As a dad, I love having life insurance for my family. But finding cheap life insurance can seem like a daunting task if you don't know where to look. Don't worry, I've got you covered. This post will teach you everything you need to know about purchasing affordable life insurance to protect your loved ones.
One of the most important insurance policies I have is my 10-year, $1 million term life insurance policy. I took it out on my 35th birthday. Before then, I had life insurance through my employer based on 4X my base salary.
I retired in 2012 at the age of 34 and now have to pay for all of my own insurance. Cherish your work benefits folks. They are more valuable than you think. In 2020, I now have two young kids and I wish I took out an even longer policy!
Life insurance is extremely important if you have debt and dependents. In this post, we'll go through the below common questions. And, I'll share with you the best and easiest way to get cheap life insurance
- When to get life insurance?
- How long of a life insurance term to get?
- How much life insurance to get?
- A sample chart comparing costs based on different amounts and terms?
- Where to get life insurance?
When To Get Cheap Life Insurance
The general recommendation is to get life insurance when you are younger, so you lock in a lower fixed price. Once you have a policy, you can alter your policy based on your changing needs.
But the reality is everything is priced in. When you're younger, you'll pay less per month. But, you'll pay for more years than someone who takes out life insurance at an older age.
As a result, it's much better to get life insurance once you either take on a lot of debt, have a newborn, or both, instead of by a predetermined age.
Here are the main questions you should ask before getting life insurance in the first place.
- Do I have people depending on my income to survive? A non-working spouse, children, and retired parents who need financial support are the most common dependents.
- Will my debt be a burden on those I leave behind? The most common type of debt is mortgage debt. Other important debt to consider is high interest consumer debt. The larger your debt and the smaller your equity, the wiser it is to get life insurance.
- Will I die early or before my dependents have a chance to become independent? Males die earlier than females. Meanwhile, if you have a history of health problems, you will likely die earlier than those dependent who are healthier. You know your body the best, even more than the health tests administered to those who get $1M policies or greater.
Term Life Insurance
If you answered “YES” to any of the above questions, you should get term life insurance.
You purchase a policy for a set term — usually 10 to 30 years — and during that term you pay premiums to keep your coverage active.
If you die during the term, your beneficiaries receive a death benefit. If you don't die during the term — the preferred outcome — your coverage ends when your term expires and you don't get any money back.
Now the question is, for how long and how much?
How Long Should The Life Insurance Term Be?
The largest debt for most people is a mortgage. Thus, it's a good idea to match the life insurance term as close as possible to the years remaining on paying off the mortgage.
For example, I've got a $960,000 mortgage that has 22 years remaining until it gets paid off based on its amortization schedule. As a result, I took out a $1M, 20-year term life insurance policy to cover this debt just in case I die early.
The annual mortgage payment is roughly $53,000 a year ($26,000 goes to principal). Along with a whopping $21,000 a year in property taxes and $2,000 a year in home insurance cost.
In other words, if I die, the person who inherits this property will have to pay $76,000 a year. That's just to own the house plus inevitable maintenance expenses. I don't want my death to have a psychological + financial burden on her.
Another way to think about your duration matching is to think about how long it will take for you to pay off all debt. Given I plan to pay off all debt within 20 years, having a 20 year term life insurance policy is about right.
Speaking of mortgage debt, now is a great time to refinance your mortgage. Mortgage rates have collapsed to ALL-TIME lows. Check out Credible, one of the largest online lending marketplaces today. Their lenders compete for your business to give you the best terms possible.
How Much Life Insurance Should I Get?
Take out as much life insurance as necessary for your survivors to feel comfortable living their life with you gone. Here are some options for you to consider in terms of how much life insurance to take out.
Most conservative decision: Take out as much life insurance as possible to completely eliminate all debt plus provide money left over to pay for living expenses for the rest of your dependent's lives. Use a life expectancy of age 100. Take 100 – current age and multiply by annual living expenses e.g. $500,000 debt + 50 years X $100,000 = $5 million term policy.
Conservative decision: Take out as much life insurance to completely eliminate all debt plus provide enough living expenses until the age of 70 when full Social Security benefits get paid e.g. $300,000 debt + 30 years X $80,000 = $2,700,000. Round up and get a $3 million term policy.
Moderate decision: Take out as much life insurance to eliminate all debt and provide for 5-10 years of living expenses, long enough for your dependents to become independent e.g. $500,000 debt + $100,000 X 10 = $1.5 million term policy.
Least conservative decision: Take out just enough life insurance to make sure any assets inherited don't become a burden. The life insurance should give the recipient enough time to decide what is best to do with the receiving assets. This is my case where the recipient of my house can decide to live in the house, rent out the house, or sell the house to extract the equity.
Riskiest decision: Of course, the riskiest decision of all is to not take out any life insurance when you have dependents and debt. Even if you don't have debt, having life insurance is important for income purposes. If you have no debt and no dependents, then getting life insurance is probably a waste of money unless you feel you have a greater chance than normal you'll die before the people you care about and want to provide income for them.
Here's a chart I put together based on how much each life insurance policy would cost by term and amount.
If you are interested in learning about all the various life insurance policies, I've put together a comprehensive report on all the options.
Best Place To Get Cheap Life Insurance
The best place to get multiple, custom term life insurance policy quotes in one place is PolicyGenius. PolicyGenius does the leg work for you and lets you make the most informed decision possible. Because life insurance prices are regulated, you should use a tool to help you compare costs easily.
It's much more efficient to go to look for life insurance on PolicyGenius by filling out your basic information once and then having PolicyGenius find life insurance providers for you, than going to each individual life insurance provider one by one and filling out multiple application forms.
How To Use PolicyGenius
Here are the steps for getting a cheap life insurance quote on PolicyGenius.
1. Click on Policygenius.com to find, compare, and buy several types of insurance. For life insurance, click the “life” box. As you can see from the image below, you can get many different types of insurance policies with PolicyGenius. If you're satisfied with the life insurance you got from them, consider getting insurance for other needs.
2. There's no commitment required to get quotes for your monthly premium. You won't have to enter your name, email, and phone number until after you've browsed through the policy options. Getting a quote is free.
3. You can choose either “less support” or “more support” from the Policygenius team to navigate the life insurance application. Given you're getting a free quote, it's pretty straight forward.
4. Life insurance premiums are based in part on where you live, so the site immediately wants to know your ZIP code so it can find insurers in your area. You'll also need to provide your gender, date of birth, citizenship status, and relationship status.
If you do have a significant other or spouse, the site will offer to help find quotes for both of you to save some time.
5. Next you need to provide some basic information about your health: your height, weight, whether you smoke tobacco, whether you have been treated or take medication for depression, high cholesterol, drug abuse, or another serious condition. You'll also need to disclose any serious medical diagnoses of close blood relatives.
Some of you might have the temptation to fudge this information. It's really up to you what you want them to know. Your weight fluctuates by several pounds each day. You might feel that your alcohol issue was only temporary and none of anybody's business.
Just know that if you sought medical treatment for issues, insurance companies will see the records.
Many insurers consider your driving record in determining your risk level, too, so there's a question regarding accidents and tickets.
The more detailed you are in answering these questions, the more accurate your quotes will be.
6. If none of the serious medical conditions listed apply to you, Policygenius says “you're in demand” and will probably have some low premiums to choose from.
7. If you answered “yes” to the question about your family's health history, you'll be prompted to give more information so that your quotes will be as accurate as possible, though additional details are not required to move to the next step.
Here's another grey area. What if your grandfather had a stroke at age 76. Is that a risk since the median life expectancy is only 78 years old? I don't think so, but that's just me. People get sicker as they get older. I would personally err on the side of privacy here as you and insurance carriers don't have complete information about your family's health history.
8. Next, you need to select a coverage amount and term length. Within each box, Policygenius provides some guidance to help you choose your coverage amount and term length. You'll have the opportunity to adjust these numbers later if you change your mind. You might as well play around with the numbers and see what you can afford.
9. The next page will bring up several policy options, organized by the premium. Policygenius highlights the same features of each policy, including financial strength and customer service of the insurer. Policygenius is sure to remind you that any option it's offering is a good one.
10. From there, you can check the “compare” box on two or more policies to see how they stack up against one another. This is great for making sure you get the cheapest life insurance policy possible.
11. Once you choose a policy, you're ready to apply. If you feel comfortable with the offer, this is where you fill in your personal information. Again, you don't pay anything until the policy is approved and goes into effect.
12. Before you can submit the application, you have to provide your address and income for a Policygenius representative to verify.
Once you click “submit,” you'll see your own dashboard with the status of your application.
13. You should get a call from Policygenius within 5-10 minutes to verify your information. From there, your Policygenius representative will schedule your medical exam, if you get a policy larger than $1,000,000 and sometimes larger than $500,000. If you get a policy under $500,000 it is my experience that no medical exam is necessary.
If you do get a medical exam it's free. So at least you can find out more about your health for free. If you're over the age of 40, you should get a physical exam once every two years anyway.
Cheap Life Insurance Is Worth It!
Life insurance is a gift of love.
It doesn't cost much and it goes a long way to taking care of your loved ones after you are gone. If you have dependents who do not have the ability to earn a livable income and cover your debts, please consider getting life insurance.
PolicyGenius is the best life insurance marketplace today.
Here are some additional articles for further reading.
- Can Children Get Social Security Benefits From Their Parents?
- Can You Retire Comfortably On Only Two Million Dollars?
- How Much Has PolicyGenius Raised In Funding?
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.