“Cheap and easy,” my Dad’s financial advisor used to say to me. That’s been my mantra for my life insurance strategy since I went in-house six years ago. But let’s back up. Life insurance can be both confusing and emotionally difficult to think about (at least it was for me). So let’s take a quick look at the type of options that are out there before I tell you about my thought process for selecting the option that works best for me and my family:
Term Life Insurance Policy
Pretty much what it says – you purchase life insurance for a period of time (twenty or thirty years, say) and depending on your age and health when you buy it, pay a fixed premium for the life of the term. I have actually never purchased term life insurance, but as I approach my 40th birthday it is something that I am beginning to think about as a supplement to my group life insurance policy, discussed further below.
Group Life Insurance
This is what I have always carried. I usually purchase the maximum offered under the group plan (for example, right now, I pay $50 per paycheck for coverage equal to 8x my salary, which is a number that I am comfortable with in the context of our overall portfolio). But your situation may vary, and you might want to consider supplementing your group policy with a term policy. Or maybe your job isn’t that secure (meaning the group policy will disappear if you lose or leave your job). In that case you might also want to look at a term policy.
Whole Life Insurance
Here’s where it gets complicated and no longer “cheap and easy.” Essentially a whole life policy is pitched as an investment. You pay premiums each month over a defined term and, at the end of the term, those premiums can be drawn down by you. Of course if your demise occurs during the term, the policy will also pay out.
Self-Insured Life Insurance
Essentially, at a certain point in your career, you should have enough assets and holdings to the point where carrying life insurance probably won’t make sense (i.e. you are 65, about to retire, and have hopefully amassed enough liquidity where your family will be fine in the event of your demise).
Generally I think whole life insurance doesn’t make a “whole” lot of sense for young lawyers. I think you are much better off purchasing either a term policy, a group policy through your employer, or some combination thereof. Whole life insurance is typically pitched as an “investment” and while that might be true, I think you are generally better off investing in a taxable account at your preferred asset allocation (more on that in a future post) rather than in a (relatively) exotic insurance vehicle that few people understand.
Do you carry life insurance? If so, what kind of policy, and how much (as a function of your annual salary)? If you have a group policy available to you through your employer, do you take advantage of it?