Insurance Buyer's Guide

The Insurance Priority Stack

If you can't afford everything at once, prioritize in this order:

Health Insurance - Non-negotiable. Medical bankruptcy is real.
Term Life Insurance - If anyone depends on your income (especially with young kids).
Disability Insurance - You're more likely to become disabled than die during working years.
Auto & Homeowners/Renters - Required by lenders and protects major assets.
Umbrella Liability - Once net worth exceeds $500k or you have significant liability exposure.
Long-Term Care - Consider in your 50s-60s if you have assets to protect.

Life Insurance: Protecting Your Family's Income

Term Life Insurance

Best for: Most Families (95% of Cases)

What It Is: Pure death benefit protection for a specific period (10, 20, or 30 years). No cash value.

When to Use:

Young families with tight budgets
Covering temporary needs (mortgage, kids through college)
When you need maximum coverage for lowest cost

Typical Cost: $30-75/month for $500k-$1M coverage (healthy 30-40 year old)

Pro Tip: Buy 20-30 year term when your kids are young. It'll cover them through college graduation and give you time to build assets.

Permanent Life Insurance

Types: Whole Life, Universal Life, Indexed Universal Life, Variable Universal Life

What It Is: Lifetime coverage with a cash value component that grows tax-deferred.

When to Consider:

High earners maxing out all retirement accounts ($200k+ household income)
Business owners needing buy-sell funding
Estate planning for high net worth (multi-million dollar estates)
Special needs planning (lifetime dependent)

Typical Cost: 10-15x more expensive than term for same death benefit

Common Mistake: Buying permanent insurance when you can't afford adequate term coverage. Get enough term first, then consider permanent if it fits your situation.

How Much Life Insurance Do You Need?

Standard Formula:

10-12x Annual Income

Plus additional for specific debts/goals

More Precise Calculation:

Annual income needed × years until kids are independent
+ Outstanding mortgage balance
+ Other debts (car loans, student loans)
+ College funding gap (if not fully saved)
+ Final expenses ($10k-20k)
- Existing life insurance
- Current savings/investments

Stay-at-Home Parent Coverage: Don't skip it! Calculate cost to replace their labor: childcare ($15k-30k/year), household management, errands, etc. Typical recommendation: $250k-500k.

Life Insurance Shopping Checklist

Get quotes from at least 3 different carriers (rates vary significantly)

Check insurer financial strength rating (A.M. Best rating of A or better)

Understand the term length you need (usually 20-30 years for young families)

Look for convertibility option (can convert to permanent without medical exam)

Don't buy just employer coverage - it disappears if you lose your job or change careers

Apply while you're healthy (rates increase significantly with health issues)

Disability Insurance: Protecting Your Paycheck

Sobering Stat: 1 in 4 workers will become disabled before retirement. Yet only 35% have disability insurance beyond minimal employer coverage.

Why It Matters More Than Life Insurance

If you die, expenses decrease (one less person). If you become disabled, expenses often increase (medical care, modifications) while income stops. You're far more likely to need disability insurance than life insurance.

Types of Disability Coverage

Coverage Type	Benefit Period	Coverage %	Best For
Short-Term Disability	3-6 months	50-70% of income	Often employer-provided; covers recovery from surgery, childbirth
Long-Term Disability	To age 65 or lifetime	60-70% of income	Critical protection for serious injury/illness

Key Features to Look For

Own-Occupation Definition

Pays benefits if you can't perform your specific occupation, even if you could work in another field.

Example: A surgeon who loses fine motor skills can't operate, but might be able to teach. "Own-occ" pays benefits. "Any-occ" would not.

This is THE most important feature. Worth paying extra for.

Non-Cancelable and Guaranteed Renewable

Insurer cannot cancel or change your policy as long as you pay premiums. Rates are locked in.

Partial/Residual Disability Rider

Pays partial benefits if you can work part-time or at reduced capacity. Critical for gradual return to work.

Cost of Living Adjustment (COLA)

Increases benefit amount over time to keep pace with inflation during a long-term claim.

How Much Disability Insurance Do You Need?

Target Coverage:

60-70% of Gross Income

Most policies cap at $10k-15k/month maximum benefit

Coverage Strategy:

Check employer group coverage first (often 50-60% of income, capped at $5k-10k/month)
Calculate your gap: What you need (60-70% of income) - Group coverage = Gap
Fill gap with individual policy featuring own-occupation and guaranteed renewable

Don't Rely Solely on Employer Coverage: Group policies often have "any occupation" definitions, can be cancelled if you leave, and may not cover your full income.

Waiting Period (Elimination Period) Selection

How long you wait before benefits begin. Longer waiting periods = lower premiums.

Waiting Period	Premium Impact	Best If You Have
30 days	Highest premium	Minimal emergency fund
90 days	Moderate premium	3-month emergency fund (Most common choice)
180 days	Lower premium	6-month emergency fund and employer STD coverage

Strategy: If you have 6 months expenses saved and employer STD, choose 180-day elimination period. Use savings to cover the gap and save 20-30% on premiums.

Health Insurance Essentials

Key Terms to Understand

Term	What It Means
Premium	What you pay monthly for coverage
Deductible	Amount you pay before insurance kicks in (per year)
Copay	Fixed amount per visit/service (e.g., $30 doctor visit)
Coinsurance	Percentage you pay after deductible (e.g., 20% of hospital bill)
Out-of-Pocket Maximum	Most you'll pay in a year (after this, insurance pays 100%)
In-Network vs. Out-of-Network	Contracted providers cost less; going out-of-network is expensive

Choosing Between Plan Types

High Deductible Health Plan (HDHP) with HSA

Good for: Healthy families, high earners who can max out HSA

Lower monthly premiums
High deductible ($3,200+ individual / $6,450+ family in 2024)
Eligible for Health Savings Account (triple tax advantaged!)

HSA Triple Tax Advantage: Contributions are tax-deductible, growth is tax-free, withdrawals for medical expenses are tax-free. It's the best retirement account most people don't use properly!

PPO (Preferred Provider Organization)

Good for: Families with ongoing medical needs, want provider flexibility

Higher monthly premiums
Lower deductibles and copays
Can see specialists without referral
Out-of-network coverage available (at higher cost)

HMO (Health Maintenance Organization)

Good for: Budget-conscious families, don't mind referrals

Lowest monthly premiums
Must choose primary care physician
Referrals required for specialists
No out-of-network coverage (except emergencies)

HSA Strategy for Building Wealth

If you're healthy and can afford to:

Max out HSA contribution ($4,150 individual / $8,300 family in 2024, plus $1,000 catch-up at 55+)
Pay current medical expenses out-of-pocket (keep receipts!)
Invest HSA balance in stock market (many providers offer investment options)
Let it grow tax-free for decades
After 65, can withdraw for ANY reason (taxed like IRA) or use for medical (tax-free)

Think of HSA as an IRA with Medical Superpowers: If used for qualified medical expenses, it's even better than a Roth IRA. Many retirees have significant medical costs—this builds a tax-free fund for that.

Common Insurance Mistakes to Avoid

Mistake #1: Buying Insurance You Don't Need

Skip these:

Cancer insurance / disease-specific policies (good health insurance covers this)
Life insurance on children (emotional, but rarely financially necessary)
Credit card payment protection insurance (overpriced for minimal benefit)
Flight insurance (your life insurance already covers you)

Mistake #2: Being Underinsured on Critical Coverages

Don't skimp on:

Adequate life insurance (10-12x income, not just 1-2x from employer)
Own-occupation disability coverage
Liability limits on auto/home (consider $500k-1M, not state minimums)

Mistake #3: Relying Only on Employer Coverage

Employer coverage often:

Provides only 1-2x salary life insurance (not enough for most families)
Disappears when you leave the job
Uses "any occupation" definition for disability
Can't be taken with you to next career

Solution: Use employer coverage as base, supplement with individual policies.

Mistake #4: Waiting Until You Need It

Buy insurance when you're healthy and young. Rates increase with age, and health conditions can make you uninsurable. Life and disability insurance lock in rates—buy early!

Your Insurance Implementation Checklist

Review all existing coverage - List every policy, death benefit, disability amount, premiums

Calculate your actual needs - Use formulas in this guide for life and disability

Identify gaps - What you need minus what you have = coverage gap

Get competitive quotes - At least 3 carriers for term life; 2-3 for disability

Read the fine print - Especially disability definitions and exclusions

Update beneficiaries - Life insurance, 401k, IRA - all need current beneficiaries

Review annually - Life changes = insurance needs change (new baby, promotion, mortgage)

Document everything - Keep policy numbers, agent contact info in secure location family can access