Help me with choosing Life Insurance

[noelm]

Hello folks,

I am 34, turning 35 in a week. For some reason, I never took interest in insurance business but lately I have been considering it. I am super noob but a little reading gave me the feeling that I should buy term life insurance. I asked my State Farm agent to send me life insurance quote. When we talked over the phone, we were discussing about $500K for 30 years but she sent me a quote for $150K with monthly premium of $40, which I think is very expensive.

With the help of google, I got quotes from findmyinsurance.com, selectquote.com, intelliquote,com and accuquote.com. All of them have lot smaller premiums than what State Farm gave me.

So my questions are
- Am I correct in understanding that I should always buy a term insurance (as opposed to endowment where you get your money back with very small interest)?
- If I buy 30 year term insurance now, what happens after I turn 65 and still alive. What insurance cover do I get then? I am sure insurance companies will give me a lot of trouble then as I have ulcerative colitis.
- Is there any ranking of insurance companies that I should follow? In other words, which companies you suggest me to stay away from and which companies I should go for?
- What amount do yo recommend to get coverage for? (I know this is a tricky question but I am not too sure how to calculate this amount or this is just a random amount or max you can afford?)
- Any idea, what happens if I decide to leave the country? (AFAIK, these policies do not cover your expenses outside US so why should I be paying for the policy in the US?)
- Any other thing I should consider that is important. I know insurance is not that easy and probably you will tempt to suggest me a book or something but the reason I am posting here, I need some real-life suggestions than just what book tells me. I am going to the library this weekend to get some books for sure + some more googling but meanwhile your answers are most appreciated.

Thanks in advance.

(To mods, if this is not a right place for this question, please feel free to move to right sub-forum)

 

[easysurfer]

What I want to know is will you have the same agent, no matter what? Like in those State Farm commercials?

Personally, I don't have life insurance because I don't have others depending on me should I go poof.

I think that's the starting point. For example, if you have a spouse and/or children that are depending in you should you go poof, that the main reason for life insurance. From there, find out how much income you would need to replace.

Sometimes I do consider having life insurance to make sure I get a decent funeral as that's a possible other need for life insurance.

 

[Sarah in SC]

The first question to ask is why do you need insurance? As easysurfer said, if you don't have someone relying on your income, then you only really need a burial policy.
If you do have someone relying on your income, then you need to figure out how much they will need in the event of your death.

I would certainly think that 20 year level term would probably be sufficient for your needs if you plan to have savings in place by the time you are closer to retirement that would replace the insurance benefit to your beneficiaries.

The only benefit is a payout if you die, so being in another country may be irrelevant, as long as your beneficiary can produce a death certificate to the satisfaction of the insurance company. And, because it is renewable each year, if you choose to move to somewhere where you don't think you will need it anymore, you can just cancel.

And yes, nearly everywhere you look you will find cheaper policies than State Farm. Basic, plain vanilla level term should be cheap if you are in decent health.

To give you an example, my DH and I have very little life insurance, because we don't have children nor a mortgage. The expectation is that the $100k policies we each have would be a cushion to help adjust to the death of our spouse, not a payout bonanza, or as REWahoo would say, making sure you are worth more alive than dead!

 

[samclem]

Right, the most fundamental question is: "What is the function of the life insurance?" If you died, what economic problems would it cause others? If you have a spouse that you are supporting financially, kids, an elder parent, etc then you might need life insurance to help them ut if you die. And, most people overlook disability insurance, which provides payments if you can't work (and there are shades of grey there). Becoming disabled is more likely than becoming dead.

 

[noelm]

Thanks folks for your inputs.
Some points that I purposely did not mention but noting it now as they are relevant.

I am otherwise healthy except Ulcerative colitis which is pretty much under control with regular meds. DW also works and has a stable job.
The major issue is, lately DS has been diagnosed with Autism Spectrum Disorder, he is 3. Although he is high functioning, he has issues with language generation and poor social skills. We have no idea how his life will shape up so in case either or both of us die all of a sudden, we want him to have a highest possible financial backup to live on. So I guess I DO need a life insurance.

@ Sarah in SC,
You mention about plain vanilla (i.e. basic if I understood correctly) plans but how do I figure out if the quote offered is for vanilla plan or other flavored (i.e. premium/preferred or whatever else they call it as) plan. How does it differ? The websites I quoted gave 3 levels of insurance, basic, premium and premium plus but they did not have details either.

@samclem,
Thanks for pointing at disability insurance.

 

[brewer12345]

I would opt for 20 year term, but make sure that the policy has a conversion option that allows you to swap the term policy for a permanent one with the same insurer without undergoing underwriting.

I would pick an insurer that has a minimum rating of AA-/Aa3 (S&P/Moodys), preferably a mutual insurer and the bigger the better. With your son't autism, I would probably tend to buy more coverage rather than less. I would probably but at least $1MM of face amount in your shoes.

 

[Sarah in SC]

noe, pay attention to what Brewer said--those are very important, especially the convertible element and 20 year level term part, as well as the minimum rating (though most good brokers aren't going to quote you from ones below that).

And don't forget that BOTH you and your DW need to have coverage, and yes, on the high side with a son who may require special care. I'd say the $1MM for each of you.

I would find a broker that can shop the policy with many different companies, rather than a captive agent like State Farm.

 

[Nords]

I have two suggestions. First, read more of Jeff Rose's blog posts on the subject. Start with these:
How Much Term Life Insurance Coverage Do You Need To Buy
Term Life Insurance Rates
and then link through the related posts or search his whole website for "life insurance".

Second, see if you qualify for USAA membership.
https://www.usaa.com/inet/ent_membe...rPersonalInfo?action=INIT&productType=JoinNow
Even if you don't qualify for membership, call them about a life insurance quote. Depending on what you want to buy, they may be able to sell it to you through one of their subsidiaries that doesn't require a USAA membership.

 

[brewer12345]

Second, see if you qualify for USAA membership.
https://www.usaa.com/inet/ent_membe...rPersonalInfo?action=INIT&productType=JoinNow
Even if you don't qualify for membership, call them about a life insurance quote. Depending on what you want to buy, they may be able to sell it to you through one of their subsidiaries that doesn't require a USAA membership.

USAA will sell life insurance to anyone, whether a member or not.

 

[Nords]

USAA will sell life insurance to anyone, whether a member or not.

Thanks, good to know.

That company has the most complicated eligibility requirements known to man.

 

[noelm]

I would opt for 20 year term, but make sure that the policy has a conversion option that allows you to swap the term policy for a permanent one with the same insurer without undergoing underwriting.

I would pick an insurer that has a minimum rating of AA-/Aa3 (S&P/Moodys), preferably a mutual insurer and the bigger the better. With your son't autism, I would probably tend to buy more coverage rather than less. I would probably but at least $1MM of face amount in your shoes.

Thanks brewer,
To understand your comment fully I need a little didactic explanation. I apologize for my little knowledge in this matter.
What do you exactly mean by 'make sure that the policy has conversion option that allows......' Probably this is what I am asking in my original post, what happens after the said term is over.

With ratings, I went to S&P's website but as all other databases in public domain, its not very user friendly to find the ratings, I have to click to each and every company's profile. Insure.com gave me a quick look through and there are none in AAA but many in AA and AA-. So once I get quotes from the agent (not from Jake from State Farm wearing khakis ) I will check their ratings.
BTW, What is mutual insurer?

Even I am thinking on $1M line but my plan is to distribute the risk with 2 or 3 different insurance companies those are not directly connected to each other.
Thanks for pointing out on USAA as I always thought USAA is for veterans only.

@Nords,
Thanks for the links, I will go through them and post questions if I don't understand anything.

@ Sarah,
Could you pls comment on your first comment i.e. different kind of insurance plans, how do they differ? I checked and found that they differ in inclusion criteria. For e.g. Currently I am overweight due to the medications that I am taking. Last dose of these medications is this friday. Once I stop the medication, I will lose weight within 3 months. So if I buy insurance now, due to my weight I will not be able to buy premium plan but will have to buy basic plan which costs me more !! Is this what you meant too?

 

[brewer12345]

Thanks brewer,
To understand your comment fully I need a little didactic explanation. I apologize for my little knowledge in this matter.
What do you exactly mean by 'make sure that the policy has conversion option that allows......' Probably this is what I am asking in my original post, what happens after the said term is over.

With ratings, I went to S&P's website but as all other databases in public domain, its not very user friendly to find the ratings, I have to click to each and every company's profile. Insure.com gave me a quick look through and there are none in AAA but many in AA and AA-. So once I get quotes from the agent (not from Jake from State Farm wearing khakis ) I will check their ratings.
BTW, What is mutual insurer?

Even I am thinking on $1M line but my plan is to distribute the risk with 2 or 3 different insurance companies those are not directly connected to each other.
Thanks for pointing out on USAA as I always thought USAA is for veterans only.

@Nords,
Thanks for the links, I will go through them and post questions if I don't understand anything.

@ Sarah,
Could you pls comment on your first comment i.e. different kind of insurance plans, how do they differ? I checked and found that they differ in inclusion criteria. For e.g. Currently I am overweight due to the medications that I am taking. Last dose of these medications is this friday. Once I stop the medication, I will lose weight within 3 months. So if I buy insurance now, due to my weight I will not be able to buy premium plan but will have to buy basic plan which costs me more !! Is this what you meant too?

Conversion option means that you can at your sole option swap your existing term policy for a permanent one (that lasts your whole life, not just the stated term period) and not go through underwriting again. The permanent policy would cost more once you swap. The 20 year term policy I have allows me to swap until year 15.

There are basically two kinds of insurers: mutual and stock. Stock companies are owned by shareholders and are writing insurance to make a profit for their shareholders. Mutual companies are owned by their policyholders and therefore are more focused on ensuring their solvency for the long term than on providing returns to shareholders. I a company is a mutual, it will generally tell you prominently on its website.

 

[dgoldenz]

Ulcerative colitis will be a factor in the underwriting, so the rates you see online for Preferred Plus are probably not what you are going to get. You need an independent broker to find out before you apply what risk class you might be eligible for since every company will look at UC differently.

Without knowing the potential future expenses of caring for a child with autism, I'd seriously evaluate the potential cost of care if one or both of you died and someone had to take up care for the child. Will the child be able to care for himself as an adult, or need daily assistance? Term insurance is cheap while you are young, don't make the mistake of underinsuring your needs to save a few bucks. If there may be a permanent need for special needs care, you may want to consider adding some permanent insurance with the term coverage as a safety net. In my experience dealing with people that have special needs kids, a lot more unexpected events seem to come their way.

 

[Sarah in SC]

Wait, it makes no sense at all to buy term policies from three different insurers! You completely lost me there.

You are 34 years old, you're going to get the policy you get--there aren't going to be huge swings in price since they all use a lot of the same underwriting criteria. If you wind up in drastically better health this time next year, get new quotes on policies and see if the price is lower. When we quit smoking, it got cheaper, but I don't know if losing some weight is going to be a huge change.

The broker (not agent, broker) should be able to tell you the ratings of the companies that are being quoted. You can spot check these after you get the quotes.
Term policies are not all that complicated, this whole premium versus basic plan doesn't sound like it is term, but something else.

I guess it just wasn't that hard for us--we got 3 quotes from decent companies and went with the cheapest. I shopped the policies every couple of years in our 30s, and changed once for a lower premium. Term life is really simple insurance.

The broker I've used to buy insurance for 20 years made this very short video to explain term insurance. Might be useful to you to watch, just as a start. Does have a short "call me, blah blah blah" at the end.
Triest Agency Education Series: Expert advice on buying term life insurance - YouTube

 

[noelm]

Thank you brewer, It clears up a lot. If you don't mind, may I ask which insurer you have a policy with. You can PM me if you are uncomfortable on a public forum.
One question with this conversion, should anyone consider to convert their term policy to life policy, how does it affect their premiums? If I understood correctly, in your previous post you mentioned that it should be done without underwriting i.e. no re-evaluation so it should continue with same premium. Pls correct me if my understanding is wrong.

@dgoldenz,
Although I got quotes from many websites, I do have a plan of visiting a broker who has a autistic daughter, so I am 'hoping' that he can help us better as he understands our needs.
With my son, current therapists' evaluation says that he will function independently in the society IF he progresses at the rate he has progressed in the last year (but I am going to consider worst case scenario, which is good for insurance companies..)

@Sarah,
Thanks for the video.
The reason behind using 3 different companies is, to distribute the risk. Not so long ago, AIG was in really bad shape, on the verge of bankruptcy. I am concerned what if any insurance company goes bust... and I have all eggs in their basket.

 

[brewer12345]

noelm, I cannot name names in the insurance world due to employment related considerations.

The conversion option allows you to swap your term policy for a permanent policy without going through underwriting. This does not mean the premiums won't chabge. When I bought my term policy, the term premium was $500 and change, while the permanent policy equivalent was about $3k. If you swap to the more feature-laden policy, you pay more. The ability to do this without going through underwriting simply means that if your health deteriorates you can still get permanent insurance.