Journey to Life Insurance Part 1: Why Do I Need It? - The Broke Professional

Journey to Life Insurance Part 1: Why Do I Need It?

How it feels to have life insurance

Insurance companies make a whole lot of money.  That’s because literally every adult in the country has to deal with them.  Everyone with a car needs auto insurance.  Everyone with a mortgage needs home insurance.  It’s safe to say that most Americans will have one of these two at some point in life.  There are many other common types of insurance out there, like renters insurance and disability insurance.  And also some not so common ones, like ghost insurance.

What is the value of insurance?

To be perfectly honest, for the longest time I had no idea what the purpose of insurance was.  I just thought it’s something you’re mandated to pay every month to have a car.  I didn’t realize what value that money is bringing the customer.  But after reading about insurance from various sources, it is actually surprisingly simple:  Insurance is simply a transfer of risk from one entity to another.  For a price of course.

Driving a car, for example, is a risky activity.  Most drivers don’t regularly get into accidents, but they do happen at some point.  And they can be expensive.  Fixing a damaged car can be pricey.  Paying medical bills for injuries sustained in a car accident is expensive.  Most people don’t have enough money in the bank to cover an accident where their car is totaled and they have to spend a significant time in the hospital.  An incident like this would typically wipe out most people’s savings accounts and leave their lives in ruin.

This is where insurance companies come into the mix.  They offer to take on that risk in exchange for a certain amount of money.  The process of determining how much money to charge the customer is called underwriting, and it takes into account many things including age of the driver, driving history, type of car etc.  All these factors play a role in determining who is accident prone or not, and the insurance company will charge accordingly.  So essentially, insurance companies provide peace of mind and financial security in exchange for a set amount of money, which can vary between companies so it’s a good idea for the consumer to shop around.

Is life insurance worth it?

Car insurance is pretty easy to understand, but what about life insurance?  It still comes down to the same concept of transferring risk.  If someone’s death will potentially leave others in financial distress, the life insurance company will take on that risk.  Talking about death is by definition a morbid topic, but it needs to be done in a subjective manner when dealing with life insurance.  When someone dies, it is a very emotionally distressing time for family and friends.  And if that person who died had dependents, then it can become a financially distressing time as well.  If someone with life insurance dies, the insurance company will provide a previously agreed upon amount of money to the family.  This can be an enormous help during an especially trying time.

Life insurance gets a bad rap because it’s usually associated with sleazy salesmen and commercials marketed towards seniors.  But it shouldn’t be that way.  Anyone with dependents should seriously consider getting life insurance, and none of that whole life policy nonsense.  In my opinion, insurance products that include investments should not be considered.  They are usually laden with fees and take away money from where it should be going into: insuring your life.  There are plenty of ways to invest on the cheap such as your company 401(k) or Vanguard mutual funds.  Many of these insurance/investment products are difficult to understand as well, and that’s always a red flag when it comes to financial products.  So stick with a set insurance amount for a set term.  Simple and easy.

With me having a wife and 2 year old son, I figured it was time for me to get serious about this life insurance thing.  I’m actually probably overdue, because if something did happen to me, my wife and son would be in a tough spot since we rely on solely on my income at the moment.  So I decided to buck up and get the ball rolling by getting a quote.

Step 1: Get a quote

Where does one buy life insurance?  Pretty much all major insurance companies offer life insurance, and there are some companies that specialize in life insurance.  I heard a lot of good things about a website called Quotacy, so I gave it a shot.  And I’m glad I did, because it made the first step to getting life insurance so easy and smooth.  You can get a very good quote estimate in a couple of minutes without giving up any personal information.

How does the website work?  And how did it determine what rate I should be charged?  What companies were a good match for me?  I know this is a killer cliffhanger, but tune into Part 2 of this post to find out!

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Comments

  1. As someone who works in health insurance I’m disappointed you didn’t mention it at the beginning of the post 😉 But I have known about Quotacy for some time now and I really like their product. I highly recommend people check it out and see what sort of rates they can get.

    • Ha car insurance is easier to understand anyway. Yeah I’ve had a great experience so far with them. I should have my policy wrapped up in about a week form now, which is pretty good since I’ve heard life insurance sometimes takes months to get done.

Trackbacks

  1. […] Part 1 of this series, I wrote about why anyone would need life insurance and why I felt this was the […]

  2. […] might be helpful for some.  This is the last post, so if you need to catch up please refer back to Part 1 and Part 2.  Enjoy the exciting […]

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