Recession-Proofing Your Life Insurance

This is a guest post from Joe Taylor Jr. Taylor is an internal business consultant for a Fortune 500 company, who also writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

I remember an evening a few years ago, when the company I helped start had to close its doors. I'd sunk my entire savings into building a business that had thrived. As soon as bombs started falling on Baghdad in 2003, however, my largest client cancelled its contract and two other big customers totally shut down. Of course, my creditors didn't care about the reasons I hadn't been receiving payments on invoices we'd sent. They just wanted to get paid themselves.

My wife and I ran down the list of changes we'd have to make: downsize to a smaller home, cut the cord on cable television, maybe even cancel my life insurance policy. While we had to cut plenty of budget items to the bone, I kept scraping together a few bucks every week to keep paying that term life policy. After all, I joked at the time, it meant that I was at least worth more dead than alive.

Staying the course through tough times
Those were scary times. I'm in good financial shape now, but the recent economic downturn has many of my friends in the same place I was that night. For most Americans, the cost of maintaining a term life insurance policy amounts to the same price as a meal for two at a casual restaurant, maybe less. And it's easy to consider dropping life insurance when you've been laid off or you're facing another kind of money crisis. It's not like things can get any worse, right?

In fact, they can.

Economists from Columbia University and the U.S. Federal Reserve examined death statistics and found that laid-off workers face a higher mortality rate than colleagues who remain steadily employed. Over twenty years following mass layoffs, discharged workers were, in many cases, up to twenty percent more likely to suffer medical or mental problems that led to their deaths.

Why staying current on term life insurance saves money
Of course, if your life insurance is tied to your job, you typically need to establish a new policy. Many financial advisors urge clients to maintain a term life insurance policy in addition to coverage offered as an employment benefit. This way, you can maintain coverage and enjoy consistently low monthly premiums. In addition, you won't have to subject yourself to new exams when you change jobs.

I've been able to supplement my term life coverage with employer-provided insurance over the past few years, secure that my primary policy can care for my loved ones regardless of my employment status.

Getting healthy can help cut life insurance costs
I'd like to say that I kept the same insurance provider throughout the past decade. Instead, I made a switch when I learned more about how term life insurance providers rate risk. If you smoke, if you're overweight, or if you lead a sedentary lifestyle, you may feel more of a pinch when you pay your monthly premium. I've never smoked, but after my wife started dragging me to the gym a few times each week, I found a life insurance provider online who was able to shave ten dollars a month off my payment. It's a small reward for doing the things I should have been doing all along to take care of myself.

If you're thinking about canceling your life insurance, what are some other items in your household budget that might make more sense to cut? Are there ways you can kill two birds in one stone, by spending less on unhealthy items and keeping your premiums intact? Tell us about your challenges.

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Nicole
Nicole

Powerful column! I’m definitely glad that we got our term life insurance separately from our employment. I’d rather have the 30 year locked rate from when I’m young and healthy than have to get re-examined at older ages when I may have more pre-existing health conditions, especially if that time coincides with a job loss or company closure. I hadn’t really thought about it that way before, but it makes perfect sense, just like not putting your retirement money in company stock. It’s spreading out risk. We actually use the same company (Liberty Mutual) that we get all of our… Read more »

ami | 40daystochange
ami | 40daystochange

this is a difficult issue when you’ve lost a job and cutting recurring expenses is so critical. But it may be worthwhile to explore whether life insurance is necessary – or if the amount of coverage you have is appropriate. I’ve had friends with no dependents who paid for life insurance policies – and friends whose children/dependents had long since grown up and gotten jobs and households of their own who continued to pay for life insurance coverage. Just sitting down to think about each important monthly outlay might yield some opportunities to save.

Evolution Of Wealth
Evolution Of Wealth

Does your scenario make a case for cash value life insurance? If your policy is set up properly you could let the policy pay for itself for a short period of time and some policies even allow for you to make up these payments at a later date. I should probably stress that it is extremely important who you work with so that the policy is set up properly and you are aware of how having the policy pay for itself will affect it.

Another example of the added flexibility of cash value life insurance?

cathleen
cathleen

I think it is important to sit down and have the “difficult talk” about life insurance. My husband and I have no children. I know what I would feel safe and secure with money-wise if anything happened to him. Which is very different than what he would want. I’d want to pay off our house and have enough money in the bank where I would not HAVE to go out and work. My father died at a young age and thank God for the insurance money. My mother’s grief was hard enough to work through without adding financial stresses to… Read more »

Ben
Ben

Interesting article I guess, but am I the only one who recognized that this is a commercial? Sorry, I like this blog but these posts turn me off.

nobody
nobody

Life insurance is mostly an easy way to suck money out of you for insurance companies. There are far superior ways to invest your money without paying so many fees. Think about it.

Insurance Answers
Insurance Answers

As a agent myself, I’ve run into many clients who have wanted to find ways to cut back on expenses as things have gotten tight in their lives. As you stated in this well written article, I highly encouraged them to keep their life insurance at all costs. I had them look at other ways we could save them money on their other insurance policies – like raising their deductibles.

Thank you for sharing such sound advice!

Saundra
Saundra

It is easy to dismiss all insurance discussions as a sales pitch. I am a financial planner – no sales and no commission. My only interest is having people understand their financial choices and how to integrate wise money management into their daily lives. It is crucial to think before you make any decisions regarding cancelling life insurance. You must first: Identify whom you need to protect (who relies on you for income) Determine what they would need for living expenses (include mortgages if you are able) What sources of income are available if you were no longer in the… Read more »

Jimmy Kibler
Jimmy Kibler

Great article. I also believe that in almost all cases term life insurance is the way to go especially if the family is young.My wife and I have 20 year term policies.

Nicole
Nicole

I don’t understand how this is a commercial. It doesn’t advocate any specific insurance company… the links are to other GRS links. No, not every person needs life insurance, but term life insurance is important for people with young dependents, for married/coupled people when one is dependent on the other for income or possibly homemaking (since homemaking services will likely be replaced with paid services at a higher cost), or those with special needs dependents of any age. It is very unlikely at age 30 that a person will leave enough of an estate to raise a small child upon… Read more »

Steven
Steven

On a whole, life insurance is there to protect your dependents from your untimely death (but not suicide as I think the policy excludes it, just a thought). If you have a significant other and children who depend on your paychecks, then it’s something you should definitely think about. But, if you’re single or you have your finances in order and have a contingency plan for your significant other when you’re gone, then it might be unnecessary. In the end, insurance is a business, and statistically they profit. But, I have a problem with two things you said. 1) “Economists… Read more »

Tyler Karaszewski
Tyler Karaszewski

You’d be better off putting the premiums into a big savings account — then you can use it for other things in the future if your situation changes (imagine 30 years on your children have grown up and moved out and you’re divorced or something). The only reason that term life insurance policies are so cheap is because insurance companies know that you’re really pretty unlikely to die during the term they cover. Personally, I’m willing to gamble that I’ll actually live to see 50, and then I’ll have saved enough on insurance premiums to take a nice vacation to… Read more »

Nicole
Nicole

The whole point of insurance is to insure against high-cost low-probability events. The low probability makes it cheap. The high cost combined with risk aversion makes it worthwhile for the buyer. Both the insurance company and the buyer are better off when the market exists. I am very glad that for a (relatively) small annual fee if my husband and I die our relatives will only have to care about our child’s emotional needs and not expenses, and I am definitely willing to pay more than the actuarially fair amount for that peace of mind. If you and your spouse… Read more »

Evolution Of Wealth
Evolution Of Wealth

@Tyler “You’d be better off putting the premiums into a big savings account – then you can use it for other things in the future if your situation changes”

Sounds like you are describing whole life insurance.

@Nicole

Suicide is usually only a 2 year exclusion. After the 2 year contestability period it’s covered.

Dustin Taylor
Dustin Taylor

I was wondering about this actually… how did you get $10/month off just by going to a gym each week? How do you prove this? If so, where did you get it as I would LOVE to get this kind of discount for things I already do!

almost there
almost there

Dustin, I think people get a discount based on lifestyle. I earned a super select term rate based on being in good health with nonsmoking, non risk taking lifestyle (didn’t plan to parachute, bunji jump, scuba dive, or even go to a foreign country for the first two years the policy was in effect). A thorough physical tells the underwriter if you are a good risk or not.

Leah
Leah

Dustin, I’m not sure how his life insurance specifically does it, but I get $20 a month from my health insurance for visiting my gym 12 times. Since a gym membership is just $25, I figure that’s a darn good deal. I prove it by signing in at my gym; they’ve got a deal with my insurance company, so the gym processes my paperwork and mails me a check each month. It’s a pretty win-win-win situation for all of us.

Sandy L
Sandy L

I like this article. Although my company has excellent options for term life insurance, I’m regretting not getting a policy outside of work before now. It’s on my 2010 to do list mainly because of the recession. It will be one less thing to think of if we end up without work for some time.

My husband is in his 40’s and a policy at his age is much more expensive than it would have been if we took action 5 years ago.

J Brown
J Brown

This is a great post. The short term gain vs unknown is hardly ever worth it. You’ll never plan on being dead. I did the opposite, I canceled my work policy and beefed up life insurance not tied to work at all.

John DeFlumeri Jr
John DeFlumeri Jr

Plus your survivors receive the proceeds of your life insurance Tax Free!

John DeFlumeri Jr

Benjamin Bloom
Benjamin Bloom

I am a fan of permanent insurance (even though term is appropriate for mot people) and the benefits of it are especially clear during tough times. Please watch the video “Meet the Colemans” at the following address: http://www.massmutual.com/customervoices This story is fantastic and illustrates a point about cash-value life insurance that is overlooked. The Colemans contributed to a Whole Life Insurance based plan and when the company was in trouble, their life insurance saved their business. The withdrew cash, took loans against the policies, and because of this they were able to make payroll and ay expenses. So, permanent insurance… Read more »

Aaron @ Clarifinancial
Aaron @ Clarifinancial

A lot of people pay less for their cable or telephone bills than for an adequate life insurance policy. I think when the author talks about “recession proofing” your life insurance policy, he means to cut those things before you cut your family’s financial security. Especially, as he pointed out (and it’s awesome), the unemployed have a higher mortality rate. @Tyler You’re right, life insurance is really cheap when death is unlikely… I think that’s good news. It’s okay if you are willing to run the risk of an unexpected death, but the ensuing financial struggle is one your family… Read more »

mythago
mythago

Younger folks (the age most of us are when we have young dependents) are much more likely to suffer disability than death – and unlike death, disability keeps costing your family money. Which of course is why disability insurance is so much more expensive than life insurance, even though it’s more necessary.

Eric
Eric

It doesn’t help if you have genetic disorders that prevent you from receiving most life insurance policies.

Term Life Insurance PopStar
Term Life Insurance PopStar

I love hearing real life stories about people understanding the importance and value of life insurance. Life insurance really is a very valuable thing to have that can help protect your family and loved ones. It’s especially easy now to find really inexpensive rates for term life insurance. Many websites will actually provide price comparisons from multiple carriers all on the same site.

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