The 5 Laws of Buying Life Insurance

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The thing about buying life insurance is you know you need it, but because it falls into the “important but not urgent” bucket, you put it off, again, and again.

Sometimes until it’s too late.

Don’t be that person.

In my case, I’ve relied for too long on the free term life insurance benefit offered by most Silicon Valley employers of twice your salary.  Given the average $130K salary in Silicon Valley, that would be ~$250K in coverage.

That might be fine for a single person, but not if you’re married, and definitely not with kids.  In my case, with a stay at home wife and now 2 little ones tearing up the place, I needed more coverage, and I needed it now.

While I ended up purchasing insurance with an insurance company I have an existing relationship with, it’s good to shop around.  Whether you use Policy Genius, Select Quote, or someone else, there are plenty of tools to help you comparison shop for life insurance.  That said, cheaper is not always better!  Remember that you are depending on this company to survive for the duration of your life insurance policy, to be there for your family when you are not.  So while you may not want to go with the most well known (expensive) company, think twice about signing on with a low cost newcomer who is yet to be proven.

And keep these points below in mind as you’re starting the life insurance purchase process, no matter who you ultimately choose as a life insurance provider.

#1: Take Care Of Yourself To Get A Life Insurance Discount

Every life insurance company is betting on how long you’ll live.

They have detailed models, called actuarial tables, based on massive amounts of data showing odds of having to pay out a life insurance claim.  Other than avoiding risky behaviors like skydiving, the most important thing you can do to reduce what you pay for life insurance is to improve your health.

These are the obvious things you’ve been told all your life.

  • Stop smoking
  • No drugs or alcohol
  • Lose weight
  • Exercise regularly
  • Eat right

Unless you’re buying an expensive “no medical exam required” policy, you’ll have to answer questions about your lifestyle, and get a physical where they measure height, weight, blood pressure, and take blood for the usual blood panels.  For the physical, some agencies may require you to go to a health center, others will send someone to your home to give you a once over at home.

Given the importance of your health, every agency has different rates they will offer depending on your health.  Be aware most online quotes will show your their lowest rates assuming you’re in optimal health.  Fail the physical and your rates will go up dramatically!

You know what to do, get started now.

#2: Purchase Term Life Insurance

Term life insurance is insurance you purchase for a specified amount, say $500K, for a specified time, like 20 years.  Die in that period, and your beneficiaries receive the $500K. Die in 20 years and 1 day, and no payment is made.  It’s much cheaper for the same coverage, and frees your remaining money to invest as you see fit.

I’m no life insurance expert.  Depending on your specific situation, you may decide you want universal life insurance, a.k.a ‘whole life”, or one of the variations, like variable life insurance, which pay a determined amount on your death, but also have a cash value if you choose to terminate the policy.  Or “term life with premium refund” where you receive your premium payments back when the policy expires (much more expensive!).

Personally, I’d rather invest my money in dividend stocks, peer to peer lending, real estate, or even a plain index fund, than invest in my life insurance and have that money tied up for the duration of my policy / life.  Maybe you agree, or perhaps you feel otherwise.  You know your situation best.

I like term life.

#3: Buy Life Insurance Early

Don’t make the same mistake I made, by depending on my employee benefit, and delaying purchasing my own life insurance until I was married with children.

The younger you are, the cheaper your insurance rates.  Dramatically so.

Paying for a multi-million dollar policy when you’re 25 with no dependents doesn’t make sense.  But you can have as many life insurance policies as you want, whether it’s with the same insurance company or you want to hedge your bets by having policies with multiple companies.  So tier your life insurance, adding more insurance as you need it.

For example:

  • Single in your 20s, buy a 30 year (or longer if you can find it) term life policy to cover your death expenses, and provide additional support for your aging parents you’re no longer able to care for.
  • Get married at 30?  Add a second term life insurance policy to provide for your spouse, for everything you won’t be available to help them with – paying down your mortgage, rebuilding a career for a stay at home spouse, etc.
  • Kids start arriving?  Kids are expensive!  Food, clothing, school, hobbies, and all the rest!  You can add another policy to provide for each child – perhaps a 25 year policy to cover their expenses until they graduate college.

Everyone’s life and life stages will be different.  But the earlier you purchase your insurance, the cheaper it will be.  So seek an optimal path of purchasing what you need, when you need it, but erring on the early side.

You’ll save money in the long run.

#4: Get More Life Insurance Than You “Need”

People tend to over-estimate how much life insurance they actually need.  Sit down and take the time to estimate your expected expenses this policy is supposed to provide for.  Come up with a number.

Now increase it.   Potentially dramatically.

How much you increase it depends on the intended use.  While it’s impossible to predict the future, you can extrapolate based on the past.  Is the policy to pay a college tuition?  Account for the recent explosive growth in college tuition the past decade.

Is this a 30 year policy?  Inflation over 30 years can have a outrageous effect.  You would need $215 today to have the same purchasing power as $100 30 years ago!  Inflation is a bear that can take huge bites out of your intended support.

Be sure to plan ahead and take all these variables into account to ensure you have sufficient coverage.

That said, don’t go overboard.  You have other assets – investments, retirement accounts, etc. – and you don’t want them to suffer to provide insurance you hope you’ll never need.

Finally, in the worst possible scenario, people do horrible things for money.  Life has many twists and turns.  You never want a beneficiary looking at you with dollar signs in their eyes, considering you a possible solution to their latest financial problem.  People are killed for life insurance money at a shocking rate, but at least it’s better now than the bad old days when anyone could take out secret life insurance on anyone else without their knowing.

#5: Have A Will

Hopefully you’ve already completed your emergency financial information organizer, and as part of that process have completed a will.

Die without a will?  Your local state government will take over and decide how your insurance benefit along with the rest of your estate will be distributed, and to whom.  Always, always, always have a will.  It will dramatically simplify the process for your loved ones left behind, and ensure that your last wishes are carried out.

Whether it’s a complicated estate plan with multiple trusts completed by an estate planner, or something completed with WillMaker or LegalZoom, the most important thing is to have something.  And while you’re at it, make sure it’s not stored in your safety deposit box where no one can reach it when you not there to open the box!

As for beneficiaries, it depends on your situation, but keep in mind how long it will take your estate to be settled upon your death.  It may be in your beneficiaries’ best interests that you name them directly in your life insurance policy so they can receive the benefit of your life insurance separate from your estate.

Do It Now

There you have it.  Five rules to live, or insure, by.  I’m glad I finally have my life insurance squared away.  Better late, than never, or than too late…

What’s your story?  Do you have enough life insurance?  If not, what’s stopping you?  If yes, do you agree with these rules?  Please share your thoughts in the comments below.


  1. Great, great post. How many of us have known someone who passed early in life, leaving a spouse, young children, a mortgage and a small amount of cash in a savings account. The funeral expenses, alone, could put the family into financial constraints.

    Term vs. Whole Life. It’s an age old debate that will never be settled. Insurance is a preference, like Coke vs. Pepsi, that only an individual can answer given their situation. Buying Term and investing the difference makes complete sense if you truly invest the difference and not just say you will. Or buying Term for the simple fact that your situation only lends itself to the cost of Term

    I, personally, am a Whole Life guy and leverage it’s features to my advantage (i.e. Simple Interest Loan, Funding Compound Returns). I don’t sell insurance nor am I affiliated with any links that compensate me for pushing insurance.

    The point is, educate yourself and make an informed decision that works for you.
    Church recently posted Simple Interest Loan, Funding Compound ReturnsMy Profile

    • I hear you on the term life vs whole life. Everyone’s situation is different, another aspect of the personal in personal finance. What I like most about term life, other than its simplicity, is that you can buy it for a specific need and duration for a lower cost than whole life. The older I get, the more assets I build, the fewer dependents I have, the less need I have for insurance.

  2. That was a very good post and people need to take it seriously. I agree people also need a will but I differ on one point. A will has no impact on where your life insurance goes. In fact the will is totally overruled by anything that has a stated beneficiary. That can include your life insurance, 401k, bank accounts or any other account that allows you to set beneficiaries. If you’ve done that then the will is meaningless in regard to those assets. It will only cover assets that you can’t hand down directly by setting a beneficiary. I’m no expert but my father passed away a couple of years ago and a brilliant estate attorney showed me the ropes on that with his estate. Because my brother and I were named beneficiaries of all his brokerage accounts and IRA’s we were able to skip the will and probate process for those assets. Only a few things like his car and household possessions were impacted by the will.

    • True – beneficiaries specified for a specific asset, like your life insurance policy, will override your will. This is why you need to be careful in your estate planning to make sure your assets are distributed as you see fit.

      The main reason I included having a will as a must-have for life insurance is that life insurance is only one part of taking care of your estate. Buying life insurance is an important part, but you can’t stop just with life insurance, you need to build it into your overall estate plan. Including deciding if you want the beneficiary to be your estate (has to go through probate which can take months) or a specific person like your spouse (gets the money relatively quickly). There may also be tax implications for assets that can be rolled over to the beneficiary without triggering a tax event. It’s complicated, and the more you own, the more complicated it can be. But it all starts with a plan, and the will is that plan.

  3. Steveark is correct, beneficiaries of life insurance policies, annuities et al supersede whatever the will states.

    I’ve been assisting my mom close down my grandfather’s estate for the past 2 years, not an easy process. Definitely a learning experience that I shared in a post called Death & Finances on my site. How many people know what a Medallion Signature Guarantee is? I certainty didn’t, but needed to obtain one in order to transfer PHYSICAL stock certificates. Who has physical stock certificates? The older generation.

    Not promoting my site, by plugging the Death & Finances post. I don’t have income of any kind on my site as I am just starting out. I mention only because the family can lose a lot of money if they don’t know exactly what they are doing.
    Church recently posted Death & Finances: Managing Both Duty and EmotionMy Profile

    • Too true. My grandfather passed a few years back and it was a lengthy process for the executor, and my grandmother, to get everything in order. Fortunately, they had made an estate plan, including a will, trusts, etc. and it was relatively painless, just time consuming and complex.

      The more you have, the more complex your plan might be. But always good to start with a will so the state doesn’t decide for you who gets your prized stamp collection…

  4. I don’t really have enough life insurance, but that’s because I’m 67 and at this age (and with my health conditions), it’s extremely expensive! Ideally, you should be in a good financial place when you’re my age so that life insurance isn’t even necessary (in other words, you’re self-insured). I definitely agree that you should take care of your health, start with life insurance early, make sure you have enough life insurance, and have a will (although as Steveark mentioned, that doesn’t affect your life insurance beneficiary). Whatever you do, don’t put off getting life insurance until it’s too late!
    Gary @ Super Saving Tips recently posted 21st Century Retirement Strategies That Will Make You Secure, Part 1My Profile

    • That’s one of the things I like about term life insurance. You can buy the coverage you need when you need it most (fewer assets, more dependents) and drop the expense later in life when you need it less due to increased assets and fewer dependents. Of course, everyone’s situation is different, so there may be cases where you want a longer term solution, e.g. long term care for a chronically ill child, which may mean a different type of life insurance, or a different type of insurance completely.

      Of course, in the end, we’re all self-insured. You put your money and your trust in your insurance company, but you never know until you need them if they’re going to be there, and how well…

  5. Some good tips here, especially about not smoking. Even smoking the occasional cigar can double your term life insurance rates.

    My wife and I partially self-insure by living well below our means. We’re saving around 50% of our take home pay. This means our insurance needs are much smaller than someone saving only 20%, 10% or 5% of their take home income.
    Owen @ PlanEasy recently posted The Simple 50-30-20 BudgetMy Profile


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