Money Rehab with Nicole Lapin - How to Set-Up a Life Insurance Policy (and Why You Need One)

Episode Date: September 23, 2021

It’s never fun to talk about life insurance, but it’s a conversation you need to have for your family’s sake. Take a deep breath, and listen to Nicole’s advice.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never do it. You think the whole world revolves around you and your money.

Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. It's never fun to think about life insurance.

There is not going to be a day where you think to yourself, you know what? The sun is shining. There is not a cloud in the sky. I was gonna go to the beach, but you know what? It feels like a perfect time to figure out my life insurance policy. Nope, that is not going to happen. But you're going to need to make it happen because life insurance is super important. Today's Money Rehabber is ready to

have the life insurance talk. Here he is. Hey, Nicole, this is Derek. And my question is, what type of life insurance policy should me and my wife get? We're both 37 years old, newly married, only been a couple years, and we're looking into buying our first home. We do have two kids of mine come from a previous relationship with me. So I'm just curious because, you know, there's several different types of life insurance policies. Thank you. Well, good for you, Derek, for having these conversations with your wife. I absolutely love to hear that. And I totally understand why you would want to phone a friend for this big life decision. Life insurance is viewed way differently from other kinds of

insurance like car insurance or home insurance. Those insurance products are pretty much there to protect you in case of an emergency or disaster. Life insurance is a different beast that people often view instead as an investment. To tackle your question, I'm going to first give you the lowdown on different types of policies, and then I'm going to give you some tips on how to decide which one is right for you. Basically, there are two types of life insurance, term life insurance and whole life insurance. Term life insurance gets its name from the fact that the policy is set for a certain length of time or term. A strange aspect of term policies is that if you live longer than your predetermined term, you will need to renew or extend your policy

and rates will likely be higher the more times you extend. So the process of putting together a term policy is a little more daunting because you have to crank up that Paula Cole song. Okay, that won't quit my day job. But think of how much time you have left. It's morbid, but you're a big boy. And this is what you have to do. I know, I told you this wouldn't be fun, but I promise, stay with me. Term life insurance has a lower annual premium, but a higher payout for your beneficiaries in case of your death. For example, a $1 million policy could cost just $500 a year. If you die after 20 years, your heirs will get a million bucks for you paying just $10,000. The thing is, beneficiaries rarely claim these benefits. So if you go with a term life insurance

policy, you need to be crystal clear in your will how beneficiaries should claim your policy. Consider this a spoiler alert for another episode that I'm working on about wills, but I'll save that super fun topic for another time. Whole life insurance, on the other hand, does not have a predetermined term and gives you coverage until you die. Whole plans have higher premiums, but also have a cash value that goes up at a fixed rate. This is the type of life insurance that people view really as an investment vehicle because you can borrow from it whenever you want and it grows tax-deferred, just like a 401k where you don't have to pay taxes as it grows, but you do when you take it out. And it gives you dividend checks in retirement. Critics of whole life insurance as an investment

say the guaranteed rates of return aren't much more awesome, if at all, than what you would get from the stock market. Proponents say that the stock market, though, doesn't offer guaranteed rates of return. And it's another way wealthy people who max out their other retirement vehicles can go on to have their money grow tax-deferred or further minimize their estate taxes. At a top level, those are your options. But which one is right for you? Here are three things you should consider. Number one, how much can you afford? No surprises here, right? You need a policy that you can consider. Number one, how much can you afford? No surprises here, right? You need a policy

that you can afford. According to our friends at Policy Genius, the monthly cost of a life insurance policy depends on factors like your age, your health, the term length, your gender, and the death benefit amount on the policy. A healthy 35-year-old man getting a term life insurance policy can expect to pay about $30 in monthly premiums for a 20-year $500,000 policy, while a 35-year-old female with the same term length and policy may pay $25. For whole life insurance, a healthy, non-smoking 35-year-old male can expect to pay about $517 per month for a $500,000 policy. So if you're looking for a cheaper policy, a term policy is probably the best for you right now. Number two, how much do you need? Do you have people that rely on your income? Do you have

outstanding debt or a mortgage? In order to decide which policy is right for you, you need to decide how much you need to leave behind. It's basically a Goldilocks insurance story. You don't want to have a plan that's too small and won't cover your beneficiaries' needs, but you also don't want a plan that's bigger than what makes sense for you. Nope, you want a plan that's just right. Number three, how much do you know? If this is a whole new world to you, you may feel a little overwhelmed. If you're feeling nervous about making the decision, I'd recommend going through a professional who is a neutral third party who can help you make the decision. One of our sponsors, Policy Genius, is one option a neutral third party who can help you make the decision.

One of our sponsors, Policy Genius, is one option for a third party site, but there are definitely many more out there. The good thing about these sites is that they work for you, not the insurance companies. So they don't try to sell you something that doesn't make sense. Now, here's a sneakily important part of the process. Don't fuck it up. I know, not revolutionary advice, but seriously, don't fuck this up. No pressure, right? Most people focus on finding a plan that's a good fit for them. And yes, that is important. But just as important is not making common mistakes that could affect how your policy is executed. For example, if you name a minor as a beneficiary and you die before that beneficiary turns 18, they cannot receive benefits until a

court has appointed a guardian. This gets real messy real quick, not to mention all the silly mistakes that you think people would never make, but they do. Like people keep life insurance policies a secret and then their beneficiaries never find out. Or people forget to update beneficiary designations. So if your ex is still on your life insurance plan, whoopsies, you're buying her and her new boo a beach house. For today's tip, you can take straight to the bank. Once you set up your life insurance policy, set a calendar reminder to review it every year. This will help you remember to adjust your policy if needed because shit happens. And lastly, give yourself a pat on the back for facing a dark

financial topic head on. I'll say it again. Life insurance is the last thing any of us want to think about. But think of it as an act of kindness for your loved ones. Do this now so that your family doesn't have to shoulder that burden. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy.

Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it

together and get it all.