Episode 178: Logan Sachon on how to buy life insurance

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May 28, 2019

Our guest today is Logan Sachon, an insurance expert at Policygenius who focuses on life insurance.

In this episode, Logan explains to me the types of life insurance, how to select a life insurance company, how to get a quote, and some thumbrules on how much coverage to buy.

After our discussion, Logan emailed me to clarify one thing she said. I asked her the chance of a healthy 35 year old man dying before he retires, and she told me less than 2%. After we spoke she looked it up and the actual chance is closer to 0.65%. Of course, your mileage may vary.

Policygenius is a NYC-based tech startup who goal is to make “insurance shopping faster, friendlier and more transparent for online consumers.” If you are shopping for insurance, you might check out their website: policygenius.com. They have a lot of useful info on their site, and a comparison tool that makes it easy to compare different providers.

HIGHLIGHTS

Will: Hello, Logan. Welcome to the show.

Logan: Hello. Thanks for having me.

Will: So, most pleasant topic. People must love it when they hear that you are an expert in life insurance at Policygenius. Good Way-

Logan: Indeed.

Will: Thanks so much for coming on the show to offer to talk about life insurance. Let’s start at the very, very top. I know about term life insurance, and I have a couple term life insurance policies, and that’s what we’ll spend most the show focusing on. But just to for completeness, give me an overview of what are the main categories of life insurance other than terms. So there’s term and there’s whole, which I really don’t know what that means, but I hope you can educate me, like what are the major categories of life insurance other than term life insurance?

Logan: Sure. So there’s actually two main categories. There’s term, which is a policy by for a set term, and then if you die during that term, your beneficiaries get the death benefit. Once that term expires, your policy’s over. Nobody’s covered anymore. Then the second category is what’s called permanent policies. These are always also called cash-value policies. A lot of people refer to this category as whole life, but that’s actually just one of several different types of permanent policies.

But in general, these are life insurance policies that are designed to last your entire life. They have a cash value or savings component. So, there’s a part of it that’s earning money, and that you can do various things with. There’s complicated rules, but you can access that money. In general, those permanent policies are going to be six to 10 times as expensive as term life.

So that sort of fact is enough for most people to say, “Okay, we’re done with permanent. Let’s go with term.” But there are some situations where it makes sense to consider these more complicated products.

Will: What are those situations? I’ve always wondered that, like what are the situations?

Logan: Yeah, so the first one is if you are a super high-net-worth individual, it’s a way to do estate planning that leaves tax-free money for your dependents. So, I mean, one sort of small rule of thumb is that at this point, I think the estate tax is 11 million a year. So, if you have more than 11 million in assets, this might be an option for you. Another option is if you’re maxing out all of the tax advantaged accounts that you have access to, this might be another place, like safe place to put your money.

Then the third reason is if you have a child that has special needs, so someone who is going to need your financial support and significant amounts of it throughout their entire life and your entire life. So, term life insurance, it’s designed to expire at the time when your kid’s grown up. They’re on their own. They don’t depend on you anymore. If you have a child that is going to depend on you, then it may make sense to purchase a policy that will not expire.

Will: Okay, so going through some of those first is… I guess I wasn’t 100% sure of this. So, insurance benefits then are tax deductible as a general rule?

Logan: If that they’re tax-free.

Will: Tax-free? Oh, I’m sorry.

Logan: So, you won’t…

Will: That’s what I meant, tax-free. Okay, tax-free.

Logan: Yeah, but your beneficiaries don’t get taxed on the life insurance benefit to take it.

Will: Okay, right. That’s what I meant to say. Tax-free. All right, so tax-free. So, for someone who’s super wealthy and way more than the 11 million cap on the estate, what I’m reading between the lines is let’s say you had $50 million. Basically, if you are just going to directly let your heir inherit that, they’re going to have to pay taxes on that 50 million, but you could say put in something like 48 million into some sort of permanent policy, and you know you’re going to die eventually.

You die, and they basically get, I don’t know, 47 million back or 49 million back or something or whatever it’s increased to minus the fees of the company. So, it’s almost the wages, the workaround, that estate tax.

Logan: Right, yeah, and that’s why these product are really complicated, so that there’s permanent policies as an overarching theme, and then there’s several different kinds. So, whole life earns its cash value from dividends because it’s run by neutral companies, and universal grows at an interest rate that’s set by each insurer or a variable life insurance tied to the market. They all have their own place for these more complicated financial situations.

So, at Policygenius at least, when we have people that come in, and they’re interested with in permanent products, we always send them to a certified financial planner that we have on staff, and one of them can really help them figure out what’s the best product for them because it is a more complicated thing, like these are expensive, complicated policies. There’s a lot of fees associated with them, and we want to make sure that people are getting a policy that works for them and isn’t going to hurt them.

Will: Okay, so maybe as a general rule unless you’re super wealthy, or you have a special needs child, it’s probably the case that if someone is pushing a permanent policy, it’s because it’s a much more attractive thing to sell and a lot higher fees to the advisor who sells it to you. So, we’ll spend probably the rest of the show here talking about term policies because that’s the plain vanilla, just trying to protect yourself in case you die where you’re still in the middle of your high salary party or career, so you can protect your kids and your family.

Logan: Yes.

Will: All right, cool. So let’s talk about that now.

Logan: Okay.

Will: So, term policy. Let’s talk about first about maybe just why you should get one. Let’s say you’re 30, 35. Maybe you have a spouse and kids. Just order of magnitude, what’s the chances that someone might die before they reach retirement age?

Logan: The numbers I’ve heard are less than 2%. These are not huge scary numbers. With that said, a lot of us know people who have lost a spouse or lost a parent during formative years, and it’s financially devastating for the family. So, life insurance is more about taking that small risk of having such a huge impact and mitigating that risk, so that you know that if something God forbid happens, your family is going to be able to keep their quality of life. Your kids are going to keep going to the same school. Your spouse is still going to be able to retire on the plan that you’ve made, and that their life, like although horribly different, is going to not change in those material ways.

Will: Yeah, so, I mean, it’s morbid to think about, but it’s the chance’s not 0%, right? It’s not super high.

Logan: Right.

Will: I mean, literally, we could fill a conference room with people who are listening to this very episode of this show of people who are going to pass away before retirement age. So, I mean, that’s a reality. Okay, so that’s the reason why, and you want to protect your family and let them continue to live, not put them into poverty, right?

Logan: Right.

Will: Okay, so now what are some typical thumb rules that says, “Okay,” of thumb rules around how much coverage to get? I’ll share that I got my first policy right around the time I had my first child or maybe a few years before, and frankly, I didn’t get nearly enough with that first policy. I got, I don’t know, a 20-year policy or something, but I didn’t get nearly enough. As my income went up over the following few years, I’m like, “Wow, it’s not nearly enough for what I’m making now.” So I had to go out and get some additional policies a few years later, which cost more money.

So, how do you think about that about what… Is there some general advice around thinking about thumb rules, around how much you should think about getting?

Logan: Yeah, so the general number that we go in with is 10 to 12 times your income, and that’s for someone in their 30s or early 40s who has a family, and that’s enough to get your kids out the door to get your house paid off, to get your spouse set up for retirement is 10 to 12X. Then as far as term, you want that to be covered until you’re at retirement age. So with the idea that by then, you’ll have your accounts funded, your kids will be out of the house, and then you won’t need this coverage anymore.

But until then, you do need the coverage. If anything happens to you before retirement while you’re still expecting to be in this acclimation period or accumulation period of earning money, putting it into savings, putting it into your kids education. You want to make sure that if something happens during that time that those accounts for your spouse can still get funded, those accounts for your kids can still get funded, and that your family’s life can go on.

Will: Yeah, so let’s say you’re early 30s or let’s say you’re 35. I guess the 10 to 12 number seems a little… surprises me. It sounds a little bit low just because, especially… I mean, it depends on the career that you’re in. So, if you’re in a career that often has a pretty high upward trajectory on income, like maybe if you’re in consulting or banking or something like that. People in those professions often, maybe they just got their MBA, couple years into work, but they might be in a industry where incomes might go up 10 or 20% per year for a number of years.

So, if you got 10X your income at the age of 35, I guess it’s tax-free, so it’s almost like getting 20X your income roughly, and that would just… Even if you didn’t get interest on it, that would suit you till you’re 55. Maybe make a little bit of growth on it, but it would only almost be flat to your income at 35. Then by the time you’re 45, if you pass away, it’s nowhere near maybe 10 times what your income is then. So, I don’t know. Let me just pause there and let you react to that.

Logan: Yeah, it is tricky to figure out the number. On our site, we have an insurance calculator that can help you figure out a sweet spot for you, and lots of other companies have these sort of similar calculators. But really, you need to sit down and put everything down on your paper like, “What’s your mortgage? How many kids do you have? How many kids might you have?” Then another important part of life insurance is that most people will need to probably buy more at some point.

If your income and your lifestyle do you go up significantly, it may pivot, like it may turn out that you do need another policy.

Will: Okay. All right, but okay, so 10 or 12 is at least the thumb rule. So, maybe if you use one of the calculators, and if you are anticipating that your income’s going to be going up over time, maybe you go something more than 12X, but at least that’s the industry thumb rule. Then I guess the term would be think about get those policies until you are expecting to retire. So, if you’re 35, and you think you’ll finish working at 65, get a 30-year policy, even though it’s more expensive obviously than a 20.

Logan: Right.

Will: Okay, so we talked about that. Now, you said, “Okay, I make… ” whatever the person makes. Let’s say you make 100 grand. You make 200 grand. You say, “Okay, 10 to 12X.” All right. “I need a million, or I need two million.” You figured out your number, and say, “Okay, I need it for 30 years.” All right, now, how do you think about getting a quote and then choosing a insurance company? Policygenius is one place to go. You guys got a very nice website. Tell us a little bit about how that part… Okay, so you’re just starting. You did the exercise at home, but now how do you go out there and actually find an insurance company?

Logan: Yeah, so when you’re choosing an insurance company, first, you want to make sure you’re going with someone legit, someone who’s been around, someone who’s going to be able to pay your policy. That’s one thing that a lot of people are very worried about like, “Okay, I’m buying this policy for 30 years. How am I going to know that you’re going to be around in 30 years to pay this?” So there’s a lot of really good rankings of insurance companies. AM Best is the industry standard.

They’re the credit agency that does periodic reviews of all of their financials. So, at Policygenius, we only work with the highest-rated ones from AM Best, but these are very easy numbers to find on the internet. So, you want to make sure you’re looking at quotes from companies that are legit and been around. Then other than that, like the rate that that company’s going to offer… the next thing that you’re going to look at.

The coverage especially for term is the same coverage no matter what company you’re going to. It’s very highly regulated. There’s not one company that’s going to be more likely to pay than another company or that’s going to give you any extras or bonuses. It’s the same coverage. So, you really want to make sure you’re going with the company that is going to pay you the best rate because what is different is how they evaluate risk and how they rate different health classes and health conditions. So, it’s the clean company-

Will: So there’s no difference in, I’m sorry, between the companies around maybe in terms of the terms and conditions that some maybe would not cover you if you committed suicide, or if it was like a terrorist attack. Do some of them have exclusions like that that you need to be thinking about?

Logan: So, for the companies that Policygenius works with… These are the major big insurance companies. They all cover every kind of death except suicide within the first two years. So, all of the policies have the same exclusion in the U.S. If you die by suicide whether insane or not during the first two years of the policy, that will not be covered. Your premiums will be refunded, but that’s it. But after that two years, suicide is covered, and every other cause of death is covered as well.

There are some policies that are not term life, so actually no death coverage, and some group policies that don’t cover other types of death. But for the main companies, term life insurance is going to cover every cause of death.

Will: Okay, and would you say there’s much difference if at all between companies in just in terms of service? I mean., not that you need to get that much service, but how easy it is to change your beneficiary or to update your billing info or that kind of stuff?

Logan: Yeah, there’s for sure differences. Life insurance is a antiquated industry in a lot of ways. A lot of companies are still doing everything on paper. We have tried to digitize as much as we can, but there are still some companies that want a wet signature. So, in our reviews of carriers on our site, we’ll tell you like, “How good is this company at a digital life? Do you need to use the mail a lot? Do you have to call them? Can you just change things online?”

But honestly, the rates that you’re going to get between companies can be so different that maybe if you are really young and healthy and all of your rate’s the same at that point, you’re going to want to get more granular and choose the company that’s going to be easiest to work with in that sense. But your rates can vary 50% between-

Will: Whoa.

Logan: … carriers. So, for most people, choosing the carrier that gives them the best rate is going to be the way to go.

Will: Yeah, okay, and let’s talk. Just explain to me how that process works. So, let’s say that I’m using Policygenius or some different, other tool out there. How do you go about getting the initial rate quote and then how do you get the final quote? Because they want to… How does that whole process work of getting quotes?

Logan: The life insurance process, your rates are going to be set by each carrier individually based on your health and your age and your gender and a number of other factors, but the health one is the one that varies the most between carriers. So, sites like Policygenius have made our own algorithm to try to help figure out. We have a quote or to help you answer as few questions as possible to try to get you accurate quotes, like that’s the game in being a life insurance broker.

It’s like, “How can we get to be really accurate?” So, whatever site you go to, you’ll go online. You’ll answer some questions about your health including diagnoses, whether your parents are still living, and if they aren’t, like what diagnosis they had, other questions about your own diagnosis, and then you’ll get at the end of just a couple-minute quiz, you’ll get some quotes from various… that sounds good, yeah.

Will: Okay, so-

Logan: Oh, sorry.

Will: Okay, so you get some quotes. So, you get some quotes. Now-

Logan: Yeah, so you get some quotes. Yeah.

Will: … is it possible to go directly onto the websites of these different companies or are they not consumer-facing, and all of them want you to go through one of these either a human broker that you walked up to at a street-corner office or an online tool? Or can you go directly to the companies?

Logan: You can go directly to the companies, but there’s no advantage to doing that. It’s not going to go faster. They’re not going to give you a better rate. In fact, there is a disadvantage in that if your initial quote was inaccurate, which happens a lot of time. People either forget things or things come up if there’s a medical record poll or in their medical exam. If you’ve gone straight with the carrier, you’re stuck, and if you don’t like your new quotes, your new price that you’re offered, you’re going to have to start over again.

Whereas if you go through a broker, then at that point, if your rate does come back higher, you have more recourse. You can change that application to a different carrier and still try to get the best rate.

Will: All right. So, you go on. You’re going to answer a bunch of questions. What questions should you prepare to… You mentioned a bunch like your own personal currently medical situation. Your parents, if they’re alive or dead. Your age.

Logan: Whether or not you’re a smoker or your weight. They want to know if you declared bankruptcy. They want to know if you’ve been in any major car accidents. They’re just trying to evaluate like your mortality rate essentially, which is McCobb, but that’s how life insurance rates are set.

Will: Yeah, and then on Policygenius, I would get quotes not just for one company, but would it be for multiple companies like, “Here’s what we think these different companies would offer you as your rate”?

Logan: Yeah, we work with 13 carriers right now, and that number is always getting bigger. Not all of them operate in all states, but we’ll give you the ones that will offer you a policy, and we’re pretty accurate. Our goal is that if you’re seeing numbers that that’s going to be what you would pay once you go through underwriting.

Will: Okay, so then let’s say that you decide in yourself your risk tolerance and you pick a certain level of rating from AM Best, and then you can just go down the list and you pick the lowest rate. What do you do next? You click on that company, and then how does the actual process of going from that point to actually having a policy, how does the whole process play out, like medical exam, et cetera? So, walk me through what will happen then.

Logan: Yeah, so with traditional underwriting, which is the way that most people are going to get the best rates, and that involves the medical exam. So, for regulations, after you do answer the questions online, you’re going to have to get on the phone with an agent because humans have to sell life insurance. They’re going to have to get on the phone with the agent and quickly confirm all the information that you’ve just filled out.

At that point, you’ll get scheduled for a medical exam. The carriers pay for this. This doesn’t cost you anything. They’ll send someone to your home or office, and you’ve got to do a urine sample, a blood sample. They’ll take your weight. They’ll take your blood pressure and also your height. This is just to make sure that you’re in good health, but everything that you said on your application was true that there’s no underlying things you don’t know about.

Then once you get the medical exam done, about 30% of people at that point, the carrier will say, “Okay, I want a little more information.” So for 30% of people, they’re then going to do something called an APS request, which is attending physician statement. They want to get your medical records and to get info from your doctors about maybe a open referral or something going on with your health. They went a little bit more information.

Then at that point, the underwriters take a look at everything, either confirm the health class [inaudible] you or a rare case will change the health class. It’s sort of new information came up. They’ll come back with an offer. You can decide to accept that offer. You can at that point adjust your coverage down if you need to get the premium lower. Then at that point, you can assign your policy, and you’ll be covered.

Will: Okay. How does it work with the relationship between the cost of the policy and the coverage? Is it nearly linear? So, two million of coverage is almost always just basically 2X of one million coverage and in terms of the cost of the policy or how does it scale?

Logan: So, nearly linear is the right way to describe it. The costs of coverage are banded, so maybe your first one million coverage is at a certain rate, and maybe the next million is at a slightly lower rate. But it’s still all going up. There’s not a sweet spot of, like if you get a certain amount of coverage, that’s the cheapest you can get. How those bands are set changes between carriers, so it’s helpful to work with a broker who can be like, “Oh, because of the way this carrier has it set, you can probably get another couple $100,000 for just a few dollars more or whatever.” But it’s basically linear.

Will: Got it. Is there a maximum that the insurance company will do? So, if you’re earning, I don’t know, $100,000 a year, maybe they’d be reluctant to give you $50 million of life insurance, right? Because they’d say, “That doesn’t seem right.”

Logan: Yeah.

Will: So, is there some thumb rule of what’s the max policy that companies would typically offer?

Logan: They want to see a financial justification. So, if you’re young, let’s say you’re 30. You’re just starting out. You might qualify for 30 times your income because they’re seeing like you’re at the beginning of your adult life, and you’ve got a lot to pay for the rest of it. If you’re 50 or 60, you’re close to retirement age. You might only qualify for 10X your salary. For high-net-worth individuals who are doing this for estate tax reasons or wealth building, like there’s exceptions made for this if you have lots of assets.

Logan: But generally, nobody’s supposed to get rich off of life insurance. It’s not speculative. It’s meant to be to protect your family and replace your income. So, that’s what they’re basing it off of. It’s like, “What do you have to protect and what are we replacing?”

Will: Some people might say, “Oh, well, I don’t need to go get my own policy. I have a corporate policy, like the job that I work has one of the HR benefits. They have life insurance.”

Logan: Right.

Will: Your thoughts on that.

Logan: Yeah, so you should definitely accept any free coverage you get through your work. Most of the time, it is way less than you actually need. Commonly, it goes maybe up to 1X your salary, which is not enough. Additionally, that coverage is tied to your employment. So, maybe you can get a ton of coverage, like maybe you can get a ton of cheap coverage through your job. But if you leave that job, either that coverage is gone, or if you can convert it, it’s going to be at perm life costs. It’s going to be expensive.

So, it’s nice to have, especially if it’s being given to you free, but you don’t know what’s going to happen with your career, with this company. Companies can destroy benefits at anytime, like you need your own policy that you control, and that goes with you wherever you go in your career.

Will: Makes sense. So, even if you have a core policy, that’s nice but still think about getting your own personal policy because they’re maybe not as portable as you would like if you have a corporate one.

Logan: Right.

Will: What about if you have a spouse who is not working or not generating an income or not generating a substantial income, what’s your thinking around life insurance for that individual?

Logan: Yeah, so both spouses need coverage even if the other spouse isn’t working, especially if there’s kids, and because when you think about… Sorry. Just had to bring-

Will: No, no. I mean, if you have a stay-at-home dad or a stay-at-home mom, either way, that person is really doing true economic value. It maybe not be compensated, but if you have a stay-at-home dad or a stay-at-home mom, and that person is suddenly gone, you’re going to maybe have to get a caretaker or a nanny or someone to provide child care-

Logan: Totally.

Will: … and for all those things that person is doing that actually would cost money if someone else was doing it.

Logan: Right, and insurance companies understand this, and even a non-working spouse is generally eligible for up to 100% of the coverage that their working spouse has.

Will: Okay.

Logan: Yeah, and I think a lot of people are surprised. They think, “Oh, I’m not working. I don’t need this coverage,” but it can be empowering to think, “Well, actually your family would be financially in trouble even if a non-working spouse is there, like take care, cost, summer camp, all of these things would have… That money would have to come from somewhere.

Will: Right. That would be a massive hit on a family. Okay, so we talked about that, coverage. Then most policies like just in terms of… I mean, this is getting it down to the nitty-gritty, but paying for them, it’s like… Do some of them let you pay monthly or is it always they charge you more if you pay monthly? You pay annually or is that vary company by company?

Logan: You can pay yearly or monthly. There’s generally a five to 8% discount if you pay yearly. So, if you can afford to do that, that’s a good way to go. One thing that surprises a lot of people later in the stage is that you can’t pay insurance with a credit card. It needs to be cash money. So, either EFT or a debit.

Will: Yeah, I thought that was weird. I mean, I guess they do that. What they don’t want you to die and then you had it on your credit card. You don’t pay your credit card, or they don’t want to lose… I always figured they just didn’t want to pay the credit card fees.

Logan: Yeah, that’s what I haven’t heard exactly. I think it’s probably the fee part, but I’m not sure.

Will: We didn’t talk again about rough cost. So, obviously, as you explained to me, it’s going to depend a ton on your healthcare, your health situation, maybe how dangerous your job is. But can you give us some just rough or a typical consultant or office worker, not a oil rig worker or someone in a super dangerous… but like office worker in decent health who’s 35 years old, wants to get a 30-year policy, order of magnitude, what was like a million dollars of coverage is going to cost per year.

Logan: Yeah, so a healthy 35-year-old, a million dollars could be 70 to $80 a month.

Will: Okay. Yeah, yeah, so 70 times, let’s see, 12. 840. So, something like 900 bucks, 1,000 bucks a year per million.

Logan: Yeah.

Will: Okay.

Logan: Then health-wise, like each subsequent health rating is about a 30% difference from the one before. Yeah, so there’s some variance in what people are paying. It’s a hard thing to compare because it depends so much on the amount of coverage in age. You’ll see a lot of commercials that say like, “Oh, you can get insurance for a dollar a day,” but there’s so many factors like who are you talking to. It really depends on a lot of things.

One thing that is cool about life insurance is just because the rates are based on mortality. Women pay a third less than men, so that’s a nice bonus for being a woman. They pay way more for disability insurance, so for life insurance at least-

Will: That’s interesting. So why is that? So, women pay more for disability insurance, but less for life insurance.

Logan: Yeah.

Will: Why is that?

Logan: I mean, it’s just based on what the actuaries have figured out that women are going to be more likely to need to take disability, but less likely to die during the course of policy.

Will: Okay, maybe not what… I mean, I guess you hear women live longer, so that makes sense there.

Logan: Yeah.

Will: Okay, so we talked about… I guess I was surprised that the premium can vary so much across different companies. You said that even up to 50%, which that blows me away that I would’ve thought that actuaries are so good that the pricing would be very, very tight. But any kind of thoughts about why it’s so variable? They just used different algorithms or… What are some of the factors that cause it to vary?

Logan: Yeah, so the underwriting process is very mysterious and very complicated, but we do know that just there are certain things like kinds of risk that different companies view differently, and that is one advantage of going with through a broker is that we’re very familiar with how these different carriers are for different health conditions. So, for example, with marijuana, there are some companies that you can smoke, be basically a regular smoker, multiple times a month of marijuana and still get best rates.

There’s other companies that if you admit to using marijuana once a year, you’re going to get docked. So, part of it is I don’t know, maybe a value judgment, maybe something like… I think for a lot of things or things, maybe there isn’t great CDC data for example on how that affects your health, so they are making a value judgment on what they think it means for risk, but maybe there aren’t the numbers.

Will: Now-

Logan: That’s my guess.

Will: … on something like that, on those behavioral things, once you get your policy, they’re locked in, right?

Logan: Right.

Will: So, maybe it’s the case that even today that you don’t smoke marijuana or don’t consume cannabis, let’s call it, and at all, right?

Logan: Mm-hmm (affirmative).

Will: You get your policy locked in. If you start consuming cannabis a year from now, tough luck for the insurance company, right? It’s like that your policy is not going to change. Is that right?

Logan: Correct. The only thing I would say about that is that with the first two years that you have a policy is called the contestability period. So, if you die, and your family makes a claim during that two years of the contestability period, the insurance company reserves the right to go over your application again to make sure-

Will: Okay, so not one year, but let’s say three years later if you started consuming cannabis, then it’s just tough luck for the insurance company?

Logan: Yeah, but even if it was a year later, during that two-year period, they’re going to go over it. If they really find no evidence that you’d ever smoked before, you’re still good, but that’s so people know not to lie. They just really don’t want to-

Will: You definitely-

Logan: Like say you’re not a smoker by within two years, as in have your insurance company pull your medical records and see that you actually were.

Will: Right or even a cigarette smoker, like you don’t want to lie on any of this stuff because maybe the insurance company could say, “Well, you lied on your application, so you’re not going to get any benefit.”

Logan: Right, right, yeah. I mean, lying on an insurance application is fraud.

Will: That’s another thing, yeah.

Logan: It’s like it’s serious, yeah.

Will: Okay, so on that note, so you have a lot of good information on your website, policygenius.com, and I hope that I can get you back or one of your colleagues on a future episode to talk about disability insurance because that’s another one that I think independent consultants really should be thinking about getting. Any final thoughts, Logan? Any questions I should have asked things, things that people should know?

Logan: One thing we mentioned in the pre-interview is about laddering policies. So, if you want to ask about that, I can give you a spiel.

Will: Yeah, okay. Well, I will. Go ahead. Tell me about it. What’s laddering?

Logan: Yeah, so laddering is when people buy multiple policies that are designed to expire over time. So maybe you’ll buy a million dollars for 30 years, and a 20-year for another million so that for that first 20 years, you’re covered for two million. Then the 20-year expires, and then you are covered for that last 10 years for the one million. A lot of people talk about laddering as a way to save money. In policies, it’s talked about a lot as a trick to use. It can be cost-saving, but it also involves a little bit of risk, right? Because you’re planning on not needing that coverage after a certain period of time, and you actually just don’t know what the future is holding.

So, generally, we don’t recommend laddering. If you need the coverage, we recommend buying the coverage because you can always lower the coverage over time in your policy.

Will: What?

Logan: You can always-

Will: I didn’t know that. Wait a minute. So, let’s say you have a $2 million policy. At some point 10 years from now, you say, “Well, you know what? Actually, I’ve done so amazing. I sold this company, whatever. I got this great bonus. I don’t need two million coverage. I only need a million coverage.” You can go back and say, “Hey, lower it to a million and just reduce my premium.”

Logan: Yes.

Will: Oh, I had no idea, okay, so that’s interesting.

Logan: Yeah, you can’t raise it, but you can lower it.

Will: Can you do laddering like the other way? My guess is no, but I’m wondering if there’s something where you can say… Let’s say I’m 35, and you say, “Okay, I want to buy one 30-year policy now, and I want to get another policy that would only start providing benefits when I’m 45 and be a 20-year policy, and I’m going to get that policy now.” So that would only provide benefits starting 10 years from now.

Logan: Yeah, no, you can’t do that because it’s all based on health. So, if you want a policy that’s covered when you’re older, like you either have to prepay because they know that when you’re older, you’re more likely to need a claim. So that’s why a 30-year term for the same amount of coverage is going to be like 30% more than a 20-year term.

Will: It’s how much more?

Logan: And a 10-year term versus 20 is-

Will: Yeah, go ahead.

Logan: Sorry?

Will: So, okay, I’m sorry. If a 20-year term costs $100, a 30-year term would cost $130?

Logan: This is on average. It changes a lot between health class and age, so specific, but let’s see. I’m looking at 20-year term, a million dollars for a 35-year-old is $47 for 30 years. That’s $78.

Will: Go for the extra money because you’ll say, “Oh, 20 years,” but then 20 years from now, it’s like, “Oh, my kids are just into college, and they need money for grad school or something.” So, don’t be short-sighted, and get the 30 years if you need the 30 years.

Logan: Right, right, and I think a lot of people think like, “Oh, 20 years is so far away.” I’m sure it’ll be fine. But the other thing is, is that once you get… Let’s say you’re 35. Once you get to 55, at that point, if you need to buy more coverage, it’s going to be so much more expensive.

Will: Yeah, the 20 years seems like a lot when I got my policy when I was 35, but now 20 years, the 35 plus 20 doesn’t seem so far away anymore.

Logan: Yeah, yeah, I know. When you’re younger, it just seems like windfalls just seem inevitable, like something’s going to happen there. I’m not going to need this, but you’re going to need it.

Will: Yeah, all right. Cool. Well, Logan, hey. This was super helpful. I learned a ton, and I hope this was valuable for listeners as well in terms of motivating people to go out and get the policy. It’s so easy to put this off, but boy, you want to protect your family. So, Logan.

Logan: Yeah.

Will: Thank you so much for joining.

Logan: Thank you for having me.