Answers to the most important life insurance questions and facts to get your best protection
Life insurance policies may not be great party conversation but do you know the facts that could save your family financially?
Some of the biggest questions like, “How much does life insurance cost?” and how much coverage you really need are not well answered online. I’ve found seven misconceptions about term life insurance and some of your most common questions.
We’re building a huge community of people ready to beat debt, make more money and make their money work for them. Subscribe and join the community to create the financial future you deserve. It’s free and you’ll never miss a video.
Answering My Own Life Insurance Questions
I’ll admit, I never thought much about life insurance until into my 30s when I started a family but researching for this video opened my eyes. The fact is most people know almost nothing about insurance policies and I found some surprising facts and outright myths about life insurance.
That’s why I’m teaming up with Quotacy, the country’s leading broker for buying life insurance online, to help see through some of these life insurance misconceptions. Over the next three videos, we’ll be looking at exactly how much life insurance you need, how much it costs and how to get the lowest premiums by shopping your life insurance policy online.
Quotacy has built out an online process that really takes the guesswork out of insurance. The application takes less than five minutes and then gets shopped around to 20 carriers for the best policy. In fact, you’ll be able to get estimates on your premium in seconds with their pre-application process.
The team at Quotacy works on salary instead of commission so it’s there to find you the best policy, not the one with the fattest kickback.
Biggest Life Insurance Mistakes
Let’s get to some of those biggest misconceptions and facts about life insurance policies and then some basic questions on insurance.
And the most surprising I found was that people tend to overestimate the cost of insurance. A 2018 study by the Life Insurance and Market Research Association found that people tend to think life insurance costs three-times its actual cost and 44% of millennials overestimate the cost by about five-fold.
In a 2015 Insurance Barometer study, people were asked to estimate the cost of a life insurance policy for a healthy 30-year old and estimated between $400 to $1,000 a year. Actual cost of that policy, less than $200 a year.
What’s bad here is that 63% of Americans say price is the reason they don’t buy life insurance. So there’s a disconnect here, people aren’t buying life insurance because of the cost but they are way off on what that actual cost is.
A disturbing trend I found was that fewer employers are offering coverage to workers. It seems employee insurance coverage is going the way of the pensions and the Dodo. In 2017, less than half of employers offered life insurance as a worker benefit, that’s down 23% since 2006 and it’s something that’s been trending lower for decades. Four-in-ten Americans don’t have life insurance coverage either through an individual plan or through work.
Take this with the fact that almost one-in-five spouses has no idea how much coverage their significant other has and you see how we’re setting ourselves up for a huge financial burden.
More than a third, 35%, of households say they would feel a financial burden within 30-days of the death of the primary earner. The average funeral costs between seven and ten thousand dollars so when you consider most people don’t have enough saved to cover a $1,000 emergency expense, any loss of income is financial ruin.
Most Important Life Insurance Questions You Need to Ask
Some pretty surprising facts about life insurance but what are those basic questions about insurance we all need to know? Again, until my 30s, I had absolutely no idea and even after about a decade of having insurance, I still knew very little about what it meant.
I reached out to the team at Quotacy to ask my questions about insurance, what’s the difference between certain types and how exactly does it all work?
What's the Difference Between Term and Whole Life Insurance?
My first question was just what’s the difference between term life and permanent? How is whole life and universal different from term life policies?
Term life is the most common type of insurance and the best for families in most situations. The policy covers you over a period of years, anywhere from 5 to 40 years and you can pick your coverage amount. It’s designed to replace that income if the wage earner or even if a stay-at-home parent dies and you need help paying for expenses.
On the other hand, permanent life insurance, the most common types here are those whole life or universal policies, this covers you for your entire life. It can build up a cash value and it’s a good option for high-net worth families that want to leave it as part of an estate but it’s way more expensive than term life.
Usually, the term life is the best option because it’s less expensive and you really only need coverage for as long as you’re earning an income or taking care of your family.
How Much Do Life Insurance Premiums Increase Each Term?
A question my wife had about premiums, do your term life premiums increase and by how much?
On a term life policy, your premiums, that amount you pay each month or year, stay the same for the entire period. That means if you sign up for a five-year policy, they’re guaranteed to stay the same for five years. If you buy a 25-year policy, they’ll be the same for 25-years.
Now the premium on a 25-year policy is going to be more than a five-year because you’re locking in the insurance company for almost three decades. The thing is here, after that five- or ten-year policy term ends, your premiums might go up. So it’s a matter of paying in a little more to lock-in your premiums for a long time or saving money now but maybe paying more in the future.
One note here, and this is one that kind of bit me because I waited so long to get life insurance. Your premiums are based on your age and other factors like your health. That usually means the younger you start, the lower your premiums will be and you can lock those premiums in with a longer-term policy. Wait until you’re older to start your premiums and they’ll be higher from the start.
Do You Need a Medical Exam to Get Life Insurance?
One of the biggest questions I had before getting insurance was, do I really…really have to get a medical exam?
So the fact is here, yes you do usually need a medical exam to get life insurance. I know it’s a pain but an exam helps the insurance company assess your health and it’s your best bet on getting the lowest possible premium.
Think about it. All those life insurance policies advertising no medical exam, they have no way of knowing your health risk so they’re going to be charging more to cover that uncertainty. You might be healthy but your premiums go to pay the benefit on everyone insured by that company so you’re bound to have a lot of people that didn’t want to take that exam because they were in poor health and it’s going to cost everyone more money.
Now some companies have started to waive medical exams for people in a certain age range, younger people, it’s typically 50 and under but this is more the exception rather than the rule. Hey, I know getting that exam is a pain but this is actually good for you because it’s going to help you make sure you’re getting a good premium rather than that higher risk-adjusted premium for the uncertainty the insurance company has to manage.
What Happens if I Outlive My Life Insurance Policy?
A question I got from Mark G. right here in our YouTube community was what happens if I outlive my insurance policy?
So the easy answer is just that your coverage expires at the end of term life insurance. You can apply for another term or convert it into permanent life insurance but thinking about this, it kind of changed the way I look at life insurance.
A lot of people don’t buy insurance because they don’t think they’ll need it. They roll the dice, saving a little each month, thinking the odds are pretty long something will happen to them. It’s the same with car insurance or insurance on your home, right?
But you don’t buy car insurance because you think you’ll need it. You don’t sign those papers and then start driving like a bat out of hell trying to cash in on that policy. You actually hope you won’t need to use it but you want that peace of mind and protection against that what-if.
It’s the same thing with life insurance. I sincerely hope I outlive my insurance. I hope I get to 65, my term life policy expires and I’m no longer covered. Hell, maybe I’ll tack another ten year premium on to that and hope I outlive it as well!
But I’ve got the policy to protect my family if the other scenario happens. I know they won’t have to worry about money after losing me.
Now after all this, the facts on how many people aren’t covered and some of those myths around life insurance policies, it seems even many of the people covered may not have enough. While six-in-ten Americans have some type of life insurance, almost half, or 47%, have less than $100,000 in coverage.
That might seem like a lot but the basic rule is to have 10-times your annual salary. Remember, we’re not just talking about $10,000 to pay for burial expenses or to help pay for living expenses for a few years. Your family could be out your income for decades. That means not only living expenses but help saving and for those college expenses as well.
The upside to all this, and I promise there is an upside, is that it’s becoming easier to shop around for life insurance and get the coverage you need. Six-in-ten Baby Boomers report finding information about coverage online and half of all Americans have bought or looked for information about life insurance online. Not only are the online marketplaces becoming THE place to find information but it’s a great way to shop your insurance around to get the best rate possible.
Life insurance isn’t something you can wait on and it’s not the huge cost most people think. Quotacy makes it easy to get your pre-application quote to see how affordable life insurance can be and then the team works with you to shop your policy around.