How to Buy Life Insurance

Getting life insurance is a no-brainer. Here are some options to considering when purchasing your insurance plan.

Buying life insurance is extremely easy. For all the complicated financial decisions you have to make, life insurance isn’t one of them. It’s so easy, it can be said in a simple sentence: Buy the cheapest term life insurance policy from a reasonably reputable company that you can find.

Life insurance is a commodity product. It’s not complicated like disability insurance. Life insurance companies don’t have different definitions of “dead”. You’re either dead or you’re not.

Knowing that, all you need to do is buy the right amount of coverage that makes sense to you.

Buy Term Life Insurance

Do not let anyone talk you into purchasing any type of “permanent” life insurance such as whole life, variable life, universal life or any variation. All you need is TERM life insurance. The fees and commissions on term life insurance are relatively low because the market is competitive, so let the market do the heavy lifting for you.

Do not mix insurance and investing. Your term life insurance policy is simply an insurance product that will help your family if you should prematurely die.

All of the other types of life insurance products are a combination of insurance (term) and investment (the “whole” component). You can probably get a better return on the investment portion of your dollars in a different and more-friendly investment account. Separate the insurance component from the “whole” product and focus on it. Term life insurance is the way to go.

Buy Level-Premium or Annually Renewable Term Life Insurance

There’s two different options of term life insurance to consider: (1) “level-premium” life insurance or (2) “annually renewable” life insurance.

Level-Premium. Level premium is exactly as it sounds. You have one premium payment over the entire length of the policy. If your payment is $100/mo for $1 million in life insurance, you’ll still be paying $100/mo exactly 15 years from now. Since inflation will reduce the buying power of your dollars, that $100 in 15 years will actually be significantly cheaper than $100 today. Of course, the same is true for the benefit paid by the life insurance policy since $1,000,000 in the future will be less than $1,000,000 today. You shouldn’t worry about the value of your benefit declining in the future because your retirement portfolio will be growing over time, so you should have plenty of money saved as your life goes on.

Annually Renewable. As the name implies, annually renewable life insurance renews each year. You’ll start out with very low payments because your risk of dying young is very low. Over time these payments will gradually increase. By the time you’re 60 they could be quite high. The annually renewable life insurance policy will have a period of “insurability” which means that you won’t have to reapply or take additional medical exams each year to keep the policy alive. Instead, the life insurance policy will simply look at the actuarial tables each year and charge you a higher premium based on your higher age. That “schedule of premiums” should be provided to you with the insurance policy.

Which one to pick? Most lawyers will probably benefit from the level-premium term insurance because they can budget accordingly. However, for a lawyer that plans on becoming financially independent, the annually renewable term insurance might make some sense. The monthly premium will be cheap during the early years and then you can jettison the policy if you won’t have a need for it after you reach 50 years of age (or become financially independent). Of course, if your plans change and you don’t reach that financial independence, you will be the owner of an insurance policy with high monthly premiums.

Buy a Large Amount of Life Insurance

Life insurance is relatively cheap. This isn’t the type of product where you will debate about whether you should get $500,000 or $525,000 of coverage. You need a lot of life insurance.

The default option is probably about $2 million but will vary depending on your situation.

A small town lawyer in Kentucky might only want $1 million of coverage.

Two Biglaw partners living in NYC with no kids might not need any life insurance at all.

You have to figure out what payments you want the life insurance to cover.

For me, I want life insurance to provide my future family with the same lifestyle they have today should I prematurely kick the proverbial bucket. That means the life insurance needs to provide a nest egg big enough to generate an income that will cover current life expenses, plus allow for some extra space to save money for the kids to go to college and for my soon-to-be wife’s retirement.

For others, you may want to calculate your need for life insurance by adding up all your debts (e.g. mortgage), figuring out how much you want to pay for your kids to go to college and then how much you want the surviving spouse to receive.

As mentioned above, life insurance is the type of insurance where you can round up given its low cost. Better to have too much life insurance than not enough. Even better if you never have to use it.

Buy from a Reputable Company

Yes, there’s a small chance that your life insurance company could go out of business. But no, it’s not a huge risk that should keep you up all night. There’s no need to only buy insurance from Berkshire Hathaway.

First, every state has a guaranty association which will pay for the claims associated with financially impaired insurance companies. As you might expect, this is a highly regulated industry. See a nice list of protections in place on a state-by-state basis here.

Second, if an insurance providers goes out of business, it’s highly likely that another provider would step in and buy up the old business anyway (at pennies on the dollar to them, thus making everyone a winner except the equityholders in the failed insurance company).

You could also diversify the risk by buying from multiple companies but more on that later in the article.

Buy a Cheap Policy

Since life insurance is a commodity, all you need to do is compare the different prices available and go with the cheapest option from a reputable company.

Luckily, a company called CompuLife Software has created an aggregator that can give you multiple quotes: Term4Sale. It seems like a “Kayak” for term life insurance. From there, you enter your zipcode and are presented with local brokers which can assist you purchasing the policy quoted by Term4Sale. Many brokers license the Term4Sale software, such as, one of the sponsors of the site.

Full Disclosure: None of the above websites are sponsors of the site, although I’d be happy for them to come on board. Further note that I revised this paragraph after speaking with the president of Term4Sale and a broker that uses the software, so I now have a better understanding of how the software works. Update 2: Subsequent to publication, PKA Insurance has joined the site as a sponsor. I’m glad to have Pradeep and his team on board as we’re always looking to connect with the good guys in the industry. To join the site as an advertiser, you must be someone that I wouldn’t hesitate to recommend to my friends and family.

Life Insurance From Your Work

But wait a second. Don’t you have group life insurance with your firm? Why would you even buy an individual policy in the first place?

Now would be a good time to download and check your current group life insurance policy to make sure you understand the terms.

Chances are high that your group life insurance policy provides a multiple of your current salary (probably 1x). This is a perfectly adequate and a great deal if you’re a single lawyer and have nobody relying on your income. Your 1x salary will be enough to bury you and settle your estate should something happen.

Where the group policy will let you down is replacing your income, paying off a mortgage, sending kids to school and making sure your spouse has enough money to retire.

For those reasons (ed note: your group insurance through work is also probably not portable), you’ll probably want your own life insurance policy to cover the extra expenses.

Buying Multiple Term Policies (Laddering)

Just when I’ve finished explaining how easy it is to buy insurance policy, I thought I’d throw in a final section on why buying multiple term policies might make sense for you.

Let’s say you’re 30 years old. For the sake of completeness, let’s also say you’re married, have two children and owe $300,000 on a house. Doesn’t matter if those numbers are correct/realistic to you for this exercise.

You’re an aggressive saver who plans on being completely financially independent by 60. You could buy a level-premium policy for 30 years in the amount of $2 million and call it a day. There’s no shame in that.

Or, you could buy three separate policies in the amount of $667,000, which add up for a total of $2 million.

Why would you want to do that?

Because one policy would be a 10 year, the second would be a 20 year and the third would be a 30-year policy. In this way, you’ll start out with $2 million in coverage but will gradually step down $667,000 in coverage every decade.

If this hypothetical 30-year-old dies between 40-50, they’ll have $1.3M of coverage. If they die between 50-60 they’ll have $667K in coverage.

As you can see, this would be cheaper than maintaining the entire $2 million policy across the next 30 years and also stays flexible as your needs decrease while you build up savings.

This is known as “laddering” term insurance policies and is easy to price out to see if it would be beneficial to you.

Let’s talk about it. Do you have term life insurance? How much coverage did you get? Let us know in the comments!

Joshua Holt

Joshua Holt A practicing private equity M&A lawyer and the creator of Biglaw Investor, Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Personal Capital keeping track of his money and is always looking for honest companies that provide insurance for a fair price without selling you products you don't need.

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    Twelve thoughts on How to Buy Life Insurance

    1. Coincidentally, I’m working on getting term life insurance quotes right now. We’re just looking to supplement the policies we have through my husband’s job so are looking at around $500k for him and $250k for me.

      In this day and age, it only makes sense (imo) to use a website like the ones you suggested that will ask you all of the questions that will affect the insurance rates and then provide a number of highly-rates companies with their rates as well as the option to try different $ and time. I tried one that (unbeknownst to me at the time) just submitted my basic information to an agent, who called me and suggested different policies and companies, making me ask what the difference would be for every different bump in coverage and time period. Such nonsense these days.

      I’ve found (and been told) that the break points in the rates are $250/$500/$750k, but I’m curious to see how laddering the policies will affect that.

      1. Regarding laddering…Because ever policy’s premium includes a “policy fee”, you will save by laddering with 1 company. So instead of buying 3 policies of various term periods with different carriers, you may want to explore Banner Life. They are the only term carrier which gives you the ability to have multiple terms and benefit amounts on one policy and you only pay one policy fee. It’s not always favorable as sometimes another company’s pricing might be less. It will depend on each person’s situation. Also, if you are concerned about diversifying your coverage, then having one policy will not be appropriate for you. FYI…If you live in NY, Banner Life operates under the name William Penn. Outside of NY, it’s Banner Life.

        1. That’s good to know. Do you usually recommend to someone who wants to build a ladder that they diversify their coverage and pay the “policy fee” or is it a large enough amount vs such a small risk that you might as well stick with one company?

          1. The policy fees can run anywhere from $50 to $90 dollars depending on the insurance company. I do recommend diversification, but most folks just make their decision based on the premium amounts. If diversification is cheaper they will do it, but if not, they just use one carrier. Also, diversification among multiple carriers is more time consuming because it will involve multiple applications and most folks don’t like to waste their time AND some folks just prefer to deal with one carrier and have one bill. Even if you buy multiple policies from one company, just make sure it’s a highly rated company if diversification is a worry.

    2. My employer pays 3x my salary and the union that I’m apart of also has a set $50k life insurance policy for members. Good point about it not being portable, but I work in government so the risk of being laid off or me leaving (golden handcuffs) are low. I still think it’s a good idea to get a separate policy though, but have just been putting it off. I know you mentioned it in your last post but I think a lot of people don’t consider Social Security benefits when considering life insurance needs. It is a pretty good amount of money.

      1. Two thoughts that popped into my mind after reading your comment:

        (1) If you are laid off or leave you at some later point in life you might not qualify for life insurance for some kind of health reason.

        (2) I’m not sure how this would play out – but what if someone working at a safe government job developed a fatal cancer. At some point that person would stop working. I hope disability insurance would kick in to provide income while you’re unemployed but would that person still have life insurance if they had effectively quit their job 1-2 years before actually dying? As I type this, I’d definitely like to know the answer to that question! If so, it certainly reduces the effectiveness of a work life insurance policy if you have to die suddenly to take advantage of it.

        1. Yea, scenario #2 is something that I’ve thought about which made me think that a separate policy is important. I would imagine that the policy would lapse if you are no longer an employee and of course, you would be uninsurable at that point.

    3. I like the laddered approach that you suggested.

      I no longer carry life insurance (Hooray FI!) but if I were ten years younger and buying term life today, I’d do something like this:

      $1 Million 10 year term
      $1 Million 20 year term

      That way, if I kick the bucket in the first 10 years, the benefit is $2 Million. After that first 10 years, I would hope to have $1 Million in investments, and the benefit can drop to $1 Million.

      If you’re planning a more traditional savings path of 15% to 20% savings and increased spending, you might want to add an additional 30 year $1 Million term so the benefit will be $3M, $2M, then $1M.


    4. In response to Physician on Fire (who, by the way, has an EXCELLENT blog post up about whole life insurance that you should check out): that is a stellar approach to buying life insurance. I wish I’d had you advising me when I bought mine.

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