New Parents: Getting Life Insurance

Getting started and choosing the right life insurance for parents can be confusing. When I became a father, what started as just another to-do list of things quickly became more than that as I understood what life insurance really meant. Getting life insurance IS a parental responsibility. It is a product that offers you peace of mind (and most importantly) it should not be viewed as an investment.

The Process 

I am not an expert in Life Insurance Products. Just a new father who researched the products, read the opinions of others on Term vs Whole Life Insurance, and decided on a personal strategy that fits my needs.

As a newbie, my whole process from starting my research to finishing the application process and being covered took a little over 2 months. I broke down the following into 3 phases.

Phase 1: Research

I started by initially reaching out to a few life insurance agents. While speaking with them over probably 6-7 different calls, I also read everything I could about the different Life insurance products and the opinions on personal investing experts on their views of Term vs Whole life insurance. This process can be extremely confusing with all the different products available and took about 5-6 weeks for me to have a good understanding of all the different products.

phase 2: Application process

Once I decided roughly how much I needed and narrowed the insurance products down to a handful of possible candidates, I filled out the application to get started and not waste any time. My agent assured me that I still had the option to make changes after my physical. This part of the process from signing my application to processing took about 5 weeks.

After signing my documents, within 2 business days I scheduled and had a phone interview. They asked basic questions related to my application and confirmed everything I answered was truthful. Afterwards, I scheduled my physical exam. This was easy to setup and they were flexible on the days and time. I chose the option for some came to my home which ended up being about 2 weeks after my phone interview. They drew blood, checked my weight and height, and blood pressure. The whole process took about 20 minutes. The last process was waiting on my results which came in about 2 weeks.

phase 3: Final Decision

After my physical was complete and I knew the exact amount of my premiums, I spent another week to make my final decisions.

The Products

Variable Universal
Death Benefit  Χ Χ Χ Χ
Flexible Payments Χ Χ
Invested in market Χ
Cash Value Guarantee Χ Χ
Tax Advantage Χ Χ Χ Χ
Low Monthly Cost Χ
Term Life

The simplest life insurance policy. They offer coverage over a specific time period, you purchase just enough to cover your needs. For instance, can buy a term that is enough to cover mortgage payments.

Disadvantages: does not have cash value.

Whole Life

Offers coverage for life to the insured as long as premium payments are paid. Rates are higher than term policies. Whole policies have a cash value feature which offers potential for tax-deferred growth.

Disadvantages: more expensive compared to term and universal life insurance. Whole life policies are not flexible. You cannot increase coverage by increasing premium amounts. And rate of interest is usually lower compared to other investment vehicles.

Universal Life

Similar to whole but offers flexibility in their savings component of whole life. This flexibility allows the policyholder to defer premium payments by using the cash value to cover the payments. The death benefits can also increased or decreased and you can take out loans against the policy.

Disadvantages: more expensive than term life policies. And rate of interest is usually lower compared to other investment vehicles.

Variable Universal Life

A combination of life insurance and an investment account. You decide how much of the premium will be allocated for investment purposes. The funds grow tax-free.

Disadvantages: decrease in the policy’s value from poor market conditions can lead to additional premium payments. Expenses can also be higher compared to other investment vehicles.

My Strategy

You will have no trouble finding opinions on whether to go with term vs whole policies. One thing that is very important, I DO NOT view life insurance as an investment vehicle. I view life insurance as insurance on my life to pass to my dependents to help pay for a warm home, food on the table, education, and everyday expenses.

I will start with Term but do intend to revisit Whole or Universal in the future. This will depend on my gross assets, cash available to offset estate taxes, and the federal estate tax limit (currently $5.49 million in 2017) .

Term: $750,000

I am starting with a 20-year term. $250,000 will be towards my mortgage and housing. The remaining will be towards everyday expenses and college savings. For each new child we have, I will purchase an additional $500,000 policy.

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