Anyone who has come to the topic of life insurance with questions will almost invariably encounter the following situation. You have a need for life insurance and some rudimentary knowledge about the topic, but you want more detailed information so that you can make an informed decision about what your life insurance will eventually be.
You might start by either requesting a quote or by having someone tell you what is available. Both of these approaches will get information to start flowing in your direction, but then you run smack into the same problems that confront many others: the details, the new-to-you terminology, the sheer volume of what can be known soon becomes a wave that threatens to drown you. In no time flat, you want off this beach! The problem is, however, that you still need the life insurance.
The premise of this article - that there is a way that you can simplify life insurance products that always works - is a bit of a tease. The entire list of products that make up what is available to you is enormous.
How to Simplify Your Life Insurance Options
Simplifying such an enormous list of products is a problem in itself, not a solution. Consider that you will only ever purchase, at most, one or two of them. To “simplify” is often an act of de-selecting many things in order to get to a couple of things. When you look at a food menu, the task appears to be that you are choosing something you want, but to get that to happen, you have to de-select some things that aren’t what you want. At the exact moment you decide that you don’t want pork, beef, soup, or salad, you create a short list from which to work with. You simplified your task when you did that.
With life insurance, try de-selecting some things first. You determine, for instance that a 20-year term plan with a $400,000 benefit is what is needed. What was de-selected? Every permanent plan and every other term plan that is shorter or longer than the one chosen. This process is exactly the same as when you look at a food menu. With life insurance, most of us think that the primary factor in our decision is something distant, like college costs, cost of living increases, and other “crystal ball” items that may exist in the future. We ask about products and get many different answers and approaches, but the simplest way would be to start with ourselves, our families, our needs, and work it from that perspective.
For example: Your youngest is two years old and your mortgage balance will be around for another twenty years. Your monthly expenses today tell you what your family will need to keep life running the way it runs now if you die too soon. Giving them ten years of security (a pile of cash in the form of a death benefit) means giving them 120 months of what your monthly living budget is right now. That is how you got to $400,000 as a baseline or starting point for your death benefit – you selected a 20-year term for $400,000 by de-selecting everything else based on your specific needs for coverage. And that enormous product list containing all those things that you never needed and were never going to purchase? It just went away.
The point is this: simplification is always partly a function of eliminating irrelevant stuff that does not fit. To find a needle in a haystack we first get rid of all the hay, which instantly simplifies the task of locating the needle. The “needle” in this instance is a not-so-complicated set of needs. Eliminating things we don’t need or want makes the task of digesting life insurance information immensely easier.
Want proof? Here is what we can say about 20-year term plans; they last for twenty years and go away or get more expensive in year 21. They can have a guaranteed-level death benefit and a level premium. Find a plan at a price that you can afford from a reputable carrier. That is almost all there is to that product. This approach, for term, is fairly simple but it works for permanent plans, too. It works because everyone who has a need for life insurance can place that need next to a product (or two) and check the fit.
Good advisors ask questions and use the client’s answers to fit the product to the person. At Term.com, when we do it, it personalizes what we offer so that the benefit is equal to the need. When we do it right, it always works.
Photo ©iStock.com/Courtney Keating