating around right now too.
4. Ignoring your non monetary income! This one is pretty simple. If you make $40,000 a year but your employer also pays $8,000 a year for your family health insurance plan, count that as income to be replaced or your family may be forced to choose between having health insurance or not.
5. Forgetting the long term! I would probably rephrase that. In order to forget something it kind of insinuates that you ever considered it or knew about it. With agents, agencies and companies steering the masses towards 10 year term insurance, there is kind of an immediate disconnect between what’s being offered and the fact that your needs very often are much longer. And let me be clear. Unless there just isn’t any way to afford the appropriate term length, it is a bad mistake to buy a 10 year term for a longer term need. A health change can turn that into a train wreck.
6. Thinking that it’s too expensive! Really depends on where your values lie. The average car payment in the US is nearly $500 a month. If you die your wife gets the car if she can still afford the payment. Most people who think life insurance is too expensive probably haven’t really shopped it and priced it and most likely have a budget full of things that aren’t nearly as important.
7. Forgetting to update a policy! I lay this squarely on the shoulders of agents who believe their job is done when they place the policy. If your agent doesn’t contact you at least once a year, you didn’t mean anything more to them than a little bit of commission. Policies that lapse and policies that don’t keep up with needs are a direct result of a lack of service by the agent.
And a few of my own!
8. Thinking a declined application dooms your attempt to get life insurance! Every company has a different opinion on what is an acceptable risk and what isn’t. Most declines are simply a result of the wrong agent presenting your application to the wrong company. Find an independent agent, explain what happened and let them work it for you.
9. Buying life insurance from your auto/homeowners agent! I have a lot of respect for my Farmers agent. He’s done a great job for my family for a long time on auto and homeowners and my business liability, but he stinks at life insurance. If you want the best deal on life insurance, buy it through an independent life insurance agent. Steer clear of Farmers, State Farm, Farm Bureau, Allstate and anyone else whose main focus is something other than life insurance. Their underwriting and prices will not serve you well.
10. Making sure it is budgetable! Too many life insurance policies lapse every day because it sounded good but never got a valued place in the budget.
Bottom line. The list can go on and on. Your life insurance could save your family from financial ruin. It could ensure that their future is one of possibilities and not pitfall after pitfall.