Three Life Lessons About Life Insurance
Life insurance is a topic that has danced in and out of my life over the years. The Simple Dollar has even written a guide on life insurance. Here are three stories about the times when life insurance has impacted my life and what valuable lessons I’ve taken away from those experiences.
A childhood of ill health
I spent much of my childhood in and out of hospitals. I had a long list of surgeries attempting to correct eye problems, ear problems, a hernia and several other medical issues.
My parents were largely unprepared for this. They had pretty good health insurance, so the medical costs didn’t bury them, but they had previously raised two healthy sons. Having a relatively unhealthy child was an experience they didn’t know how to handle.
After a recurring medical scare involving a head tumor, my parents began to worry about the costs if I were to pass away suddenly. I was undergoing a lot of medical procedures, and although you never want to think of a child of your own passing away, I know it was at the forefront of my parents’ mind.
After asking around, they did eventually find someone who would place a universal life policy on me, though it came with a hefty premium. It was an overpriced policy and it was one that was probably far from the ideal choice, but they needed some protection in the event of something unthinkable happening.
Who should get a child life insurance policy?
If you have a dependent and you’re unsure how you would be able to afford things if they were to suddenly pass away, you need some form of life insurance.
I would be the last person to specifically recommend a policy, but I do know the kind of precarious financial position many people find themselves in, and I know what kind of position my parents were in at the time. An unexpected passing can be financially devastating. Don’t let it happen to you.
Naturally, if you can afford those expenses out of pocket for a dependent and you’re sure that the future finances of your household would be secure without that person, life insurance isn’t a requirement.
When should you insure a child?
Get your children insured early if you’re going to do it. If you can’t afford the expenses that would be incurred if the unthinkable would happen, each day that passes is a risk. It’s a risk not only of that kind of event happening, but it’s also a risk of a medical condition appearing that could make it difficult to insure them. It nearly happened to me.
What does life insurance on a child cover?
Buying life insurance for a child can offer financial benefits regardless of his or her health. Once your child reaches adulthood, you can transfer the policy to their name. If it comes with a cash value, they can use it for college tuition or eventually buying their own home.
If your child has a medical risk or endure some type of tragic accident taking his or her life, a life insurance policy covers remaining healthcare costs and funeral costs. In total, the average funeral costs between $8,000 and $10,000 — not a small sum, especially if you’re already overwhelmed with medical bills.
an unexpected passing can be financially devastating. Don’t let it happen to you
A dodgy salesman
When Sarah and I had children, we realized how important it was for us to have life insurance, so we started shopping around for policies. We looked online for various quotes and we also met with agents.
One agent we met with was recommended to us by a friend. At first, he seemed to be paying attention to our concerns. We only wanted term policies for ourselves (we didn’t want an investment policy of any kind, as we prefer to invest independently) and we were pretty confident as to the amounts.
After some nodding, the agent moved in for the hard sell. He pushed us hard to buy a type of policy that we had no interest in. He spent at least half an hour making a strong case for the policy.
Sarah gave the salesman the benefit of the doubt, as the agent was recommended by one of her friends. She listened to his pitch. On the other hand, I was annoyed from the start. It was clear to me he was just trying to sell us whatever package earned him a good commission – a good money-saving rule is to always expect agents to push policies that might not be the best for you.
We walked out of the office and, on our way out, I tossed the agent’s card and the documentation he gave me right in the trash can.
Figure out your insurance needs first
If you’re going to shop around for insurance, know what the insurance types are and figure out on your own what’s right for you. Know what you need and what you’re looking for. Define what problem you want the insurance to solve, then look for policies that solve that problem.
Know the terms that might be thrown at you, and research exclusions and loopholes that might apply to you. The best way to do that is to do your research, in my opinion. Go to your library and check out a book on insurance, turn to The Simple Dollar experts and Google what’s going on in the insurance world.
Be ready to walk away
If someone ignores what you say your needs are and tries to sell you something else, walk away. It doesn’t matter how good it sounds and how perfect the salesperson tries to make it sound. If you’ve researched the question, you know what it is you’re looking for, and if they’re trying to push you into something else, walk away. There are plenty of other policies in the sea, many of which don’t involve pushy salespeople.
If someone ignores what you say your needs are and tries to sell you something else, walk away
Where can I purchase life insurance?
If you’re wondering, “How can I get life insurance,” it’s never been easier to access and compare multiple options. Personal recommendations are fine to consider, but you don’t need to feel locked into a single agent simply because you had a meeting or phone call with them.
Many companies offer free online quote tools or have agents you can talk to about options. Alternatively, you could try an insurance broker platform that lets you compare several quotes all at once.
What are the types of life insurance agents?
Not all insurance agents are the same, and the different types may have different motivations.
A captive agent (or an exclusive agent) typically only offers insurance policies from a single company, even if they’re an independent contractor. Consequently, their product offerings may be limited. Even if a specific type of policy would be best for your situation, a captive agent may not recommend it if it’s not available from the company they represent.
The other type of life insurance agent is an independent one — also known as a broker. They don’t represent just one company. Instead, they can help you shop around multiple carriers to find the best life insurance policy for you.
An unfortunate death
A person I respect and care for very deeply passed away not all that long ago. This person had a number of descendants who gathered together to go through the person’s belongings. They knew he had a large life insurance policy, so they called the agent to find out more.
What they discovered was shocking. The beneficiary of the policy was a person who was still living but was estranged from the family. That person showed up, pocketed a pretty sizeable check and then vanished.
There were other assets in the estate, of course, but the whole experience resulted in an upsetting period for the whole family and a strong sense that the true final wishes of this person were not followed.
When I heard about all of this, my initial reaction was shock, but then it turned to concern about my own policies and the policies of those I care about.
Stay up to date
Keep an eye on your policies. Check them regularly – say, once a year – and make sure the beneficiaries and other options are exactly as you want them. After all, life insurance is something you won’t have a chance to make right when it’s too late.
The death benefit is the amount your beneficiary will receive if you pass away. You can choose how you’d like this to be paid out as part of choosing your policy. The most common choice is a lump sum. Whatever the value of your death benefit is, that’s the amount your beneficiary receives after your death. Another option is to go for an installment plan or annuity. The beneficiary receives smaller payments on a regular basis, with the balance still accruing interest. The final option is a retained asset account, from which the beneficiary can draw from as needed.
Be involved in estate planning
Be involved with the estate planning of those you love the most. If you have a strong relationship with your parents or grandparents, offer to help them make sure that their estate is as they wish it to be. Make it clear that you don’t care who the beneficiaries are and you want to help them make sure their wishes are taken care of. This can make a world of difference.