How to Set Up Your Personal Life Insurance Program

As I am out talking with employees about their life insurance, I get asked a lot about what type of life insurance people should buy. Many people think that you should buy just one type of life insurance and ignore the rest.

But I actually think there are four different types of life insurance you should take advantage of to round out your life insurance program. In this article, I go through each one and my reasons why.

1. Basic group term life insurance Basic group life is an amount of life insurance that ranges most often from $5,000 to $50,000 that your employer buys for you. Usually they pay for it but sometimes they ask you to pay a nominal amount. In any case, you should always take it even if you a pay a little for it. Basic group life can sometimes be for your family members too. Every group is different. Obviously, you have to work for an employer that offers this as a benefit. If you work for yourself you are out of luck.
2. Supplemental or voluntary group term life insurance The option to purchase additional group term life insurance is sometimes available to you as an employee. If you enroll when you are first eligible, you can usually avoid medical questions. This is important if you have any kind of medical problem. Additional group life is employee paid. It can range in amounts from $10,000 to $500,000 in a lot of cases. The younger you are, the more you should take because it's usually pretty cheap. If it's an issue aged plan where it always stays at the age you get in at, then all the better. But if it's an attained age plan, those typically increase in rates every 5 years which will at some point price you out of it..
3. Individually owned whole life insurance I recommend everyone have enough life insurance in place to pay for a funeral. In my experience, a good amount to use right now is $10,000. But, you probably won't die now. So, I always suggest getting an amount of whole life equal to what a funeral might be when you die using age 100 as a guide and taking into account inflation. I'd expect the cost of funeral today to cost twice as much in 25 years. If you are 25, that means you've got 25 times 3 or 75 years. Ten thousand double, twenty thousand doubled and forty thousand doubled would be $80,000 in whole life insurance. I also recommend whole life insurance and not universal life, variable universal life or indexed universal life. The reason is because those policies aren't fully guaranteed.
4. Individually owned term life insurance Above and beyond the top three types of insurance, it's a good idea to buy your own term life insurance for as long a period as you can lock in and for as much as you can comfortably afford. It takes a lot of money these days just to survive and you probably won't overestimate your needs. You'll want to cover your debts at least and then any amount beyond that could be used to provide an income to those you care about or to help your kids through college if that's important.

You'll notice that two of my life insurance types are group life insurance plans and two are individual plans. While group life insurance plans are good, the reality is that you'll probably outlive them (as well as your term insurance) and not only that, the company can change or terminate them at any time.

As valuable as group term life insurance is, chances are you will never use it. That's why you need to have some individually owned life insurance as well.

If you have any questions about why I think they way I do about life insurance, or want to add anything, feel free to use the comments below.