For all of you who don’t know, this month is life insurance awareness month. Because of this, there’s been a deluge of articles and posts about life insurance–why you should have it, who should have it, how much you should have, and on and on and on. I’ve written a few times about the topic, once about the basics of why I think it’s important, another time about why people shouldn’t get it (or at least why they think they shouldn’t), and also about when whole life could be a better choice than term.
I’m purdy passionate on the subject, and I’m also passionate about my life insurance company: Northwestern Mutual. As life insurers go, they’re by far the cream of the crop when it comes to financial strength, options available and customer service. I did my internship with Northwestern Mutual a few years back and learned a lot about life insurance that I never would have learned trying to tackle the flood of information on the Internet.
For example, that not all life insurance companies are equal, and neither are their policies.
There are two types of insurance companies: mutual or stock. A mutual company is owned by its members, while a stock company is owned by unaffiliated shareholders. Which means that because I own a policy with Northwestern, I’m a part-owner of the company.
Not only does that mean that it’s in the company’s best interest to satisfy its customers rather than indifferent, greedy shareholders. It also means I get a slice of the pie when things are going well in the form of a dividend, which goes directly toward my premiums, meaning my monthly payments have actually progressively gone down over the last three years.
Introducing My Term 80 Policy
When you’re looking at what type of term policy to get, most experts are going to tell you to go with a 20, 30 or even 40-year term. The benefits of doing so are that you’re locking in at a specific rate for a long period of time. But there are a few life insurance companies out there, generally the more financially stable ones, that have what’s called a guaranteed annually renewable policy.
The way that it works is that instead of locking in to a level premium for a set amount of time, your premiums start out lower and increase over time until, like in my case, I reach age 80. For example, here’s a comparison of a 20-year level premium policy and my annually renewable Term 80 based on my current age and health (p.s. the dividend on the annually renewable starts immediately while it doesn’t start on the level policy until year 10).
But I don’t need a term policy until age 80
Yeah, neither do I. But here’s the deal. When I crunched the numbers, the point where the total cost of each policy intersects isn’t until year 13. Between now and then, I’ll probably be making some sort of changes to my policy, whether it’s adding to the benefit, or maybe even converting some of it to whole life.
So why do I have this policy? It’s all about options.
I have a friend who, at age 22, was suckered into a 10-year level term policy. It was the cheapest option available, so he went with it. Six months later he was diagnosed with a rare genetic blood disorder that causes abnormal blood clots. You wanna know what that means in terms of life insurance? As soon as he turns 32, his policy is up and he’s completely uninsurable.
Pretty scary for someone whose wife just had a baby. If he had the term 80, that policy would get crazy expensive over time, but at least he’d have something.
Another reason why I did it is because I honestly don’t know what my financial situation is going to look like 20 or 30 years from now. Hopefully I’ll have enough assets to preclude the need for term insurance, but what if I don’t? The whole idea behind risk management is to manage as many risks as you can.
Again, it all boils down to options. And hey, in 13 years, I’ll be 41. If I want to drop the policy or switch to a 20-year level one at that point, I’m free to do it. And if I do it before then, hey I saved money!
From what I’ve seen, most people make changes to their insurance policies within the first 5-10 years, so why not save the money up front and give yourself more options down the road?
Whoa There. Why the Humungo Benefit?
$1.5 million is a lot for someone in my situation. When I bought the policy, we didn’t have any kids or any assets. The reason why I did it was to lock in the lower rate. You see, insurance companies base your premium on your age and your health. Currently, I pay about $65/month for my policy. If I were to get that same policy today, it’s $92/month. Because not only am I older, but I guess that freshman 15 (times two) sometimes happens after you graduate from college too.
And while that doesn’t necessarily save me all the money I spent over the last couple of years, it again gives me options, just in case something happens that makes it impossible for me to increase my benefit when we do have a litter of kids running around. I’m a big believer in insurance in general. The last thing I want is to leave my wife and kids high and dry.
Other Awesome Features
Another reason I love this policy is that it has a disability waiver on it. It costs a bit extra, but basically, if I become totally disabled, the company covers my premiums while I’m out of commission. If the disability is determined to be permanent, they automatically convert my term policy to a whole life policy and I start accumulating cash value without having to pay a dime.
The second is that if I do want to convert to whole life insurance in the future, I can do so without having to prove that I’m insurable. So if I am diagnosed with diabetes, cancer or whatever, there won’t be any questions asked if I want to make the switch.
Of course, that second feature most likely isn’t for everyone, but again. I like options 🙂
Why Can’t I Find Quotes for Northwestern Mutual?
Another thing I like about Northwestern Mutual is its exclusivity, meaning that while Northwestern Mutual agents can sell just about any other company’s policies, only they can sell Northwestern Mutual policies. In some ways, I think that keeps the relationship between insurer and insured more relevant. A Northwestern Mutual agent wants you as a customer for life (they also do investments), so that makes them a lot less likely to screw you over on your first transaction.
Are there shady agents out there that work for Northwestern? Sure. But when I attended one of the company’s annual meetings and met hundreds of other agents, I was overwhelmingly satisfied by the caliber of people I met. And if you’re still not sure about it (I don’t blame you), you can always use mine 🙂 Just drop me a line.
How are you celebrating life insurance awareness month? 🙂