Joanna Goddard asked Laura questions that were crowdsourced from her readers as well as members of her team. Many of our customers and potential customers have asked these same questions, so below we are reposting these excellent inquiries from the Cup of Jo community as well as Laura’s answers.
How much life insurance do I really need?
Laura: It depends on the situation, but one rule of thumb is that your policy should be for five to 10 times your annual income, which creates a cushion should the unexpected happen. If you are young, don’t have kids, and/or don’t have financial responsibilities, you may not need coverage at all. But if you’re married, have or are planning to have children, or have a mortgage, then you may want life insurance. If you pass away, life insurance provides your beneficiaries a payout, known as a death benefit. The last thing you want is for your loved ones to be worried about how to make the rent or mortgage payment.
What’s the difference between term and whole life insurance? Which one should I get?
Laura: Term life insurance provides you with coverage for a set period of time — typically, 10, 15, 20 or 30 years. For example, you could buy coverage for the length of your 30-year mortgage, or the amount of time your kids will be in the house. You pay the same premium each month, and if you die within that term length, you will get the payout. If you don’t die within that term length, you won’t get the payout. It’s pure insurance. For most people, term life insurance is a sound choice.
Whole life insurance is exactly what it sounds like — coverage for your entire life. It’s generally much more expensive than term policies because of the coverage timeline and because it has a cash value component that can grow over time. This makes sense for people in certain scenarios, like if you have a child with special needs and you want to make sure they will always be covered, or you have a desire for both life insurance coverage and a product that can be part of your long-term financial planning strategy.
As an example of the cost difference, a healthy 35-year-old-woman can buy term life insurance, for a 30-year term, for $500,000 of coverage, for $36/month. That will cover her until she’s 65. The same amount of coverage under a whole life policy would cost $400 to $500/month. If you’re interested in how much a term life insurance policy would be for you, Haven Life has a quote tool that gives you a quick estimate. You can learn more about the pros and cons of term versus whole life insurance on our blog, too.
I have life insurance through my employer — aren’t I adequately covered?
Laura: Typically, no. The usual amount of coverage offered with benefits is one times your annual income, which wouldn’t likely be enough to provide a real cushion if something were to happen. Plus, the unfortunate reality is that since benefits given through an employer only continue through the time you’re employed, there is a chance that if something happens to your job, you may lose your coverage when you need it most. If you buy your own individual policy, it’s yours to keep, which ensures you will have it when you need it.
Should I bother with life insurance if I don’t have kids?
Laura: If you’re young, single and don’t have children, or if you aren’t planning on having kids, then you may not need or want life insurance.
Life insurance really becomes necessary when you have people who rely on your income in some way. For example, if you’re single and have a mortgage and would want your parents to have that house as an asset if you were to die. If you have a partner who relies on you financially, if you have a mortgage, if you have kids, if you have co-signed debt — then it’s time to consider buying life insurance.
Here’s another thing to think about: If you don’t have kids but you’re planning on having them, you may want to get life insurance in place beforehand. The younger and healthier you are, the cheaper it is. Plus, there are some scenarios, like gestational diabetes while you’re pregnant, that can make it more expensive post birth.
As always, if you’re not sure if life insurance is right for you or if you need it, try using an online calculator. Ours will tell you if you don’t need coverage at all.
My partner works but I stay home with our daughter. Should we just get life insurance for him right now?
Laura: Our recommendation is that the stay-at-home partner always needs coverage. Even if they don’t provide a financial contribution, they provide a significant amount of resources to the household. If something happens to the stay-at-home parent, the working spouse has to either hire someone to take over the childcare, cooking, cleaning and house management, or they have to leave or step back from work to do those things themselves. Either way, having a cushion is just as important for both partners.
What is the process like when applying for life insurance? I’ve heard horror stories about how long it takes.
Laura: Here’s a story about my two very different experiences applying for a term life insurance policy. Years ago, I applied for a policy through a digital broker, which shall remain nameless. I had to go through an agent, filled out many forms, and then had an hour-long phone call to answer questions about my health and lifestyle, many of which I had already answered on the application. Then, a phlebotomist came to my home to draw blood and take my medical history and asked the same medical questions for a third time. From start to finish, it took about three hours of phone calls and an 18-week review process to get approved for coverage. And when it finally went through, there were many errors. They spelled my last name wrong and my husband was listed as my brother!
When I applied for a policy through Haven Life, with coverage issued by our parent company MassMutual, I applied online and had to speak to only one human (the phlebotomist), and I got my final offer in only 18 days. If a medical exam is needed for your Haven Term policy, you can take it at a time and place of your choosing. Most customers choose to have it at home — I personally chose to take the medical exam at a Quest facility down the street from our office. It took about 15 minutes from start to finish.
When someone applies for life insurance, how do you assess risk? What kinds of things are you looking at?
Laura: Pricing life insurance for each individual is fundamentally a risk assessment. (I’m one of few people who can actually say they use what they learned in college statistics courses!) While it might be a bit weird to think about, this is ultimately a good thing because it means the insurer is pricing coverage for you and your individual situation. For most people, this makes your coverage more affordable.
In the application process, an insurer will ask about personal and family health history, occupation, financial risks, lifestyle choices and hobbies (dangerous hobbies like skydiving or rock climbing, for example, can make the premium higher) to understand how to price your coverage.
How do I prioritize all the policies/savings/debt I should be putting money toward?
Laura: First of all, I must add the necessary disclaimer that I am not a financial adviser, so I am not licensed to offer advice. Everyone’s financial situation is different, but, general financial guidance supports that one of the most important things is to have an emergency cushion for any unforeseen things that pop up. For example, you can start with a goal of $1,000 in a savings account separate from your general checking, and then eventually build up to at least 3 to 6 times your monthly income in emergency savings. We all have to start somewhere, and $1,000 is a good start.
Once you have an adequate cushion, you can focus on three financial priorities: paying off high-interest debt (like credit cards), saving for retirement, and continuing to build your emergency fund.
When it comes to debt, consider starting with the credit card with the highest interest rate first since you’ll ultimately pay the most on that balance (but make sure to pay the minimum on all of your cards!). Generally student loans are a lower interest rate and from a prioritization standpoint, come after credit card debt.
If you have a 401(k) for retirement savings, you should try to contribute at least enough to get your full employer match (it’s free money!). If you’re a freelancer, open a traditional or Roth IRA, which also have tax advantages, and start with small auto transfers. Over time, you can increase your contributions little by little.
It can be difficult to balance savings and debt repayment at the same time, but it’s important to keep building up that emergency fund. For example, 3 to 6 times your monthly income as we mentioned earlier, or more if you’re a freelancer or member of the gig economy.
As you’re building your financial foundation, it can still be good to have a little bit of life insurance coverage (especially if you have financial dependents; if you don’t, skip it!) — say one to three times your annual income. When you’re young and healthy, a small term policy like that can be very affordable, and it will help provide a financial cushion to your beneficiaries if something happens to you.
Then, as you get financially stable, you can start thinking about other goals like saving to buy a home or contributing to your child’s college education fund, and, of course, if you’ll need life insurance to protect those assets or intended plans.
What’s your favorite part of your job?
Laura: Definitely the people! I feel so unbelievably fortunate to work at such a cool company with such amazing people. Everyone is so enthusiastic and engaged with what we’re doing. When you are an actuary and work in an industry that’s grounded in understanding lifespan, there are naturally a lot of fun conversations about how we adapt as people live longer. What if modern medicine is able to extend life by hundreds of years? Right now, the mortality charts extend to 121, and only one French woman, Jeanne Calment, ever lived beyond that — to be 122 years and 164 days. Generally, life expectancy goes up with health advancements and that is interesting to see!
Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children.