With the cost of gas, housing, food, and general living just skyrocketing without a cap in sight, many people are considering cutting corners when it comes to nebulous costs that seem far in the future. One place where many cut costs and shouldn’t is term life insurance.
According to Bankrate’s 2015 USA study, only 60% of Americans owned life insurance, half that number was thought to have insufficient coverage. Whether you’re uninsured, underinsured, or plain unsure, read on to find out why you should add term life to your portfolio.
Why Do They Buy?
So what’s spurring that 60% of Americans to buy life insurance policies (whether or not they are buying enough)?
Many American life insurance holders aren’t buying for themselves. Well, the actual insurance plan is in their names, but they purchase with the intention of helping their families in one of the most stressful times.
People don’t want to die without leaving a plan, and part of that plan is to ensure financial coverage for a funeral, burial, medical expenses, and other costs.
So they purchase life insurance as a security blanket.
The Roof Over Their Heads
In a similar reason to purchasing life insurance to provide coverage of death costs, some plan purchasers say they want to plan ahead to provide money for other big expenses their loved ones may encounter, including continuing payments on a home/mortgage.
Other big ticket items people cite as reasons for purchasing insurance include college funds for their children and vehicles.
Families Are Most Vulnerable
Back to that Bankrate study.
If half the 60% of Americans who own term life insurance don’t have enough, that’s 30%. But the numbers go even further.
- Only 44% of people ages 18-29 have any kind of life insurance
- Over 20% of people who own life insurance only have coverage of $25,000 or less
- 47% of people with coverage have $100,000 or less
- 33% of parents with children under the age of 18 have no life insurance
- Another 32% of those parents have $100,000 or less in coverage
Term Life Insurance versus Standard Life Insurance
Don’t let the two confuse you. Both are potentially life-long policies, but they do have a number of differences.
- With term insurance, no surprise, you set up a specific term that the policy stands (usually 1, 5, 10, 15, 20, 25, or 30 years). If you outlive your policy, there is no payout upon your passing. If you pass within the term, the payout goes to the designated beneficiary.
- Term life insurance is usually cheaper than standard policies but may have bigger payouts. They tend to be triangular, with the biggest potential payouts the earlier in the term. Thinking about that can get somewhat macabre, as they are literally hedging their bets against you dying.
- You cannot borrow against term life insurance and it is not considered to be an income/revenue stream like standard.
Selected term but want the standard? Once your term ends and you (hooray!) are still alive, you can make the change. You may have higher payments, as the insurance company’s underwriters are now taking into account that you’re older (and all the health risks that go with advanced age) than when you first bought your term policy.
Chances Are, You’re Not Too Old
On the one hand, there are young adults who feel that their deaths are so far away, they just can’t conceive of putting money towards it now.
But we also see a lot of seniors who now understand and believe in the benefits of term life insurance but feel as if the entire possibility to purchase has just passed them by.
Well, chances are, you are not too old.
In fact, term life insurance may be the ideal options for seniors, because you get to select your term (unlike standard life insurance, which is either / or).
Age cutoffs vary and yes, the older you are, the shorter the terms that may be available and the higher your premiums may be (rates may triple between the ages of 60 through 70). Ages 80 to 85 appear to be the range up through which insurance companies are willing to insure.
Plus, older folks are more likely to have retired and actually need the income that insurance provides.
Think Work Has You Covered?
Remember that 60% of people from the Bankrate study we mentioned?
A third of that group claimed that their life insurance coverage was through work.
Life insurance is usually part of the standard benefits packages for full-time, permanent employees, but the coverages and fine print vary vastly.
The main thing to keep in mind is that provided coverage (although often free) is usually small and enough for (barely) just one person.
Plus, what if you separate from the job? (Regardless of the reason, such as being fired, laid off, resigning, your coverage does not always go with you.) This can cause a gap in coverage, which sends up huge red flags to the person underwriting your next policy.
Further, it’s in your employer’s best interest to find coverage to suit many employees at the lowest rate. So guess what? This is not going to usually be in your best interest.
If your employer offers coverage for free, sure, sign up for it. You have nothing to lose. But keep these things in mind:
- Don’t count on the coverage for anything but a small piece of mind.
- Know that the coverage will probably not go with you if you leave the job.
- Know that the coverage is probably not enough for anyone but yourself (no dependents, no major costs).
- You can probably find cheaper coverage elsewhere, even for the same exact plan.
Where to Get It
It’s all good news. You now know that you do not have to rely on an employer for life insurance (good news for people whose employers provide low-benefit plans, don’t see themselves staying with the employer for the long haul, or want more options).
The better news is that the insurance marketplace is huge.
You can find great plans everywhere, but why not start online?
There is a wealth of knowledge available, as well as friendly, helpful agents who are eager to help you select the right plan.
You can purchase term life insurance without leaving the house using your computer or mobile device or head into one of the many agent outposts across the country.
But buyer beware! Do not fall for any of the many insurance scams out there. If you get even the slightest “creep factor” feeling, head out the door and try the next place.
You should never feel forced or coerced into buying more than you prefer. One example of this is an agent who pressures you into a different term than you came in for. This is your life and your life insurance. Get what you want (though there’s always the potential for good, sound advice from a licensed, experienced professional to guide you through, too!).
Yes, You Can Afford It
One of the biggest reasons (OK, the biggest by far) we hear why people do not buy term life insurance is they can’t afford it.
This is because prospective buyers think about it as a lump sum.
Let this infographic from the Alabama Center for Insurance Information and Research break it down.
Person A looks at purchasing a $250,000 life insurance policy. Her agent tells her that her premium (the amount she will pay per year) is $160. That’s $160 per year! Not even per month!
Her per month cost would be $13 (people always love to quote how much we spend on lattes. Per the infographic, most people spend $80 a month on coffee, which could buy Person A and 3 others policies).
That $80 may be a little high, but the real breakdown comes when you dissect the cost daily: it’s 40 cents. That’s how much a $250,000 life insurance policy could cost.
Do the Math
Got a computer or mobile device? (That question seems so laughable today.)
You’re ready to give yourself a term life insurance estimate without even talking to an agent.
Check out an insurance calculator online, such as this one from the Teachers Insurance and Annuity Association of America. Tip: Try to use a calculator that is NOT from a sponsored site, such as an individual insurance agency. They may skew their responses or try to push you in a non-partisan direction. You can even find calculators that require NO login or recording of personal information.
An online estimating calculator is going to ask you for some basic information:
- Sex, height, date of birth, and weight
- State of residence
- Tobacco use
- Coverage amount and type of policy preferences (you can always click the Back button and play with these)
For our example, we used a 5’7” 138-pound female, born in 1975, living in California with no tobacco use. She selected a 30-year, $100,000 policy. The Teachers calculator returned a $17.93 monthly price tag for her quote. That’s about 60 cents a day.
Let’s Talk Term
All this talk of planning can make you feel quite… uncovered.
Well, that’s why we’re here. We want to help you choose the right term life insurance and we are experts in the field.
We’ve helped people from every demographic (families, singles, seniors, young adults) purchase the right package for what they need.
Leave a comment below or visit us here. It’s your life, we’re standing by to help you protect it.