In a 2015 life insurance study at Life Happens, here’s what people surveyed spent per month on:
- cell phones: $61
- cable TV: $64
- coffee on the way to work or during the day: $80
- take out lunches: $140!
Now, how much do they spend per month on life insurance?
In this survey, 13 bucks, smackers, dinero.
Of course that number depends on the type of life insurance policy chosen, but you get the picture. Eat out less at lunch or cut back on the vanilla lattes and you’ve paid for your life insurance.
In this Life Insurance 101 post we take a look at the true cost of life insurance courtesy of Life Happens and throw in a few tips on buying life insurance for good measure.
Stat: 3 out of 4 People Say . . .
. . . they have a good understanding of life insurance.
Maybe. Maybe not. Who can really tell in these surveys. But, when it comes to understanding cost, not so much.
When asked how much the yearly cost would be for a 20-year $250,000 term life insurance policy for a healthy 30-year-old:
- 80 percent of the respondents overestimated the costs
- They guessed at least $400 a year
- Those under 25 — who tend to pay the least for coverage — said $600 a year
- and one in four thought it would be $1,000 a year or more.
But the True Cost . . .
. . . for that 20-year $250,000 term life insurance policy for a healthy 30-year-old was just over 40 cents a day or $13 a month, give or take a few shackles.
Think back to the cost of your cell phone, what you pay for cable TV, or internet access, or coffee, or going out to eat any time of the day actually and life insurance becomes affordable.
The Value of In Person Relationships
You can shop for life insurance on the web using all sorts of convenient tools . . .
You can call an insurance company on the phone and talk to someone who knows where and ask questions about insurance and rates . . .
But the best thing to do is sit down at an insurance company near your residence or business in Grapevine, Fort Worth, Dallas or neighboring communities and talk with an agent about all sorts of things — you, your family, your goals and dreams, your life insurance needs, your homeowner’s insurance needs, renter’s insurance, what all of it means and how much is it going to cost.
Web tools don’t know you. They might be able to ask you automatic, machine-like questions, but they can’t answer your questions easily or see your family and needs as a whole.
Talking to someone on the phone — once you get through those blasted automated phone trees — is a bit better. They can actually answer questions for you, but it’s hard to develop trust in the visual world — even on Facebook.
Here are a few things you may not be aware of when shopping for life insurance, whether on line, talking to someone on the phone, or visiting an agent in his or her Grapevine, Fort Worth, or Dallas office.
Myth: You Can Buy Insurance at “Death’s Door”
You may have seen those low-cost, no medical exam, guaranteed-issue life insurance policies advertised, usually on late night TV, the ones that promise you won’t be turned down regardless of your health.
These ads imply that, if you’re looking for a quick net-worth boost at “death’s door” or a last-minute cash windfall for your heirs, these types of policies are worthwhile.
Many life insurance experts say don’t count on guaranteed-issue products that are too-good-to-be-true low cost, no medical exam policies. Here’s why:
- In the first two years of such policies, the death benefits paid are minimal.
- That two-year period is mostly a suicide period, the window where the insurance company could contend that the information you provided was not correct and they could challenge any claim.
- Benefits may increase after the contest-ability period, but not by much. These are not big policies, mostly burial-type policies, or just enough to bury you and pay for the minister.
- The cost of these policies reflects their increased risk to the insurance company. They end up being “crazy expensive,” according to an insurance agent in the Grapevine, Fort Worth, and Dallas area, and statistically less than 10 percent of the people who buy such life insurance policies qualify for the best available rates.
That’s not to say that “last-minute” life insurance policies won’t work or they’re a bad idea, but you will want to work with an insurance agent in the Grapevine, Fort Worth, and Dallas area to make sure the policy will work for you.
Don’t believe everything you see on late-night TV.
Myth: Agents Always Disclose Their Commission
Want to know how much commission your insurance agent is making on your life insurance policy?
Is it even important?
Life insurance is a quagmire, according to some industry analysts, because it’s the last financial industry where compensation is not fully disclosed — for a reason.
The insurance industry has long maintained that divulging the commission on whole life, for example, can typically run 85 percent of the first-year premiums with annual renewal commissions of seven percent for the next decade. Numbers like that, some in the insurance industry say, could “kill then sale.”
Yeah, it’s a bit of a dated defense — disclosure is already welcomed overseas. But it is what it is.
Some insurance industry experts suggest two workarounds:
- Compare the first-year surrender value to the first-year premium. The closer the surrender value is to zero dollars, the more money is going into the agent’s pocket. There is one catch with this workaround: You need to actually purchase the policy to get this information.
- Get a competing quote from TIAA-CREF, which sells direct policies without commissions. Make sure the policy is close to the policy you are considering — more apples to apples than apples to oranges. This will give you a rough idea if how much commission your policy contains.
When buying life insurance, you don’t want an agent pushing high-commission products so he or she can make a killing on the commission. You want an agent finding the best product for you at a reasonable price regardless of commission.
How will you know? You won’t really. Some agents may tell you. Others may not. If you get to know your insurance company and agent/s, if you get to build an honest relationship with them and develop a level of trust, then paying a hidden commission won’t necessarily matter. You’re going to pay it one way or another.
Myth: Life Insurance is a Good Investment
Malarky, say some financial investment experts.
Each decade the insurance industry seems to conjure up another sound financial reason for you to “invest” in life insurance. In the 1980s it was the tax advantage of single-premium life policies, which eventually evaporated when the wealthy starting flocking to them as tax havens.
Another sales pitch, touting the tax deferral on cash value buildup within permanent life policies, could also turn out to be wishful thinking for many.
The problem is, some experts note, that 40 or 50 percent of the buyers drop out within 10 years and never get a good return on their money.
Some experts prefer you buy term life insurance and take the savings on whole life and put it into a 401(k) instead.