When my husband and I got married, I immediately called our insurance agent and asked if we needed to buy life insurance.
He asked if we had a house. I said no. He asked if we had kids. I said no.
He advised me to hold off until we had either.
Last year, we finally bought a house so I decided it was time to finally get life insurance. The process taught me a lot about an aspect of personal finance I’d never personally dealt with before.
Here’s what I learned about picking out a life insurance policy – and what surprised me.
The differences between term versus whole life insurance
Before I signed up for life insurance, I knew that I’d have to choose between a term and whole life insurance policy. Whole life insurance is supposed to last your entire life. Term coverage only covers a specific term, usually ranging from 10 to 30 years.
The price difference between term and whole life insurance is staggering. Because a whole life policy covers your entire life, it’s much more expensive than a term policy.
It didn’t make sense for us to get whole life insurance policies. We only need coverage for the years until retirement. After that, we’ll be self-insured and won’t have any major expenses to pay off.
Why the term matters
Before my husband signed up for term life insurance, we debated whether he should sign up for a 20- or 30-year term. We asked my financial planner, who said a 20-year should be fine for us. The planner said our mortgage balance will be a lot smaller in 20 years and our retirement savings will be higher, so the need for life insurance will be smaller.
But my husband and I just bought a house last year with a 30-year mortgage. We likely won’t stay in the home for 30 years and will probably sign up for a new mortgage in a decade or so.
I hated the idea of having a life insurance policy that wouldn’t last as long as our biggest liability, so my husband chose a 30-year term. The premium difference for us between a 20-year policy and a 30-year policy was about $10 a month, which equals $3,600 over the entire policy. That’s a small price to pay for an extra decade’s worth of peace of mind. We also decided to go with term life insurance instead of mortgage life insurance.
Remember, life insurance isn’t only about what makes mathematical sense. It’s also about what makes me less anxious about my future.
Decide how much you need
The decision to get life insurance was easy. My husband and I had just bought a house and I knew it was time to help protect our future.
But how much life insurance to buy was a bigger question. Unlike other personal finance issues, there are no set guidelines to follow. Again, I asked my financial planner who recommended the following calculation:
- Cost of funeral: Up to $10,000
- How much debt we have: $170,000 balance on our mortgage
- How many years of income replacement: I chose four years
Choosing a life insurance policy is like deciding how many trips to the buffet line you’ll want to get your money’s worth. I wanted enough coverage to feel secure in case something happens, but not so much that I’d be wasting my premium.
The amount I picked would allow me to live debt-free while also having a decent cushion to get back on my feet. It won’t let me retire completely from working, but it also won’t force me to go back to work before I’m emotionally ready.
We debated buying a bigger policy, enough that I could theoretically retire. But that would almost double my monthly premium and since the odds are high that nothing will happen, I didn’t want to have a huge premium for something I’m not expecting to happen.
You can use the online calculator to help you figure out your life insurance needs.
Find the right company
When you’re deciding between life insurance companies, the biggest thing to look for is not how much its premiums cost, but how financially solvent it is.
Not every life insurance company is built the same. My husband bought a Haven Term policy, issued by MassMutual, through Haven Life. I remembered to look up MassMutual’s rating from A.M. Best, an objective party that analyzes how creditworthy a company is. It had an A++, which is the highest rating.
Some people overlook this part of picking a life insurance policy, but it’s the most important detail.
Consider your health
When you sign up for life insurance, the company asks you to rate your current health. This is when I got excited. Right now my husband is in excellent health. His weight, blood pressure, and cholesterol are great. Because his health is so good, we were able to get an excellent rate.
My health is another story. I got diagnosed with a BRCA1 mutation, which means I have an elevated risk of breast and ovarian cancer. I’m having preventive surgery soon to remove my breasts, ovaries and fallopian tubes, which will decrease my risk. I still plan to get coverage, but will wait until I’ve recovered from surgery.
Overall, buying life insurance was easier than I imagined. My husband had to answer questions about his health, but he didn’t have to go through a medical exam, and the rates were in line with our budget.
[A note from our lawyers: Some applicants may qualify for our InstantTerm process, where some applicants, ages 18-59 seeking a $1 million death benefit or less, may be able to finalize coverage without a medical exam based on the information provided during the application process. Customers are notified once an app is submitted if they qualify to skip the exam. Keep in mind that it’s always very important to be honest in the application process. The issuance of the policy or payment of benefits may depend upon the answers given in the application and their truthfulness.]
Getting life insurance was like signing up for our home security system. I still don’t want to be broken into, but now, I can rest a little bit easier because I know we’re protected.
Zina Kumok is a freelance writer specializing in personal finance. A trained journalist, she’s covered everything from murder trials to the Final Four. She also writes a blog about paying off her student loans in three years at Conscious Coins. This article is sponsored by Haven Life Insurance Agency. Opinions are her own.
Financial strength ratings are as of June 5, 2019: A.M. Best Company: A++ (Superior; top category of 15); Fitch Ratings: AA+ (Very Strong; second category of 21); Moody’s Investors Service: Aa3 (High Quality; fourth category of 21); Standard & Poor’s: AA+ (Very Strong, second category of 21). Ratings are for MassMutual (Springfield, MA 01111) and its subsidiaries, C.M. Life Insurance Co. and MML Bay State Life Insurance Co. (Enfield, CT 06082). Ratings are subject to change.