How to shop for life insurance - YouTube

I'm Ben Gonzalez and this is TDI.

Well, today we're talking about life insurance and some of the most common questions that

we see about that online.

And joining us to help answer some of those questions is John Carter from our Life and

Health section.

Hello, John.

Hi, good morning, Ben.

Well, let's just start with the basics.

Who should be getting life insurance?

Is that something that everybody needs?

That's a very good question to start with.

So, essentially, anyone with a family business, assets, and people to protect.

The life insurance just isn't for people who are married and have children.

Singles need life insurance just as well.

So the answer to your question is, everyone needs life insurance, because everyone has

someone to protect or someone to provide for.

Well, given all those kinds of different situations that you touched on there, I guess it's important

to understand a couple of key concepts that often come up.

Can you help us with the difference between term life and permanent life insurance?

Sure, a term life and permanent life are two of the very basic types of life insurance

that you can purchase.

Term life is very simple to understand.

It's also generally the least expensive, and the word term means exactly that—it’s

either based on a time period or your age.

And when you get to the end of the term period, then the insurance ends.

So, for example, you could purchase a 10-, 20-, or 30-year term period and at the end

of that period the insurance ends.

There's no cash value, the insurance is over.

You could compare it to, say, your homeowners policy or an automobile policy, where when

you get to that one year, that six-month time frame, then your insurance stops.

But in those cases, it's renewed.

Term life can be renewed at the end of the term, but it also can be very, very expensive

to do so.

It can also be based on your age, so some people may choose to have a term period that

ends on their 65th birthday or maybe when they turn 95.

Whole life insurance, which is also called permanent insurance—permanent is really

more of a technical term—it’s not a term that you would typically use when you're talking

with an insurance agent or what have you, but permanent means just that—it’s permanent.

It's there for your entire life.

This is normally sold as whole life, and whole life insurance can be expensive but it's expensive

because it lasts your entire life until you die, and the policy would pay out.

Right, and I think that those are very key terms to understand, because when people get

a term policy there may not be a payout.

You're just covering yourself for that portion of your life when you may have obligations

to other people.

That's absolutely correct.

So, term life insurance, one of the reasons that it's inexpensive is it doesn't accumulate

any cash value, like a whole life policy would.

So the only value to the policy is the amount of insurance.

Other than that, there's no value to the policy.

So, a whole life policy will accumulate cash value over the years.

Now, the cash value does not equal the amount of insurance until you approach the very end

of that policy.

We know that some people have the option to get some life insurance at work.

Is that usually term coverage, or is that something completely different?

Yeah, generally workplaces will offer a base life insurance policy for all employees, sometimes

at no cost.

Those amounts are going to typically be very low.

They'll be, you know, maybe 5 or $10,000, you know basically enough to cover your funeral

costs.

But yeah, those generally aren’t term policies, and the term in that case is the length of

your employment.

While you’re at the job.

Yeah, while you're at job.

So if you're there for a month or you know six months, or a year, or 30 years then you'll

have that coverage.

One thing that companies, employers, can do is offer the opportunity for the person to

purchase additional insurance at their own cost and those are generally based on a multiplier

of your income.

And what the employer chooses to offer is entirely up to them.

It is important to understand that employers are not required to offer life insurance,

they're not required to provide you with the base life insurance coverage, that's just

generally considered an employee benefit.

If you do need to change, for example, you start a new job, and these things are normally

discussed during your new employee orientation, and you're filling out a bunch of paperwork

with the HR people, when they're telling you to check boxes and sign here, and you may

not really be reading through everything.

If you're not sure, contact your human resources department say “Hey, do we have any, you

know, base life insurance coverage?

Do I have an opportunity to purchase additional insurance at my own cost?”

And they may say “Yes, we do,” and if you choose to make changes, you can do that

during the employer's annual enrollment period, and that's when you can make changes.

You can also generally make changes when you have a life event, and that would be, say,

you get married during the course of your employment, you decide, you know, I just have

this base policy but now that I'm married, I want to do a little bit more.

You can also make changes when you have when you have children, because your needs have

changed and you want to increase the amount of your coverage So, generally in those situations,

those are exceptions to open enrollment time, and you can make those changes.

But, basically, contact your human resources department, find out what you have, and find

out if you have opportunities to purchase additional insurance.

If people have been sitting through here, listening to our conversation, one of the

main questions you're going to have is, “How much does this cost?”

Is there some kind of rule of thumb to think about of how much life insurance is going

to cost you?

The rule of thumb is, there is no rule of thumb.

So I would just advise people, just like in general, purchase is really a buyer beware

type concept.

So, life insurance costs can vary widely.

It's based on a lot of factors: first, what type of insurance are you buying?

You're buying term life or whole life or a universal life policy, the guidelines that

companies use can be very, very complicated.

They use what are called underwriting guidelines, and we do not regulate those.

So in other words, we cannot force an insurance company to cover someone or assume a risk

that they do not want to assume.

So we have had some consumer complaints over the years where people are mad because they'll

contact us say, “Hey, I applied for a life insurance policy with XYZ Insurance Company,

and they denied me coverage.”

And the fact is that they can.

So, generally, the cost can be based on your age and your health condition.

It's important to shop around once you determine the type of insurance coverage you need and

the amount that you need.

Then it's okay to shop around and understand what you're getting, particularly if you're

buying term insurance.

So, it's very important to understand that there are a lot of different types of term

insurance.

One that is very popular, that you may see advertising on tv all the time, is typically

called annually renewable term.

And, basically, what happens is, the policy is only good for a year and then it renews,

but it renews at a higher cost, and that'll just keep going.

So, if you're going to get a term policy, or even a whole life policy, probably the

best thing to do is purchase something that has a steady premium that you're comfortable

with and that you can afford.

For a set number of years, maybe?

Right, exactly.

For a set number of years, and then you don't need to worry about it so much.

But the other factor is, companies will also, you know, based on your job situation or family

situation, they will also limit the amount of insurance.

So, for example, if you're single and you're fresh out of high school, maybe have a new

job, and you're making, you know 20 to $30,000 a year, for example.

If you go to an insurance company and apply for a $10 million policy, they're probably

going to turn you down because their question is going to be, “Well, you don't have a

need for this much insurance.”

You know, they may sell you a $100,000 policy, for example.

They're going to try to limit on, you know, how much you purchase.

For one, you probably can't afford that big of a policy anyway, but the other thing the

insurance company doesn't want to do is expose themselves to risks that are outside of their

guidelines.

Yeah, I've seen some simple kind of calculators online that talk about, you know, your earning

potential until retirement, plus mortgage, maybe plus kids college, and it just basically

adds all those things up and says “This is kind of what you need.”

Right, right, and those are all very, very good questions to ask, so sometimes I think

with families in particular, and even, you know, individuals.

Nobody wants to talk about life insurance.

Right.

I mean, there's nothing exciting about it.

At best it's going to be a depressing conversation, but it needs to be.

It's called life insurance but it's really about death.

Yeah, it's called life insurance but it's really about death.

They don't call it death insurance because that would be very difficult to sell.

No one would buy it.

So they call it life insurance but really what it is, it's to provide your loved ones,

your family, a financial resource, a policy that's going to pay out to cover the what-ifs

in your life.

So that's the security blanket.

Yeah, exactly, security blanket.

A very basic question that you can ask yourself before you even talk with your family is,

is very simply, “You know, if I die, how would that affect the people in my life?”

So it's okay to write these things down.

So if you were to die, even if you're single, if you were to die, how would that affect

people in my life?

So, you know, some questions you may ask yourself is, “Well, would there be money to pay for

the funeral?”

“If I do have a family, how much money would they need to make ends meet without my income?”

You know, would they lose their home.

And it doesn't matter whether you rent or own, how much does that cost?

If you're thinking, if you have children, you're thinking about their education, who’s

going to pay for that?

Now, typically, people think about the children's education, they're thinking about, you know,

post-high school.

You know, community college, trade school, you know, university, what have you.

But it's not just about that.

Because if you have children or you know people that have children, you will very quickly

learn that paying for a child's education can also happen during elementary and high

school.

There's expenses every year.

Expenses every year.

You may need money for childcare should your spouse need to go back to school so they can

increase their ability to earn income, or, you know, they may need childcare so you can

work.

So the questions are endless.

So, a really good thing to do is write them down and come up with your own list of questions,

and then what you can do, what that does is, it puts in your mind.

These are objective questions, and then what that can allow you to do is help you determine

a cost.

So there's a cost for all of these things.

If you know, with respect to income, for example, if you're making, you know, $3,000 a month,

then think, “Okay, well, I have to make $3,000 a month for how many years until my

spouse can get to a point where they can make ends meet.

And just use those numbers and that will help you determine a best guess, how much life

insurance do I need?

Well John, we've already covered a lot and giving people something to think about, so

I think we're going to wrap it up there.

But I think it you brought up an important point there, you really want to have these

tough conversations with your family ahead of time, because our helpline gets calls all

the time from people who've had relatives die, and they think they may have had a life

policy, but they're not sure where it is.

They don't know the company's name.

Some of the things you can do are, look at your loved ones bank statements or checkbook,

to see if they've made payments to an insurance company.

And then maybe look at their phone contacts for an insurance agent.

And then maybe check where they worked as well—we covered that as well—to see if

they had life benefits there.

But if you need help understanding life insurance, we've got all this information on our website.

It's tdi.texas.gov.

And if you've got another question that we didn't cover, that you can't find in there,

you can also call the helpline, and that's 800-252-3439

So for John Carter, I'm Ben Gonzalez, and this is TDI.