Affording Life Insurance When it's Unaffordable

My husband and I are low income, we have 3 kids and 2 grandkids that we adopted. No mortgage because we paid cash for our home. We can't afford life insurance due to us having health issues. I know we need it but we can't afford the $140-200 a month for just one policy! Have any ideas on what we should do? We are cutting corners to get out of debt now, but we are concerned for the future of our children and grandchildren.

Beth

Hi Beth,

Life insurance has to rate right at the top of the list of things that don't make for great discussion topics at parties. Plus, it's even less fun to pay for. I'd say it's neck and neck with a colonoscopy in both regards.

Thankfully, however, you've asked us your question and not your friends at a party. Good news, we can talk life insurance All. Day. Long. You've come to the right place for help.

So, what should someone do when they know they need life insurance, but also know that there are some stumbling blocks to get it issued? A few things, actually. Let's take a look:

• Determine the amount you need. If you have a job outside the home we shoot for 10 times your annual income. For example, if you make $30,000 per year you’d try to get $300,000 of coverage. ($30,000 x 10). Sometimes, that just isn't possible due to factors that may be out of your control. If that's the case, determine what your household expenses are for 1 month. Multiply that figure by 120. For example, if you spend $1,500 per month the calculation would be $1,500 x 120 = $180,000. The result of this calculation gives you a ballpark idea as to what it could cost your family to live month to month for the next 10 years. If you're a part of a two-income household, figure out what percentage of household income you bring in per month and shoot for coverage for the same percentage of the expense calculation. For example, if your 10-year household expense calculation comes out to $400,000 and you bring home 60% of the income, you'd try to get $240,000 worth of life insurance ($400,000 x 60%).

• Determine the amount you can afford. You've probably looked at your budget for every last dime you can (maybe even for things other than life insurance). But, if you haven't visited those numbers in a while, it’s time look again. Are there any changes that can be made to free up a few extra dollars a month? Add everything available on a month to month basis up and make note of it.

Now that you know how much insurance you need and how much you can afford to spend, it's time to go shopping… for life insurance.

• Talk to a/some professional/s. I know that there are plenty of places online that promise you great (and fast!) term-life insurance quotes, and for the most part, they deliver in many cases. However, your situation would benefit from talking with an independent (non-captive) life insurance agent. I know, I know… "non-captive". A non-captive agent is licensed with many different life insurance companies, not just one. Why is this important for you? A few reasons, actually.
• Different insurance companies have different ratings for certain health conditions. A good agent will know where to check first for the most competitive quote based on your health history. A "captive" agent will only represent one insurance company and won't be able to do much of anything to change the quotes.
• A great agent will advocate for you during the underwriting process. For example, a para-med exam comes back with some borderline numbers. The agent can lobby the insurance company on your behalf to try and secure you the better rating. As amazing as it sounds, I've seen it done multiple times.
• Your premiums would be the same if you use an agent or do it yourself. You read that right. If you were to apply for coverage online for the same insurance policy with the same insurance company as you do with an agent, if all of the submitted information is the same, the quotes will be too. Using an agent doesn't cost you a thing, plus you get help throughout the process.

• Check with any groups you belong to. Many clubs and organizations offer term life insurance at a discounted or group rate. If you're already paying dues to belong to that group, you might as well check and see if there is a life insurance benefit that you can take advantage of.

Let's say you do all of that and it's still not working out. Now what?

• Check with your employer. It's pretty common these days that employers offer either a flat amount of life insurance for their employees, or a multiple of their earnings. Occasionally, there are opportunities for employees to purchase additional coverage (up to a certain amount) through an additional payroll deduction. If they don't offer additional coverage, they might be willing to look into it if they know there is interest.

• Check with your employer, again. One of the biggest drawbacks of life insurance provided by your employer is that the coverage stops when your employment stops. However, some life insurance policies are "portable". That means you can continue paying for the policy after you no longer work for your employer. It's worth checking to see if this option is available to you.

• Use employer provided insurance as a bridge to personal insurance. Like I just said, employer provided insurance isn't ideal for a few reasons. Sometimes, however, it's all you can get your hands on. If you've met with an independent agent already and know that you've got to get some things in order (health and/or finances), use your employer provided policies to get you to the point in time when you can purchase your own policy.

Life insurance, as you know, is an important piece for a financially stable family, no matter what income level they're at. I hope that these suggestions can help you and your husband, Beth. Let us know if you've got any follow up questions we can help with.

Now, I'm going to go check out the punch bowl and see if we can't liven this party up.