Five Things Every Family Should Know About Life Insurance

Life insurance is not for old age and it is not for the wealthy. It is for anyone who owes something or loves someone.

Here are five things worth knowing before you buy anything, including one that might tell you to keep your money.

1. Your policy at work is real coverage, and it probably is not yours

Group life through an employer is genuinely useful. It is often free. Keep it.

Two things to understand about it:

It is usually one to two times salary. Against a mortgage, the years until your children are grown, and the income your household would lose, that number is often smaller than people picture.

It almost always ends when the job does. You resign, you are restructured, you retire; and the coverage leaves with the badge. It is rented, not owned. Finding that out at 58 with a new health condition is a very different conversation than finding it out today.

What to do: find the actual number on your benefits portal. Not "some through work." The figure. Then ask what happens to it if you left tomorrow.

2. The funeral is where the costs start, not where they end

The National Funeral Directors Association puts the median for a funeral with viewing and burial in the region of $8,000 to $10,000, and cremation with a service meaningfully below that. Those are medians, a single funeral home's price list can sit well above or below.

What that figure does not include:

• Medical bills the health plan did not finish
• Flights and rooms for family who need to travel
• Probate and legal costs (probate is the court process that settles an estate)
• Credit cards, a car note, the last months of household bills

Most households do not have that in cash, so it goes on a card during the worst week of their lives.

What to do: a modest final expense policy solves this completely and cheaply. Unless you already keep that money liquid and untouched; in which case you may not need one, and we will say so.

3. The different kinds do genuinely different jobs

• Term: the most death benefit per dollar, for a set period. It expires. That is the design, not a flaw, and it is why it costs so little.
• Whole life: permanent, with cash value that grows slowly and predictably.
• Final expense: a small whole life policy aimed squarely at the funeral and the last bills. Usually no exam.
• Indexed universal life: permanent, with a cash value account credited by reference to a blend of market indices and a floor under the indexed credit. The most flexible and the most expensive to get wrong.
• Accidental death: pays only on a qualifying accident. Not a substitute for life insurance and often misunderstood as one.

Plenty of people are not sure which they hold. That is worth ten minutes to find out, and it costs nothing to ask.

4. Some policies do things while you are alive

Permanent policies with cash value can offer:

• Growth that is not taxed annually
• Access before 59½ without the early withdrawal penalty that applies to retirement accounts
• Living benefit riders that pay on a qualifying critical or chronic illness

Access can reach you without an income tax bill when the policy is structured properly, stays out of modified endowment status, and does not lapse with a loan outstanding. That last condition matters, a lapsed over-loaned policy can create a real and sizeable tax bill.

And the costs, since nobody puts them in these articles: a cost of insurance that rises with age, a premium load off each deposit, a monthly policy charge, and an index account charge. They weigh most heavily in the early years while the account is small. This is a ten-year-plus commitment or it is the wrong tool.

5. Price follows age and health. That is arithmetic, not a sales tactic

Underwriting prices two things: how old you are and how healthy you are. Both generally move in one direction.

So yes; waiting usually costs more per month, for the rest of the policy. And a health event can change the price more than five birthdays will.

That does not mean buy today. It means know your number today, so the decision is yours rather than a surprise later. There is a real difference between those two sentences and most of this industry blurs it.

The one that says do not buy

Before any of the above:

• Take your full employer 401(k) match. It is an immediate return on your own money and nothing we sell beats it.
• Build three to six months of expenses before you commit to a long-horizon premium.
• If your income is irregular enough that a fixed premium would strain you, wait. A policy that lapses in year four costs you money and helps nobody.

If any of those describe you, we will say so on the call and point you somewhere better. We would rather lose a sale than write something that fails.