Life Insurance

I spent a summer working as a Financial Representative Intern, which boiled down to me calling people and trying to sell them life insurance and annuities. From the internship I learned about the different types of Life Insurance and what the differences are.

Life insurance can be divided into two basic classes: temporary and permanent. and within these classes are sub-classes that exist for a better fit of one’s needs.

Term insurance

Term gives life insurance for a… you guessed it a specified “term”. The policy does not accumulate cash value. Term is cheaper for the same amount of coverage compared to whole life.

There is also renewable term in which you can keep renewing your policy without getting another physical every renewable period. If you are over 80 the chances of being able to buy term is low.

Permanent life insurance

Permanent life insurance is permanent as long as you pay the premiums.  A permanent insurance policy accumulates a cash value. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, but it’s a loan, to get your policy back to normal, you would have to pay back what you borrowed plus interest. Similar to a 401(k) borrowing from your insurance policy is not recommended.

Who needs Insurance?

You don’t need life insurance if you are single with no dependents. But if you have a family that depends on you, then you may want a life insurance plan that can take take care of them when you are gone. Also note that the older you are the more expensive insurance is for the same amount of coverage. Another class of people that insurance makes sense for is the ultra wealthy, who would want to minimize estate taxes. The main purpose of life insurance is to provide for your dependents when you die, not as an investment vehicle while you are alive.

One piece of advice you see online is “buy term and invest the difference.” I agree this is a smart idea, on the condition you have the discipline to invest the difference. Now this changes if you work in the industry, by having the internship and 10-55 certified I was able to keep half of the first years premiums. I personally have a small 65-life plan with Northwestern Mutual. I make one annual payment, and got categorized in the highest health bucket, both of which reduces how much you need to pay for the coverage received. Not only being a great sales tactic, the lower fees will explain why when you speak with a financial representative he or she will usually have a multi-million dollar policy.

[One summer does not make me an expert, and I recommend further research before making insurance decisions.]