Getting Term Life Insurance – Step by Step

Once we found renters for our condo, the next item on our list of financial to-dos was getting life insurance.

Here are the steps we went through:

  1. Contacted a life insurance broker and told him what kind of policy we wanted to buy (30 year term with death benefits that were 10 to 12 times our income). We chose 30 years instead of 20 because we don’t have any kids yet but plan to within the next few years and we wanted the insurance to last until our kids were all out of college and all the mortgages were paid off.
  2. Our broker sent us some estimates from different insurance companies and we picked the company with the lowest annual premium.
  3. Once we made our decision, our broker sent us a series of questions to answer (full names, home address, Social Security numbers, etc.)
  4. He then prepared an application for us to sign with some additional questions for us to answer. We signed and returned the application back to him.
  5. Shortly after, a medical examiner called us to schedule an appointment for our medical exams. Your medical exam determines your health class and your health class determines your annual premium. The better your health class, the lower your premium. We scheduled the medical exam for a Saturday morning.
  6. About 10 days after the medical exam, our broker let us know that my application was approved and what health rating I was in. My husband’s application is still pending because they’re waiting on medical records from his doctors.
  7. After I was approved, our broker sent me the official policy to sign. I returned the signed documents along with a check for the first premium payment.
  8. The check was deposited and my life insurance policy is now active.

 

Medicare – A Quick Breakdown

Since medicare open enrollment is quickly approaching (October 15th), I thought now would be a good time to start talking about it.  I know most of us aren’t even close to being eligible for medicare (age 65).  But our parents might be and if they’re not sure how to navigate the system, it’d be nice if we were informed enough to help them.

So, first things first.  Did you know that Medicare has multiple parts that cover different things?  I didn’t, up until a few years ago.

Here’s a quick breakdown of all the different parts and what they cover.

Part A – Hospital Insurance (hospital bills)

  • Home health care
  • Hospice care
  • Inpatient hospital care (meals, hospital room, nursing services)

Part B – Medical Insurance (doctors’ bills)

  • Physician care
  • Laboratory tests
  • Physical therapy
  • Rehabilitation services
  • Preventative services
  • Annual check-up

Parts A & B make up “Original Medicare.”

Part C – Medicare Advantage*

  • Medicare-covered services available through private health plans, such as HMOs,
    PPOs, and private fee for service plans

Medigap – Supplemental Insurance*

  • Pays for things that Parts A & B won’t cover:
    • Deductibles
    • Co-payments
    • Anything beyond what the doctor has agreed upon with Medicare

*You can have Part C or Medigap but NOT both!  Medigap is the more popular choice.

Part D – Prescription Plan (medication)

  • Prescription drugs

This is just a very brief intro to Medicare.  Eventually I’ll cover topics like when you’ll need to enroll in Medicare, the different Medigap plans available and how to find the best Medigap and Part D plan for you.

Life Insurance: Permanent (Whole Life) vs. Term

Most people could benefit from having life insurance.  In a previous post, I covered a few scenarios like if you have young children, a mortgage, etc. where life insurance is probably needed, even if you’re a millennial just starting out in your career.

There are so many different types of life insurance options that it’s easy to feel confused on which policy would be the best fit for you.  And if you ask an insurance agent, there is a very high chance they will recommend you get a permanent (also known as whole-life) policy because it’s the most expensive and they will get the most commission.  The biggest hook they use to lure you into buying permanent insurance is the cash value savings component.  They’ll tell you that in addition to buying life insurance that never expires (unlike term insurance, which will expire), you are also building up a savings account.

However, besides the the big commission they get from a permanent life insurance sale, here are few other considerations insurance agents might conveniently leave out:

1)  You might not really need life insurance.  Life insurance is for protecting your dependents so that when your income is lost, the death benefit (amount your beneficiaries would receive when you pass) will allow them to maintain their lifestyle or at least it’d alleviate some of the financial burden while they adjust.  But if you’re single with no kids or parents who depend on you and you don’t have any large debt that needs to be paid off, then you don’t have much of a need for life insurance.  It’d be like getting car insurance when you don’t drive.

2)  Term insurance might be better for your cash flow needs.  Let’s just say you buy a term policy with a $500,000 death benefit, it might cost you as little as $17 a month.  But for a permanent policy with the exact same death benefit, it might cost you something closer to $400 a month.  A lot of us millennials need that extra $383 for other financial priorities (paying off student loans, saving for retirement, building an emergency fund, etc.).

3)  Investing the difference between the cost of term and permanent insurance gives you more savings in the long run.  There is a popular saying that goes “buy term and invest the difference.”  Using the example from above, you would buy the term insurance for $17 and invest the difference ($400-$17 = $383).  Chances are, if you invest the difference in the stock market, you will end up with more money than if you had “saved” it in a permanent life insurance policy.  This will, of course, heavily depend on what investments you select.

If all that was confusing, here is a shortcut: Term insurance is most likely better for you than permanent insurance if…

  • you have student loans or credit card debt
  • you’re not saving a lot (or at all) for retirement
  • you don’t have an emergency fund
  • you have large expenses coming up (wedding, car purchase, home purchase, a baby on the way, etc.)

Renter’s Insurance

I’ve never considered getting renter’s insurance until recently, when I had to find a new roommate for my apartment for the 4th time.  I’ve been living with roommates (most of them being total strangers) since my first year of college and it never dawned on me that I could have my stuff damaged or stolen until now; probably because of all the horror stories I heard in CFP classes.  Ignorance is definitely bliss!  Plus, now that I’ve been working full-time for several years, I actually own a few valuables worth stealing.  Not so much the case in undergrad.

After reading this article, I decided to shoot my insurance agent an email to get her thoughts on the matter.  Long story short, if my parent’s home is considered my “primary residence” I would be covered for damaged or stolen property up to a couple thousand dollars (after the deductible, of course).  A couple thousand dollars would certainly cover all my “valuables” in the apartment.  However (and this is a BIG however), I wouldn’t have any liability coverage.  No liability coverage is a huge problem because if someone got hurt in my apartment, my roommates and I could potentially get sued for an indefinite amount of money.

So then getting renter’s insurance for the liability coverage is a no-brainer, right?  Not necessarily.  If you want to be extra cautious and you don’t like being susceptible to any risk, then yes, renter’s insurance is a must.  But it’s still a trade-off.

Most of my friends don’t have renter’s insurance because it probably never crossed their minds.  But some people simply don’t need that coverage as badly as others.  For instance, if you live alone and hardly have guests over, you’re not really at risk for getting sued by an injured visitor.  So paying the insurance company an X amount of dollars every month for that protection may not seem worth it.  But if you or your roommates have people over all the time, especially people you don’t know very well or people who like to bring their young children, then you should definitely considering getting it.  Same thing if you have an aggressive dog that might attack a visitor or neighbor.

As for me, I think I’ll get a quote and see how my roommates feel.  If it’s inexpensive and they’re willing to split the cost with me, might as well.

Do Millennials Need Life Insurance?

As usual, it depends.

When you hear the word “insurance,” think protection.  You have auto and homeowners insurance to protect yourself from major damages to those assets.  You have liability insurance to protect yourself from getting sued.  So what is life insurance protecting you from?  Dying?  Of course not, since all of us will die eventually.

The purpose of life insurance is to protect your family from being financially burdened if you were to die all of a sudden.  Here are some examples of when you might need life insurance:

  • If you bought a house with someone and the mortgage payment is heavily dependent on BOTH your incomes.  If one of you were to die unexpectedly, the other person would most likely have to sell the house because they wouldn’t be able to make the payments on their own.
  • If you have dependents (young children, parents who you support financially, etc.).
  • If you have any debts you want to have paid off when you die so you don’t burden anyone else with it.

If you’re in one of the situations listed above and decide you need life insurance, there are several different types of life insurance policies you can buy ranging from Term Life (the cheapest) to Whole Life (the most expensive).  All of them have pros and cons so it’s important do your research and select the best policy for your specific situation{Beware!  Most life insurance agents will try to push Whole Life policies on you because they get the biggest commission from it!}

Preferred Provider Organization

If you have a Preferred Provider Organization (PPO) health plan, you can see a doctor inside or outside of your PPO network.  But if you choose a doctor outside of your network, you will most likely have to pay more.  The good thing about PPOs is that you do not need to see a primary care doctor before seeing a specialist.  So, for instance, if your chest has been hurting, you can go straight to a cardiologist instead of having to see your primary doctor first to get referred to a cardiologist.

The bad thing about PPOs is that you usually have a deductible on top of a copayment.  And even after you’ve met the deductible, you might still have to pay a coinsurance.  Plus, some doctors require you to pay them upfront and file a claim afterwards with your provider to get reimbursed.

Even with these extra costs, if money isn’t tight, most people still prefer a PPO plan over a HMO plan for the flexibility.

Health Maintenance Organization (HMO)

If you have an Health Maintenance Organization (HMO) Plan, you can only see doctors that are in the plan’s network.  To find out which doctors are in the network, you can call and ask your insurance provider, look it up online or call the doctor you want and ask them if they are in the HMO network.  If you want to see a specialist (a doctor for a specific problem like your back), you will need to be referred by your primary doctor.  You will not be able to go to a specialist directly.

Although HMOs are more restrictive than other health insurance plans, they are typically suitable for us millennials.  Since we’re young and (mostly) healthy, we can benefit from HMOs low premiums and co-payments as well as the lack of deductibles.