Your family is underinsured. This is easy to say, since almost all families in the United States are underinsured. If you were to die tomorrow, your wife would have a tough time surviving on the proceeds of your insurance policy — unless you have a very good looking wife under age 30. making rapid remarriage more likely.
The reason why your family is underinsured is because some commission-hungry insurance salesman has sold you too much life insurance. You don’t need life insurance. You need, or rather your heirs need, death insurance. You die, the company pays. This is term insurance, and salesmen don’t like to sell it. They want to sell you “life” insurance: a “savings” plan, called cash-value life insurance, which will give you your paper money back at age 65. It is grotesquely expensive, incredibly profitable for the insurance industry, and a disaster for the buyer. Price inflation wipes you out.
It is very easy to find out if you are overpaying for your death insurance. In the PDF link at the bottom of this article is a reproduction of the Commissioners 1958 Standard Mortality Table, the uber-conservative table used by insurance companies to estimate life expectancy for members of each age group. Here is how to use it. Locate your age group, and then check the “Deaths Per 1,000” figure. If you want $100,000 of term insurance, multiply this figure by 100. At age 30, for example, you should pay no more than $213 this year for the $100,000 protection you want for your family. If you pay more than 10% above $213, you are overpaying, and really, you should not be paying this much. If they revise the table in a few years, as they should, given the longer life expectancy of Americans today, the rates will drop, but only on new policies. You must check every year with your insurance salesman to see if the new table is out. If it is, convert your policy to a new one which reflects the lower risk. If you have a pre-1958 policy, you are really overpaying; some policies are not automatically reconverted. You are paying on the 1941 table which reflects the life spans of men living in the 1931-41 era. You can still switch your policy. Remember, few agents will tell you when a new mortality table becomes standard. You have to ask. Keep shopping, and never hesitate to switch companies or policies.
Cash-value life insurance — “ordinary life,” “whole life,” etc.–is sold in the name of family savings. You earn something under 3% on your cash-value portion, and only if you hold the policy to maturity at age 65. Meanwhile, the company is earning about 6% on the money you have invested in the policy. Life insurance companies therefore structure salesmen’s commission rates to discourage the sale of term insurance. The difference between a first-year commission for a $100,000 cash-value policy and a term policy can be as large as $1,000: $1,100 vs. $100. No salesman can earn his living selling only term insurance.
(For the rest of my article, click the link.)