Lesson 2: How to Save on Insurance
Insurance can be nothing but a heartache, nothing but a mistake if you don’t know what you’re doing or what kind to buy. We aren’t quoting the Backstreet Boys to shame you, but to let you know there is a way to get the right kind of coverage at a great price.
We don’t care who you are, where you’re from, or what you did for insurance in the past—you can save money while still getting the coverage you need, starting today! Or tomorrow, if it’s currently past 5 p.m.
Want to learn more about what kind of coverage you should get in language understandable by the insurance elite and illiterate alike? That’s what we’re here for. Let’s break down some common insurance questions and establish some clear answers. Because we know you want it that way.
What’s the difference between term life and whole life insurance?
With whole life insurance, you pay that premium for . . . well, your whole life. This means that even after you’re living the retirement dream—traveling or writing the next great American novel (or both), and living comfortably on all your investments—you’re still paying for a life insurance plan you don’t even need anymore.
If anything happens to you at this point, you’re what we call “self-insured.” You’ve got a beautiful financial legacy to leave those you love, and you don’t need to keep chucking money at some profit-hungry insurance company.
With term life insurance, you pay for a period of time. We suggest 20–30 years, depending on how close you are to your retirement (aka self-insurance) days. This policy will pay out to your loved ones if you pass away before that self-insured time comes.
Whole life plays dress up and pretends it’s an investment. But the thing is, to be brutally honest—it really sucks as an investment. The rate of return isn’t worth the extra you pay for this kind of insurance policy! And that brings us to the next question.
How much can I save with term life insurance?
You can tell we’re Team Term Life, right? It’s not because we have an uncle in the biz or get a kickback. It’s because we’ve done the research, and this is the better option. It’s what we use!
One of the biggest reasons we choose term life insurance is because you save an exorbitant amount of money. A whole life policy ends up costing around $300 more a month than a term life policy. That’s around $3,600 saved a year, which is . . . wait for it . . . $108,000 saved over a 30-year span. In a minute, we’ll tell you what you could do with all that money instead of giving it to Mr. Whole Life Insurance Man.
How much of a term life policy do I need?
Pardon our interruption in the money-saving train of thought, but here’s an important detail. You’ve decided to get a term life policy, but how much coverage should you get?
Take out a policy that’s 10–12 times your annual income. Why? If anything happens to you, your family will invest the insurance proceeds to earn a rate of return that replaces your lost income and provides security. Now, back to your regularly scheduled savings information program.
What could you do with all that savings?
We’re talking about that $300 a month, $3,600 a year, $108,000 in 30 years you’ll save by having a term life insurance policy versus whole life. What will you do with all that savings? We can think of four good ideas right off the top of our heads. Here they come.
1. Pay off debt.
Think of what you could do packing an extra $300 onto your debt snowball each month! Here’s an example: If you owe $7,000 on a credit card at 17% interest and pay $200 a month, you’d pay it off in three and a half years. If you bump your payment up to $500, that debt would be gone in less than nine months, saving you nearly $2,000 in interest.
2. Save for retirement.
Invest $300 a month into good growth stock mutual funds, and you could retire with $650,000–970,000 in 30 years. You turned $108,000 into 6–8 times that! That’s called good investing.
3. Pay off your mortgage.
At 4% interest, you could pay off a $200,000, 30-year mortgage in 19 years—and save more than $58,000 in the process—by applying an extra $300 to your monthly payment.
4. Give more!
Do you feel like chances to help others are plenty, but your income isn’t? With an extra $300 a month, you could more easily step in to financially help out your favorite charity or a friend in need.
Boom. That’s a good list.
How do I know a good insurance agent from a crummy, questionable one?
First of all, if you already have whole life insurance—fear not. It’s not too late for you. There’s still time to switch. (If you haven’t taken out any life insurance yet, there’s still time for you as well—but don’t dawdle.)
In either circumstance, you need to get a good policy in place right away. It can be daunting to look for an honest and legit insurance agent—someone who cares about getting you the right amount of information and coverage for your stage of life—but they do exist! We even know some!
Are you ready to quit playing games with your insurance? (Yup—Backstreet quotes are back, alright.) Find an independent insurance agent you can trust, get yourself a good term life policy, and start putting that extra money you’ll save toward making your money goals happen.