Life Insurance for Lawyers: Everything You Need to Know
Term life insurance is an affordable way to handle the possibility of a premature death by providing financial support to the people you love who depend on your income. Term life insurance is not a complicated product, but it’s something you’ll only buy once or twice in your life, so you’re not expected to be an expert. You’ll want to understand all the details so you can feel comfortable that you’re buying a policy that is right for you.
The paragraphs below cover the most common questions we receive relating to life insurance. For any life insurance questions not covered here or that are specific to your personal circumstances, we’re available to talk to you over the phone to address those questions.
Why is life insurance important?
Life insurance provides a contingency plan with funds to protect your family if you’re not yet financially independent. You can purchase $2 million of coverage for as little as $100 a month.
There aren’t a lot of risks in life that are so easy and cheap to offload onto the insurance market. Life insurance offers peace of mind that the people you love will be taken care of should the unthinkable occur and is a way to provide support to your family when you’re no longer able to.
Life insurance is separate from disability insurance for lawyers, which is insurance that protects your income in the event that you are unable to work.
What’s inside a life insurance policy?
Life insurance policies are contracts with a few key terms. All term life insurance policies will have these components:
Beneficiary. The person(s) or organizations that receive the death benefit if the insured dies. Insurance policies can have more than one beneficiary.
Death benefit. The amount of money paid upon the death of the insured. This amount is usually paid tax-free to the beneficiary.
Insured. The person covered by the policy. When the insured dies, the insurer will pay out the death benefit to the beneficiary.
Insurer. The company that issues the policy and stands behind the policy to pay the death benefit.
Policy. The legal contract that states the terms of insurance coverage that is issued to the policyholder by the insurer.
Policyholder. The person who owns the policy and pays the premiums to keep it active. Typically the policyholder and the insured are the same person, but in rare circumstances they are different.
Premium. The money paid monthly, quarterly, or annually to keep a policy active. If the policyholder stops paying premiums, the insurer will cancel the policy.
Rating. The basis for an additional charge to the standard premium because the insured is classified as a greater than normal risk usually resulting from impaired health or a hazardous occupation.
Rider. An endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.
How much life insurance do I need?
Life insurance is relatively cheap. This isn’t the type of product where you will debate about whether you should get $2,000,000 or $2,025,000 of coverage. You need a lot of life insurance.
The default option is 10-20x your current income.
I wanted life insurance to provide my family with the same lifestyle they have today. That means the life insurance policy needed 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 kid to go to college.
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.
How do you buy life insurance?
Purchasing life insurance follows these three steps:
First, do your research to become educated about the basics of life insurance and how much coverage you’ll need.
Second, use our technology to check rates with over 100 insurance companies, so you understand how much it will cost.
Third, set up an appointment with us to review your decision, finalize your selection and navigate the application process.
Shouldn’t I buy life insurance through my bar association?
In our experience, the life insurance option provided by your bar association isn’t a good deal. Instead of providing a competitive marketplace, a bar association typically partners with a single life insurance company and that’s it. You’re stuck with their rates and coverage, regardless of whether it’s a good deal.
For example, the American Bar Association partners with USI Affinity to provide you with term life insurance quotes from MetLife.
We ran a quote for a 35-year-old non-smoking male looking for a $2,000,000 policy with a 20-year term using the USI Affinity tool. MetLife quoted us a $1,280 annual premium.
Using our tool we compared over 100 insurance companies for the same policy and received a quote for $698.
Don’t take our word for it. Run a quote comparing the policy offered by your bar association and let us know what you find.
We want to make sure you have all the information you need to make a good decision.
Difference between term and whole 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. It’s a rare case where it makes sense to buy such a policy.
All you need is TERM life insurance. The premiums on term life insurance are relatively low because the market is competitive, so you’re getting the benefit of buying a commodity market.
Your term life insurance policy is simply an insurance product that will help your family if you die prematurely. Do not mix insurance and investing.
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 insurance. Term life insurance is the way to go.
Buy from a highly-rated company
Yes, there’s a slight chance that your life insurance company could go out of business. But no, it’s not a huge risk that should keep you up at night.
First, every state has a guaranty association that will pay for the claims associated with financially impaired insurance companies. As you might expect, this is a highly regulated industry.
Second, if an insurance provider 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).
Insurance companies are rated based on their financial stability and we use those ratings to only work with A+ carriers. There’s no reason to accept anything less.
How much does life insurance cost?
We’ve made this one easy. Use our technology to get quotes from over 100 insurance companies and see your customized rates instantly.
Is the life insurance provided by your job good enough?
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.
The chances are high that your group life insurance policy provides coverage in the amount of 1x your salary. This is a perfectly adequate and a great deal if you’re a young single lawyer with 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. Basically, all the reasons you buy life insurance.
Oh, your group coverage is probably not portable, meaning if you leave your job you will probably need to re-evaluate your life insurance situation anyway.
If you have a great group policy but aren’t sure whether it’s enough, schedule a meeting with us and we’ll review your existing coverage for free to let you know if you’re missing anything.
Do you need additional life insurance for your student loans?
If you have federal or private student loans, here’s how you factor those into your decision about life insurance.
Federal loans. Federal loans are discharged upon your death, so your estate won’t have to pay them back. You do not need additional life insurance coverage to protect your federal loans.
Private loans. If you die with private student loan debt, you need to understand your lender’s policies.
Most private student loans are discharged upon your death but you’ll need to confirm with your lender.
However, a private student loan that is co-signed by a parent or someone else may not be discharged upon your death. Co-signers are often fully responsible for repayment of the loan without regard to anything that may happen to the other co-signers.
Thankfully, this is only a problem with older student loans. All student loans originated after Nov. 20, 2018, must release a co-signer in the event of the student borrower’s death pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act.
If you have a loan issued before Nov. 20, 2018, there may be policies in place with your lender to handle this situation through a process called “compassionate review” that could result in your loans being discharged.
Most people will not need to purchase additional life insurance just because they have student loans.
Buying multiple term policies (laddering)
Just when I’ve finished explaining how easy it is to buy term life insurance, I thought I’d throw in a 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. It 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 to 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.
Level-premium or annually-renewable
There are 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 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 cancel 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.
How does Biglaw Investor make money?
We place policies through our subsidiary Sidebar Insurance LLC, an independent insurance broker, so we get paid a commission directly from the insurance company. Our commission may vary depending on the type and size of product you purchase, as well as the particular insurer and the volume of business we have with that insurer.
Insurance commissions are built into the price of an insurance policy, so you’re not paying any extra for working with us.
If you’re thinking you could get a better deal by buying directly from the insurance company, that makes sense, but you can’t. By law, the final rate you’re offered by an insurer for a specific policy is the same regardless of whether you buy it directly from the insurance company or through us. We find that odd too.
It’s against the law for us to rebate some of this money back to you. Otherwise, we’d give you some of the commission money just like we do with our student loan refinancing cashback bonuses.
We use our share of the commissions to build technology and pay experts to help you navigate the complexities of the insurance industry and shop your specific circumstances to as many insurance companies as possible to help you find the best deal.
What if I can find a better policy elsewhere?
Our technology searches over 100+ insurance companies instantly to find the lowest published rate. However, if you find a better policy somewhere else, let us know. We might be able to get you a discount on that policy and save you even more money.
We’ve partnered with people who have spent decades in the insurance industry and are happy to lend our expertise even if you don’t ultimately buy a policy through us.
We’ll send your business elsewhere if it’s better for you
Sometimes there are quirks in the insurance world where a combination of your specific health circumstances means that you’re better off working with someone else who has access to better coverage options or single-company discounts.
If we’re aware of a better deal elsewhere, we’ll discuss it with you and send you to another place to get a quote even if it means you’ll ultimately do business with them. We mean it when we say that we’re working for you and not the other way around.
Our experienced partners are familiar with many unique discounts that exist in the marketplace and can help you find those discounts.
The difference between captive agents and independent brokers
Captive agents work directly for the insurance companies. They aren’t able to shop your specific circumstances across a variety of insurance providers. Either you buy at their price or you keep calling other captive agents at different insurance companies to get additional quotes.
Independent brokers work for you. They have access to hundreds of companies in the marketplace and gather the quotes for you. Good independent brokers know the market well and which companies are likely to offer you the best quotes based on your specific circumstances.
People rarely need to work with a captive insurance agent.
State by State Life Insurance Company Guide
Joshua Holt is a licensed insurance agent (License #2785989) and founder of Biglaw Investor and Sidebar Insurance LLC, an insurance agency created by lawyers, for lawyers. His insurance expertise lies in the areas of life and disability insurance, particularly covering lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.