Practical tips for buying term life insurance

• Coverage amount depends on needs and assets. Rule of thumb: 7-12x salary, if you have no better guess.

• The most common application is for new parents and a term of 20-25 years is appropriate.

• There are two main brackets – standard and preferred. Most get preferred in my experience.

• Marijuana is legal but some carriers still classify it as dangerous drug use. 

This is the second post of a two-part series on life insurance. Here is the first post.

The primary purpose of term life insurance is to replace critical lost income from an unexpectedly early death, often of a parent with minor children. It’s occasionally useful for other circumstances like a wide age gap between couples (more than 10 years). “Critical income” is not well defined! It’s really whatever you want it to be. The general rule of thumb is 7-12x annual salary and enough duration (term) to last until the youngest kid is through college.  

I do the calculation with more precision, but it’s not uncommon to buy each nonprofit professional parent (for example) $1.5 million for 20 years when the first child is born. It’s better to buy a little more than you think you need. You can reduce the value of the insurance later if you want, but you can’t raise it without going through the process again. Remember that the effect of inflation already reduces your purchasing power of $1.5M to $830k at 3% inflation over 20 years.

The process of evaluating your health, factoring age, classifying you in a bracket and formally offering you a price is called underwriting. There are six or seven possible health classes, but usually there is a preferred and standard.  One needn’t be in perfect health for preferred.  You can have a few of these issues or a few more with standard(1). 

The differences in annual premiums can be substantial for older clients. Below is a table of ages and health categories for males looking for $1.5M in coverage (data from 2023). Females will usually be a little lower.

There will be a standard medical exam conducted in your home. They will ask you about:

• Your medical history (example of the questions here)

• Your past and current prescriptions (they can also see these in national databases)

• Your family’s medical history (parents and siblings, usually)

• Your driving record

• Dangerous hobbies(2)

• International travel plans(3)

Also, please alert the agent if you smoke marijuana. The medical exam includes urine and blood analysis and some carriers care more about this than others. Especially since recreational marijuana is now available in Maryland, the agent will know how best to navigate this, so it hopefully doesn’t impact your coverage and premiums.

In the event of death, the process takes less than a month once the death certificate is available. Make sure you list the right beneficiary! Married couples will usually want each other as the beneficiary – don’t name your children without consulting someone, it can have unexpected consequences. If you want to change while married, you’ll have to get your spouse to sign off until the divorce is complete.

You can shop online but it’s not cheaper than an agent: Policy Genius and Term4sale.com comes recommended. In my experience USAA is good if you are young, and SBLI is what I chose when I bought at age 45. Get an A- or better rated company and do a little comparison shopping, but if you are reasonably healthy and ages 30-50, rates will be very similar. If you’d like an agent, I have some I use. Contact me.

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 (1) Most commonly encountered medical issues when applying for life insurance.

• Minor health issues and medications

• Controlled cholesterol

• Family history of cancer or other diseases

• Dangerous occupations or sports

• Slightly overweight

• Driving history with major accidents

• International travel to dangerous places

• High blood pressure

• Pre-diabetes

(2) Adventure or extreme activities for most life and travel insurance. This varies by insurer. Check your fine print, usually in the “declarations” section. You may want an agent or planner if you participate in one of these.

• B.A.S.E. jumping

• Bull riding

• Parachuting

• Skydiving  

• Fly-by-wire  

• Paragliding  

• Bungee

• Hang Gliding

• Heli-skiing/snowboard

• Wingsuit flying

• Rock climbing without equipment

• Full contact sports

• Mountain Climbing over 9,000 feet (2,700 meters)

• Motor sport or motor racing

• Multi-sport endurance competitions

• Parkour

• Scuba diving if the depth exceeds 131 feet (40 meters)

 (3) Consider waiting to apply if you have upcoming travel plans to a State Department ”Do Not Travel” country and consult an agent or planner.