Why the Type of Life Insurance you Buy Doesn’t Matter

Why the Type of Life Insurance you Buy Doesn’t Matter

For a lot of people who are shopping for life insurance, one of the first questions they ask themselves is, “what type of life insurance should I buy?” This question usually ends with some form of “whole life” or “term life,” as though those are the only two options. That’s the wrong way to think about life insurance.

I’m pretty sure I understand what people mean by the question. But I also understand why it’s based on misunderstandings of how life insurance really works. And I understand how the wrong question opens you up to the qualms of well-trained life insurance agents.

Here’s a tip: Think about the type of life insurance you buy last.

When the type of Life Insurance does matter and When it doesn’t

Obviously, if you plan on using life insurance to supplement your retirement, then you need some form of permanent insurance. Many call this “whole life.” But for most people, who see life insurance as a layer of protection for their families – to help replace part of their income, pay down debts, and support their families – it doesn’t matter.

That’s right, it doesn’t matter what type of life insurance you buy. The reason it doesn’t matter is because all you care about is the death benefit (the part that pays when you die). Any and all types of life insurance have a death benefit. The rest of it doesn’t matter.

Life insurance goals

Of course you want it from a life insurance company you can rely on, and of course you care about the price and how long the policy lasts. So the secret to buying the life insurance policy you need is to define those things in advance. Ask yourself these questions:

  • How much life insurance do you need?
  • How long does that need last?
  • How important is having a guaranteed policy?
  • How important is company quality?
  • How important is price?

After you have these questions answered and outlined, go shopping for life insurance. Your answers might eliminate some types of insurance, but you might be surprised how many options are still on the table. That’s why focusing on your goals and priorities pays off. Stay focused on your goal and the jargon-filled slick presentation of insurance agents won’t impress you much.

Do you need that extra feature that gives you your premiums back if you hang on to the policy for the entire time? Do you want to be able to participate indirectly in market gains without having to worry about losses? All that sounds great, but if it’s not on your shopping list, it’s not all that important to you.

Shopping for life insurance and temptation

It’s like going to the grocery store when you’re hungry. Anything looks good, and the high-calorie stuff looks even better. If you make a shopping list instead, you get everything you need without succumbing to temptation.

If you had popsicles for the kids on your list and they have fancy ice cream on a super-sale, it’s okay to pick that up instead. But stay focused and don’t get distracted.

Think about the type of life insurance to buy last and the rest of your goals will take priority. By forcing insurance agents to compete for you based on what you want instead of letting them sell what they want, you will be able to make a better and wiser choice. If you can find that competition without a bunch of annoying phone calls and emails from agents… well it sounds like a special place.

This is a guest post by Aaron, the president of Clarifinancial – the only way to get custom life insurance quotes from multiple agents anonymously. Because they let real life insurance agents compete for you without any unwanted phone calls or emails from agents, choosing from the competition is a clear choice. If you are looking for quality life insurance quotes without the hassle, give Clarifinancial a try today.

9 Responses to Why the Type of Life Insurance you Buy Doesn’t Matter

  1. Thanks for asking me to do a guest post Evan. I look forward to hearing what other people have to say about my “slightly contentious” position on life insurance.

    • That was an amazing e-mail I told a ton of people about it.

      I’ll put it out to everyone reading this post:

      Does anyone else think my writing is “Slightly conentious”?

  2. I completely agree with the main concept of your post. The purpose of the life insurance is the most important part. By focusing on what the insurance should accomplish and why, it really determines the type of policy for you. There are different types of policy for different people’s situations. Figuring out yours is probably the hardest part.

  3. @Aaron
    Thanks for bringing some fresh perspective into life insurance.

    @Evan
    Who said your writing is “slightly contentious”?
    Anyway, it’s good to be contentious. If you’re making everyone happy all the time and no one is disagreeing with you then you’re not dealing with the difficult questions – the questions that matter.
    Go contention!

  4. @Mike I’m the one who said that. I told Evan when I was coming up with an idea for his post, that I would try to write something that fit in his “slightly contentious” style. He said that was the nicest way anybody had ever called him a rear end (it’s a family site, right?) It was funny all around.

    Also, I like your little ninja guys Mike and I will check out your site tomorrow when I’m not on an iTouch.

  5. I had a discussion with Evolution of Wealth about my “incorrect” attitude to the emergency fund (I don’t think me or anyone else really need to save money) I rather use insurance. One of the products I use to supplement my emergency funding is life insurance – I opted out for a 30 year log policy for me and a separate one for my husband. Our jobs would pay “death in service” up to 4 times our annual salaries but we still decided to have life insurance on top of it so that it not only pays off debt (aka mortgage) but also pays for son’s education and allows the one of us who survives to have a better life…

    I’m not sure about US but in UK “whole life” policies have such a bad return that the difference in fees (you pay more for the whole life) you are better of putting into a savings account

    I actually wanted to buy “whole life” first but even struggled to find anywhere to buy it!:-)

    • Anastasia,

      I am not sure I understand what you mean by you don’t think anyone needs to save money – and frankly it worries the hell out of me that you don’t seem to have an emergency fund.

      Beyond that, Whole Life here in the US is expensive, in terms of total dollars expended, but it may be right for your situation, per Aaron’s great contentious post.

  6. may be it depends on how you and me define emergency?
    For me to have 6 months worth of savings (and given the rate I can save right now) it would take me about 4-5 years to save for the emergency… Now, emergencies don’t happen AFTER you saved for them they happen all the time, preferebly when you are NOT prepared. So, what am i suppose to do in the meanwhile? My approach is – insure myself against real emergencies and stop worring about the rest. I am insured agains long term sickness and death, my house is insured agains any structural damange to it, once i paid off more debt I will insure the content of my house as well. I have medical insurance (ok, that’s one is way easier to deal with in the UK, I admit) Me and my husband both work full-time if one of us can’t work anymor it will reduce our income by about 50% (rather than 100%) Me and my husband both have “death in service” benefits (for up to 4 times annual salary, plus pention paid out to the survivor and the kids for the rest of their lifes – that’s a usual practice in the UK for large companies)
    I have liquid fonds to cover unexpected exencies (see my post about my “fund”) …
    What do I need more money for saved????
    I think it’s way better to put money into my pension, save for house deposit, save for kids education, etc. – if push comes to shove I still can use that money for “emergencies”
    My insurance (e.g. income protection) should I claim in the next 5 years will be aping me for the rest of my working life which could amount to up to £700000 – there is no way I could’ve saved for that!:-))
    I am not agains SAVING but I think hording money in low interest accounts for ill-defined “just in case” is counter-productive

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