Thread by @BowTieWriter

I'm about to be a sexy-as-hell Millennial and talk about an overview of LIFE INSURANCE.

Strap in for a thread.

DISCLAIMER: I work for a company owned by a life insurance company. I do not directly sell life insurance; I'm not trying to sell you anything here. This is more of a PSA, because insurance can be very very murky and opaque. I hope to dispel some of that.

People typically encounter insurance in two forms: car insurance, and health insurance.

Car insurance isn't too bad, but the terms can be opaque.
Health insurance is a goddamn dumpster fire I'm glad my company doesn't touch because eeeesssh that makes me squeamish.

GOOD NEWS: Life insurance isn't as complicated (or expensive) as either of those things! At least, for those in my age cohort. Also, not smoking is a huge perk. For that matter, statistically, so is being a woman. You get better rates. Statistics!

I talk about this every now and again because I'm now in my 30s, and every few years I see someone from high school who has had a spouse die and they go SHITSHITSHITSHITSHITSHITSHIT and make a Gofund me.

That situation is tragic and awful. I hope it never happens to you.

The thing is, life insurance is a financial product literally designed for this situation. If someone dies unexpectedly, there are costs and a loss of income. Life insurance is designed to help mitigate that.

So. Let's talk the basics.

First, MYTH #1: Life Insurance is expensive and you need a full time job.

Absolutely not true. A lot of benefit packages COME with life insurance, but that's actually because life insurance is cheap*

*for people in their 20s and 30s. Premiums increase as you get older.

How cheap?
You can get a really good benefit (six figures or more) for less than you pay for Netflix each month*

*again, depends on age, health. I'm talking to folks in their 20s or 30s because they're both the population that could use it most, and who knows it least.

The most basic term you'll hear tossed around is TERM LIFE.

Here's what Term Life Insurance is:
You pay a premium, say, $15 a month for a certain benefit, say $100,000. The "term" comes from it lasts for a certain time period, or term. A typical one is 10 years.

Basically, you pay $15 a month every single year for those 10 years. If you die, your beneficiary gets paid $100,000.

(It's been awhile since I was working directly with our quoter software, so these numbers are ballparks. I think I pay an extra $6 a month for +100k in life insurance coverage at work).

For younger folk, life insurance is REALLY that cheap.

"Mike, what happens if I pay that premium every month for 10 years and I don't die? I just wasted all that money! I got nothing!"

Uhm. I mean. The good news is you didn't die? That counts for something, I hope?

EVEN THEN, there are actually other products in place. Some insurance companies have a "return of premium" policy. Basically, you pay your premiums, and then at the end of your term you get a lump sum of all of those premiums you paid returned back to you.

(The company makes money in those policies because they invest your premiums and they keep the interest they returned on those policies).

A basic rule of thumb: if you have a young kid or a house, you should have life insurance enough to pay off any of those major debts, or at least enough to cover several months of rent.

What these products sell is *security*. If the worst happens, it's one less thing for a bit.

(Incidentally what my current company sells is "Last Expense" insurance. It's smaller policies, typically 10-25k, that are literally designed to help pay for funeral expenses).

(Security, but from a different angle).

A lot of people don't start thinking about those needs until they're older or their kids are older. And, statistically, that works out. But if you start thinking about life insurance when you're in your 50s or 60s, rates are a LOT higher.

The other thing is that in those situations, if you're older your house is probably paid off and you don't have toddlers to support. Statistically, anyway. The worst case scenario, while not great, is not as kneecapping as it is if you're in your 20s and your spouse dies.

The other thing about life insurance is if you don't like your policy? You can just stop paying your premiums. Your policy lapses and you move on with your life. It's literally easier than cancelling a gym membership.

Okay, let's talk about a common variation you might see. Policies can come with "riders" - DnD folks, think of these as your special feats.

Other folks. Um. These are your special options?
Here's a couple common ones.

The MOST common is "Accidental Death Benefit," sometimes just called an ADB Rider. Here's what this rider means: if you die unexpectedly in an accident - most commonly a car accident, but any sort of accidental injury -you get extra payout.

So if you have a 100k policy with an ADB rider, and then you die in a car accident, your beneficiary would get a 200k payout.

Weird actuarial fact: several ADB riders also have payouts if you suffer grievous injuries. Somewhere, an actuarial had to determine what % of face to pay out if you lost your thumb versus your leg.

Weird Statistics in Action.

Another common rider: Accelerated Death Benefit or a Dread Disease Benefit.

This one. I mean, it's also for a shitty situation. If you get an illness (cancer, commonly), this kind of rider pays out your policy before death so you can pay medical bills.

Now whenever you start talking anything related - even tangentially - to insurance + healthcare, people get really defensive and that's good because our system is shitty.

But from the life insurance side, most companies pride themselves on paying claims FAST.

Because they know people are dealing with a terrible, difficult situation, and they want to make it possible.

(Also, a lot of state laws regulate how fast they have to pay out, but from our claims people they sincerely are wanting to help people in a rough time).

Point is none of this six week dithering and then rejection like you get for health insurance.

There's not really a lot of rejection that happens. Did they die? Was their policy in force? Cut the check. They monitor for fraud, but a LOT less bullshit than health insurance.

"But Mike, you talk about Term life. Are there other insurance products out there?"

WHY YES THERE ARE, I'm so glad you asked. One thing they might try to sell you alongside life insurance is an annuity. Here's what that is.

An annuity is a string of payments. For example, you might pay a premium every month, but then when you turn 65 you start getting paid $1000 a month or whatever your payout amount was. It might go for 10 years or just until death.

Don't get me wrong, I think annuities can actually be great, but that gets into retirement planning and it's a very different product.

(but they are cheaper if you purchase them younger)
I only mention it b/c annuities are sold alongside life insurance sometimes.

There are other life insurance products. There are a LOT of variations. One other common class of life insurance is "Whole Life" insurance. Basically, you pay your premium, and your coverage lasts for your entire life.

It's a bit more expensive, and your premiums keep going.

There's also some insurance products that also accumulate wealth by investing your premiums in indexed funds. Others that switch over to an annuity when you reach a certain age. There's the Return of Premium policies I mentioned.

All of these other products can get EXTREMELY complicated and nuanced. Some of these are targeted more at people who, well, are richer. If you care about "Reducing your pre-tax income to increase long term wealth accumulation" I mean, go for it.

For everyone else?

As complicated and as opaque as the more nuanced financial life insurance products can be, you can never go wrong with a basic term life insurance. ESPECIALLY if you're younger, because it's dirt cheap and young families really need the coverage the most.

"But Mike, how do I actually BUY Life Insurance?"
Great question!

Generally speaking, life insurance is sold through AGENTS. Agents get paid only on commission and work sort of like independent businesses.

They must be licensed to sell insurance in the state they are operating, and they do generally have relationships with the company they sell with.

Google "Life Insurance Agents near me" and you'll get a lot of results. Call em up, see what they say.

If you want a script, here's one:
"I'm, __age__ looking to buy a 10 year term life insurance policy with ADB. I was wondering if we could meet to go over it in more depth and you could answer my questions."

An agent might be able to give you a quote over the phone, but you'll still have to sign paperwork in person anyway. I'd say meet up in person.

If your agent isn't clearly answering your questions or is just trying to really upsell you? Walk. I assure you there's many more life insurance agents out there who are willing to work with you and sincerely help you navigate the landscape.

"But Mike, do I have to go to the doctor and get all sorts of tests?"

That... really depends. Generally, the older you are or the larger your policy, the more underwriting attention your policy needs.

(The underwriting department is the department who takes a look at your specific case and determines the rate they are charging is such that statistically they won't take a loss. A 50k policy is small potatoes. A 10m policy? They'll look at a LOT closer.)

Sometimes you just need a simple phone interview and that's it. For younger people purchasing (relatively) smaller policies, that might be all you need.

FUN FACT: Women generally get lower premiums because women statistically live longer.

There is one kinda weird exception: Montana.
They passed a law that says you can't underwrite on sex.

That's... well meant. But in practice that means in choosing between the rate for women or men, a lot of insurance companies just give you the larger rate.

Good job Montana!

Anyway. That's the basics. I hope this overview is useful. If you have any questions, feel free to ask away and I'll answer what I can.

If you have young kids or just bought a house or w/e, those are the circumstances that can benefit the most from that security.

Hey @threadreaderapp unroll.

@nickinsussex this might help.