You've only got one life: insure it

By Feby Francois


Here's why it matters:

  • Only 52% of Americans are actually covered by life insurance, despite the fact that nearly 70% believe they should be.

  • Life insurance purchased at a young age can provide substantial coverage at an attractive rate.

  • Many people mistakenly believe their employer's life insurance coverage is adequate.


The breadwinner earns a living in the energy industry to support his family. His debts include multiple mortgages, credit card debt, and nursing home expenses for his elderly father.

However, he is woefully underinsured, as are millions of Americans.

"I will have to raise three children if you die," his wife groans. "I would like you to buy some life insurance ... please."

"Sure, if it will give you peace of mind," says the dutiful husband after a pause. "But I have many, many years before I die."

Upon nearly decapitating himself while closing the bedroom window, Homer Simpson is declared uninsurable.

Although embellished for our entertainment, Homer's cautionary tale should ring throughout September's Life Insurance Awareness Month. In a poll conducted by the life insurance research group LIMRA, 70% of Americans believe they need life insurance, but only 52% own some type of policy.

There is a disconnect

Is there a reason why life insurance is so unpopular? One thing we don't like to think about is death's inevitability.

There is a saying in the industry: "You don't buy life insurance because you're going to die, you buy it because those you love are going to live."

"Death benefit" is an oxymoron on par with "jumbo shrimp" and "working vacation." However, modern life insurance goes beyond leaving a legacy for your loved ones.

The basics of life insurance

Term life insurance and permanent life insurance are the two primary types of life insurance. Seems straightforward, doesn't it?

An individual buying term life insurance purchases a set amount of coverage (say $250k) for an annual premium (say $500) based on their age and health. If the policyholder passes away within the term period, $250,000 is paid to the beneficiary. The term typically lasts from five to forty years.

Term life insurance policies can offer substantial coverage at a relatively low rate for people in their 20s and 30s who are starting families or purchasing a home.

As long as the premiums are paid on time, permanent insurance stays in place for life. When the policyholder dies, the named beneficiaries receive $250,000 as a payout.

The cost of permanent life insurance tends to be higher than term life insurance due to the lifetime coverage, but the premiums may build cash values that can be accessed as a tax-free loan if needed in the future. In the event that the policyholder dies, any withdrawals will reduce the beneficiaries' benefits.

In the case of term and permanent life insurance, this is just the tip of the iceberg. The applicant's best assets, when considering both types, are good health and youth. However, Homer possessed neither at the time of his application.

Just how much is enough?

There are a few schools of thought on how to figure out how much coverage you need.

  • An individual's lifetime income can be calculated as a human life value.

  • A simple multiple is to multiply your salary by five to ten years. Seven years is generally accepted as the multiplier for financial professionals.

  • Plan based on need - Estimate how much annual income you might need to replace after replacing college costs for any children. If you have an existing mortgage balance, add that to your final coverage amount.

Individual vs. group coverage

But wait a minute, Feby. I'm covered through my job.

In spite of the fact that 52% of people own life insurance, about one-fourth of them are only covered by workplace insurance. Even though workplace insurance is better than nothing, it might not be enough.

The majority of employers provide free coverage with a payout equal to a year's salary. Additional coverage can be purchased, with premiums deducted straight from employees' paychecks. Group insurance is not portable, so it will end when you leave your employer.

Adding an individual life insurance policy to the life insurance provided by your employer may be necessary for many reasons:

  • There may not be enough life insurance offered by your employer

  • If your employment situation changes, you could lose coverage

  • If your health deteriorates, coverage becomes more difficult

  • Your plan does not cover your spouse enough

  • You may not be able to get the best deal on life insurance from your employer

Even though workplace life insurance can be a nice perk, it shouldn't be your sole source of life insurance.

Living benefits

The main purpose of life insurance is to protect us against an early death. However, not all policies require the policyholder to die before benefits are paid.

If a policyholder has a qualifying critical, chronic, or terminal illness, some term life insurance policies provide early access to death benefits. This is referred to as an accelerated living benefit, and the money can be used to cover expenses such as car payments, mortgage payments, groceries, and utilities.

Keep in mind, any accelerated benefit will reduce the policy’s death benefit.

A call to action

How can I find out what's right for me? Each person is different. Factors to consider:

  • How old are you?

  • Is there a history of poor health in your family?

  • Do you have a mortgage, children, spouse, or partner?

  • Do you need life insurance as a means of protection or a means of tax-deferral?

  • Can you afford to pay more for the opportunity for your premiums to grow as investments?

  • Is life insurance part of your retirement plan or simply a strategy to leave a legacy for your heirs?

That’s just a short list of questions. A financial professional or licensed insurance professional like myself, can help evaluate your situation and help you make the decision that’s right for you.