Personal Finance, Part 3 — Buy The Life Insurance You Need

Sorry that my posts have become more terse and less frequent.  A large part of that was recent computer troubles, which have largely been rectified.  I highly recommend the program and advice on this webpage if your computer is running slow.  Beyond that, I have had internet outages (thank you Verizon), and my efforts at obtaining long-term investors for my strategies have eaten up a lot of time.

Tonight’s post deals with life insurance.  My main advice: buy what you need, not what someone wants to sell you.  What most people need is protection for their loved ones from untimely death, which can be satisfied by term insurance.  Now, some wealthy people with complex estate planning needs can benefit more from other forms of life insurance, but that’s not common.  Also, people who aren’t so healthy can benefit from permanent insurance through an agent, because that may be the only way that they can obtain coverage on a reasonable basis.

Why do I favor term insurance?  It’s cheap.  It’s cheap because it is easy to compare the features of various policies against each other to find the best price.  But what if some company that is lower quality offers the best price?  The state guaranty funds stand behind the insurance companies, and no one has failed to receive a death benefit on a timely basis as a result.  (Note: agents are not allowed to tell you this, because the states don’t want lower quality companies to gain a marketing advantage by mentioning the guaranty funds.)

Term insurance offers another advantage: re-underwriting.  If after ten years, you are still in good shape, and you still need insurance, apply for a new policy at a lower rate over the same remaining term as your old one.  If you can get one, buy it and cancel the old policy.  If your health is not so good, keep paying premiums on the old policy.

Where do you buy the insurance, then?  Google the phrase “term insurance,” and a variety of comparison services will pop up.  Try a few of them, and buy from the cheapest.  The younger you are, the longer the term you should buy for, because the far-out years are cheaper.  The older you are, stick to ten years at most.

A few final points: don’t buy policy riders; they are an expensive way to obtain insurance.  Also, don’t buy convenience insurance policies that offer token amounts of insurance; they are expensive also.  Last, don’t scrimp on the amount of coverage.  Few people are overinsured when it comes to life insurance; 5-10x your salary is pretty standard, but analyze how much your loved ones will need in your absence, and buy that much coverage.