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Life Insurance 101

Life Insurance 101

Life Insurance 101

While most of what I focus on for clients is related to financial planning and investments, part of the process is making sure clients are adequately insured. As an independent financial advisor, I can shop the life insurance marketplace for the least expensive insurance products for a client. For example, if you wanted to shop flight prices, is going to give you many options: Delta, Southwest, ect., and then you can pick from the best option for your situation. Delta Airlines might be a great airline and have name recognition, but these companies have higher prices than Southwest. If you are frugal, like me, then you are probably going to book with Southwest, which is typically cheaper than Delta, to save money. In this scenario, Priceline is the middle man, like an independent broker.

One of the main purposes of life insurance is to protect your loved ones from your unexpected death and the financial implications that arise from this. For the typical family, the loss of a spouse would leave the surviving spouse mourning for months, taking care of children alone, and with one half of their household income to pay their bills, and expenses, or any outstanding debts.

Types?  There are two types of insurance: term and permanent life insurance.

For the vast majority of people, term insurance is the most cost effective way to get a lot of coverage for the lowest cost. The downfall with term insurance is that is “temporary”, coverage will eventually lapse if not used. With term, you would choose a length that you want the policy to last and the coverage amount. Once you apply for term, you would be subject to a medical exam, health history questionnaire, and then the insurance company would give you a rating, which is based on the results of their underwriting. The resulting premium is fixed for the life of the term policy. There is no cash value with term.

Permanent insurance is going to be more expensive, but the benefit it that is has a cash value that grows, and some policies can now be leveraged for long-term care needs. Permanent policies can earn interest from stock market gains. As long as you pay your premium and the policy was set up correctly, your permanent policy should last your lifetime.


How much insurance coverage you need depends on certain factors: your age, income, family dynamics, debt, investment size, and possible retirement date.

This is a great tool to help you determine your insurance needs:


If you choose term insurance, how long should it last? This is a very individual decision. If you have a family, and have done a good job saving and investing, the age that you want to retire might be a good place to start. If you have kids, you might want to consider what ages they will be independent (ex. college age 18+). If you have a mortgage, when will it be paid off? The longer length of term, the more expensive the policy will be.

Work insurance:

A lot of companies will provide you with life insurance, typically one or two times your salary. My advice is to take the free insurance, but think before accepting any additional paid coverage, because this usually does not go with you if you leave your job. Health changes can be another factor. Let’s say that Kari worked as a teacher for 10 years and had paid for extra term coverage. Kari had a cancer scare, and although she is in remission, upon leaving teaching, her options for outside insurance policies are extremely expensive and limited. This is the problem with term through work. It is that is associated with that job, and not usually portable if you leave (it can be converted to a more expensive permanent policy sometimes). Instead, use your companies’ free insurance, if it is available, and buy a term policy independent of your job, to lock in the coverage and price for the length of the policy.


If you have life insurance, it’s a good idea to use the calculator to determine if you have the right amount of coverage. As your family grows, it’s always a good idea to review your coverage. The younger age that you lock in a life insurance rate, the cheaper the premium is going to be. Finally, it is a good idea from time to time to review the price you are paying for your life insurance. Over time, life insurance has gotten less expensive due to competition, so it may make sense to make a change if you have an older policy.  If you would like to discuss what type of insurance might be best for you, I would be glad to help with this.