Why You Should Have Life Insurance Part 1

In my former years, prior to becoming a Licensed Professional Counselor, I had the privilege of working at a broker's office doing as an Account Manager for Group Insurance.  I learned so much about insurance and company benefits, that I at least have more than the average knowledge and experience.

My young brother's unexpected  death was so sobering.  It made me take a close look at what my insurance coverage was and made me evaluate if what I had in force still fit my family's needs. Many friends and family openly confessed that it made them think twice about getting their estate planning (or lack there of) in order.It's often in the back of our minds for things "I should be getting done" but because it's such a morbid topic, we often push it to the bottom of the priority list. When it really isn't that bad to tackle and then once it's done, you don't have to think of it again (until your wishes change).

Along the way, I learned a few things that I wanted to share so that you could look into and make sure you are taking full advantage the resources available to you, through your place of employment but also recommend resources outside of work. This post will focus on life insurance and why you should make sure you have ENOUGH coverage. I won't get to much into the many MANY options available, because it even makes my head hurt and I have been trained in it.

Why you should have insurance:

We often don't think about the consequences of our financial choices in terms of what happens post death.  These are a few reasons to make sure you have life insurance in place, even if just enough to cover funeral expenses

1.  To cover or reimburse for funeral expenses. (think around $20,000 now and add some for inflation). This is probably up on the top of my list because otherwise someone else is responsible for your funeral expense. But hey! Social Security is kind enough to give your family $200 towards funeral expenses. Ha!
2. To pay off debts, especially those you have co-signed with someone such as credit cards, personal loans, student loans, car loans and rent/mortgages, just to name a few.
3. To cover loss of income for surviving spouse or someone dependent on your income. What was a dual source of income has now been reduced to one. It could jeopardize the standard of living for the surviving spouse.  They may no longer afford the bills to live in the home or even afford the car or child care expenses.
4. If  you are a parent, money to provide for surviving children and all their expenses, especially childcare, college and medical expenses.  
5. If you are a Stay at Home parent, you may not make an income but you do have a monetary value in terms of the "service and duties" that you provide being at home with the kids. Think of hours of childcare, of people needing to watch the kids after school, driving kids around to sports and appointments, making food for the kids, Etc. 
6. To Leave an inheritance

Below are a few ways you can obtain Life Insurance polices:

Benefits through your employer:

Basic Life Insurance
Many employers offer "Basic Life Insurance" to their full time employees. This is where the Employer provides the Employee with a specific amount of insurance. The amount varies based on each Employer's preference.

It could be a flat amount, such as $25,000, $50,000, $100,000, etc.  If it's not a flat amount, it may be an increment of your salary (1x Salary, 2x Salary).  For example, if you make $75,000 per year, you may have a life insurance policy of  $75,000 if it's 1 x Salary or $150,000 if it's 2 x Salary. When you get a raise, that amount increases as well.

The employer pays for the premium for Basic Life, and your beneficiaries (People you list to receive the benefit upon your death) receive the amount upon your death.

Voluntary Life Insurance and AD&D (Accidental Death and Dismemberment)
 
Some employers offer a group Voluntary (Optional) Life Insurance policy that you choose to pay for with your job earnings. This is usually the cheapest option of life insurance available for purchase.  You select the amount above the minimum required, which is usually around $20,000, and you calculate your rate by multiplying your age, the age banded rate and the amount you want to purchase. Keep in mind, Every 5 years, the rate increases on the life policy through your work. So although it begins by being cheaper initially, it can get pricey as you age. This is a great plan for people who don't qualify for insurance elsewhere but it may be overall least costly to purchase a life insurance policy directly through an agent!  Group life insurance policies typically have a "True Open Enrollment" where you can enroll, NO QUESTIONS ASKED, up to a certain amount! But it's only good for the first time you are offered. 

If you decline/ opt out of the group life insurance plan and then try to enroll in Voluntary Life Insurance at a later date during Open Enrollment, you will have to fill out a medical questionnaire for ANY amount and be approved by underwriting.  So take advantage of the maximum "Guaranteed Issue" amount while you shop for other insurance plans to qualify for! You can always reduce it or cancel it at any time.

The disadvantage to Group Life Insurance option is that the moment you leave your Employer, you will either have to convert it and pay a more expensive rate or drop the coverage, and then have to apply for insurance when you may not be the ideal age or health condition. For this reason alone, I would recommend looking for a policy outside of work as YOUNG as possible.  You can have multiple insurance polices.

Another disadvantage of Group Life insurance is that by the time you reach 65 years of age, your death benefit actually begins to reduce by about 33%. That means your $75,000 benefit just got a 33% pay cut!

As long as you pay for Group Life insurance, you have coverage. There really isn't a time limit to it. So it has the illusion of permanent coverage...but it's gone as soon as you stop paying and it gets significantly more pricey as you age. 

For these reasons, your employer's Basic Life and Voluntary plan should be considered supplemental insurance, unless you have a hard time qualifying for insurance on your own.

Individual Life Insurance Policy

Consider an independent insurance plan as your main coverage not associated with your work.
You can go directly to the insurance providers that market online and on commercials such as MetLife, Principal, State Farm, Allstate, just to name a VERY few.

Another option would be to go through a broker. You don't pay extra for a broker, they do all the shopping around for you, find you the best rate, can help you fill out the forms and can help you determine what they think is best for you and your needs. A simple "Life Insurance broker" Google/Yahoo search will do to help locate one in your area. If you personally know me, I will gladly recommend the person I used. I have nothing to gain other than helping you achieve peace of mind.

The rate stays the same
Remember how in Group Life insurance through work, your rate goes up every three years, on an individual plan, you have the ability to purchase a plan that won't ever increase in price.

I was able to purchase a policy based on my age and I will pay that rate throughout the duration of my policy which is for 20 years. I did not opt for a longer time because this policy is just in force to cover my family until my kids are done with college. That is the strategy I have chosen for the time being....

Get it as YOUNG as possible!
I regret not having done this earlier.  Had I purchased a plan when I was 24 and first out in the working world, I would probably be paying a portion of what I pay now. Unfortunately, I think I relied too much on living longer than I may be blessed with and having this as "back up" and only choosing Life Insurance through work. So get your insurance policy as young as possible so to take advantage of the best rates at your "optimal" health before your age increases your rate.

 I left corporate world by the time I turned 30 and have been predominantly a Stay at Home mom and working on building my business as a Licensed Professional Counselor. I originally piggy backed on my husband's work Life Insurance policy at first but with the birth of my 3rd child and the unexpected and young loss of my younger brother at the same time, it made me reevaluate my approach, my plan, and the future of my family should I be taken to see Jesus sooner than expected.

Medical Questionnaire / Medical Exams
These plans will likely require that you fill out medical questionnaire and some carriers will require that you submit to a medical examination (usually they come to you).  If you are afraid you won't qualify, try anyway and let the carriers tell you wether or not you qualified. You may be surprised to see that you qualify, albeit at a higher cost. 


There really is no right or wrong way to plan. Just kidding. There is a wrong way. The only wrong way to plan is NOT having ANY plan in place.  My brother didn't have enough years with his family, and I should pray that I am blessed enough to have the opportunity to be there emotionally, spiritually and financially for my family long enough to see grandkids. But this life, each breath, each moment is only a gift. My life is not my own and I can only hope to leave a positive impact on those around me and at least lessen the financial burden to my loved ones when I do return to my true Home.


In Part 2, I will address if you have enough insurance and how to see if you can have a free will done.