Based on direct mail ads for life insurance, it appears that the most important lifestyle factor that they care about is smoking or other tobacco use.
Let’s bear in mind that insurance isn’t just about receiving a lump sum after someone’s death, acquiring that additional wealth. People can invest in homes, education, and other choices, during their lives, that may not be supportable on one income.
The average company life insurance, in my work, was 50-75-100k. That won’t last long against real expenses. Even if the deceased was earning 100k, that’s roughly one year. Less, if the earnings were higher.
No, not everyone has it. It’s a measured decision. But a worthwhile consideration, depending on your circumstances. Imagine your position if one spouse wasn’t working or was in a lower salary job, when a crisis hits.
@ucbalumnus You are correct. The biggest risk factor to determine rates are tobacco and non-tobacco use.
@lookingforward The purpose of life insurance (or any insurance for that matter) is to replace the loss that occurs. If you have dependents that rely on your income, it is important to insure that loss. Once you accumulate enough wealth the self insure, it becomes less important to cover the loss or almost obsolete.
The rule of thumb is you need 10-12x income in death benefit to replace your income and it is important to carry the insurance until you can either self insure or until your youngest dependent is around age 25.
@kanfly: While your post is interesting & helpful, there are lots of exceptions to the statements you wrote. For example: The 2 year period of contestability, while comforting, is not absolute even though the primary witness is typically deceased.
A variety of legal issues can arise at claim time even though well after 2 years from policy inception. Further complicating matters is that insurance law can & often does differ state-by-state, and it is sometimes unclear which state’s law controls.
Another example involves the genetic testing statement. Agents ask about one’s family history. Some applicants may respond with genetic test results in mind.
Lots of litigation involves place where application was signed & whether signature was made by the insured or by another.
Many issues arise with respect to the purchase & subsequent sale of life insurance policies.
My point is that life insurance contracts are seen in a different manner depending upon whether one is an insurance agent or an attorney or a judge. And, yes, I realize that attorneys draft life insurance contracts, but the law is intepreted and decided by appellate courts & there are many cases involving litigation over life insurance contract provisions.
There are some things beyond death & taxes that are certainties in life and one of those truths is that salesmen simplify things while attorneys complicate matters.
Wouldn’t life insurance be better thought of as insuring the value of your labor (either paid, or unpaid labor in the household that would otherwise have to be replaced by paying others to do it) for supporting your dependents, and self-insuring basically means that you have saved enough so that the capital and their investment income would cover that?
Wouldn’t the amount needed vary based on how much of your labor value would need to be replaced by life insurance (versus your estate and its investment income), and wouldn’t some people have dependents who are not children expected to be independent of parent finances by their early 20s (i.e. disabled or elderly adults)?
Wouldn’t disability insurance also be a consideration, since becoming disabled could prevent you from getting value from your labor, and also impose additional costs on your household? (But then insurance companies are probably very afraid of fraud in individual disability insurance.)
@ucbalumnus: Individual disability claims often get challenged by insurance companies when a claim is made. And insurance companies have a tremendous amount of leverage when challenging claims.
While I agree that disability income protection policies seem like a wise source of protection of one’s income, the reality is not as easy as collecting death benefits at claim time.
Employer sponsored group policies can be an efficient way of protecting one’s income loss during periods of disability. Group coverage, however, is not portable from employer to employer, but it is much less costly & underwriting seems easier.
Here is the official position re the use of genetic testing. Bottom line: insurers can’t use it to deny medical insurance, but can use it to deny life insurance:
https://ghr.nlm.nih.gov/primer/dtcgenetictesting/dtcinsurancerisk
@jori: Thank you for sharing this writing which is dated January 21, 2020.
Life insurance should be thought of as replacing income to the family as needed if you are no longer there. If you have paid off debts and have enough assets to produce this income, you are thus able to self-insure.
Disability insurance covers you if you are too sick or injured to work and replaces your income. This is much more likely to happen before the age of 65 and can be as important or even more important than life insurance.
I’m not seeing who posted that disability claims are not paid. They are absolutely paid! If you have a good contract with an own occupation definition that covers you if you can’t work in your own occupation (or medical specialty), the company pays benefits. The definitions through a work policy are much more restrictive requiring you to be totally disabled and not working and therefore are less likely to pay a claim.
Hopefully, the individual long term disability policies industry has changed since the Paul Revere, Provident & UNUM scandal which resulted in a $15,000,000 fine & an additional $675,000,000 in claims being paid pursuant to a regulatory settlement as a result of mishandling claims.
Actually, the improper handling of claims affected not just these three dominant writers of individual long-term DI policies, but also sullied the name of other highly respected life carriers who wrapped their paper around long-term DI policies actually issued & administered by the former big 3 DI writers.
As a result, my understanding is that benefit amounts & payout periods are no longer marketed as they were in the 1980s, 1990s, & early 2000s.
Although individual, long-term DI policies may not be the scam that it once was, claims are still litigated. Unfortunately, claimants are susceptible to settling as medical bills accumulate while earned income has disappeared due to the disabling illness or injury.
My advice to those buying individual life insurance policies or individual disability insurance is to spread out one’s coverage among several different insurance companies whose operations are totally independent of one another. This may result in one insurance company paying the claim while another insurance company fights the claim.
We are in medical and have disability. As I approach 59 I question why I still pay it. I guess the unknown at this point.
I have heard of many doctors years ago that claimed disability and then went on to some other profession. Just don’t get it. No, they were not hurt from what I can tell.
Individual DI policies were written up to $50,000 a month benefit with lifetime benefits up until the settlement in 2004. Not sure, but I believe that maximum monthly benefit amounts available are greatly reduced in today’s market because the insurance companies may actually have to pay any legitimate claims–which was not the practice for decades.
Or one of the insurance companies going bankrupt?
Too much profit in life & disability insurance for an insurance company to be in danger of bankruptcy.
Financial solvency of insurance companies is rated by various companies including AM Best, Moody’s, etc. Best to limit insurance purchases to carriers with a fincial rating of “A”, “A+” or “A++” from AM Bests. Also, not sure if still true, but insurance companies licensed to do business in New York state were held to strict financial standards.
As a retired actuary, I can tell you that US life insurance companies are heavily regulated in all states, and held to strict financial standards. NY is definitely one of the most stringent, but all states require substantial reserves and capital to ensure claims can be paid. Even when companies run into financial trouble, it’s very rare for claims to not get paid. Often another company or companies will buy out the policy blocks. Could be delays, while the dust settles, but generally claims do get paid.
But, I agree. If I were in the market for life insurance, I would look at the ratings from Best, S&P, Moody’s, etc.
@Publisher Things have changed quite a bit since the 80’s when Paul Revere ruled the disability insurance marketplace. There are only a few carriers left but they are held to very high standards. There are no longer lifetime policies and the limit per company is $20k/month. You may aggregate benefits up to $35k/month from more than one company. Companies must have a substantial amount in reserves for each claim. There are a few companies that I don’t recommend (won’t mention by name) based on claims paying and lack of customer service. Yes, there are times when claims can go into litigation but it is unfair to say that it happens every time.
I concur that I would only recommend a policy that is rated A or better. I specifically prefer A+ or A++.
@ucbalumnus Regarding your comment about companies going bankrupt. Insurance companies are required to carry reinsurance to protect against this remote possibility. Even if the company pulls out of the marketplace or goes bankrupt, the reinsurer will continue to pay claims.
I’ve had dozens and dozens of claims over the last 26 years and have yet to have one denied.
The intentional mishandling of claims under individual long term disability insurance policies was not limited to the 1980s and it was not limited to just the now non-existent Paul Revere Insurance Company which at one point was the leading writer and issuer of individual long-term disabilty insurance policies.
Provident bought out Paul Revere & then merged with UNUM out of Portland, Maine.
In 2004, UNUM of Portland, Maine reached a regulatory settlement due to its abusive & improper claims practices on individual long-term disability insurance policies over several decades.
UNUM agreed to pay a $15,000,000 fine (which could have risen to $140,000,000 if certain conditions were not satisfied) and resulted in $675,000,000 of improperly denied disability insurance claims being paid.
But, Paul Revere, Provident, & UNUM were not the only writers of individual long-term disability policies affected as several elite “A+” rated carriers individual long-term disability insurance policies were UNUM products wrapped in different insurance companies’ papers.
In addition to costly litigation, these primary writers of individual long-term disability insurance often leveraged legitimate claims into favorable settlements for the insurance companies as the disabled insureds faced mounting health insurance costs, financial ruin, & were without income due to their disability for which the individual long-term disability insurance policies were purchased at significant cost to protect. When the insureds needed income protection, many, many, many received an improper runaround, denial of claim, often resulting in costly litigation if not bullied into a settlement favoring the insurance companies.
Depends upon applicant’s age, answer to written & oral health questions, and amount of coverage applied for.