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More Life: A Look at Life Insurance

Updated: Oct 10

This week's focus is life insurance. ______________________________________________________ quote of the week: “Life insurance: better bought 10 yrs early than a minute late" level 1: get your life.


tamar said it best. Let's face it. It’s hard to fathom dying unexpectedly, especially when we're young, so life insurance doesn't exactly top our to-do list. That said, look no further than the random Ls we take or 'Rona to be reminded of our mortality. Think about the shock and grief your loved ones would feel if you passed. Now, imagine them having to set up a GoFundMe to cover funeral costs and any co-signed debt on top of that? Life insurance is starting to sound great. Starter life insurance tips to know:

  • Use "the man": most employers offer life insurance policies via an easy process that deducts the cost automatically from your paycheck.

  • Do the math: estimate the coverage you'll need using one of the 3 rules of thumb, which range from 10x salary to the more detailed DIME method.

  • Get going: life insurance rates increase by 4.5 - 9% every year (here's a calculator). The sooner you lock your coverage in, the better.

  • Girl power: Because women tend to live longer than men, they also receive lower life insurance rates.

After you understand coverage needs, you'll have to decide what type of policy to buy. There are many options, but term and whole life policies are the options that most people choose. Here's a comparison: term vs. whole life insurance


source: nerdwallet Most folks choose term, which is straightforward, covers you for a set period of time and is cheaper than the other options. However, whole life is more complex, permanent, and works best for wealthier individuals. Many overestimate their ability to pay whole life premiums, with 30% of folks surrender their policies within 3 years and 45% by 10 years. So, choose wisely.

level 2: umbrellas.

"under my umbrella, ella, ella, eh"

Ok, so you've covered your life. Now, let's say you've been following gravy's wealth tips and have built a portfolio of rentals -- and then this guy falls on a property you own and wants to sue you up the wazoo. Enter the umbrella. Umbrella insurance provides extra liability coverage beyond the limits on your existing auto, homeowners, or other policies. It pays out if you're at fault for injuries or damage and your other policies aren't sufficient to cover the costs. While technically not life insurance, umbrella insurance will make sure your life isn't screwed by personal injury, property damage, defamation, landlord liability, etc. Basically, it's a good look if you fall into these situations.

What you need to know about umbrella insurance:

  • Extras: umbrellas usually provide additional coverage not included in your base insurance policies like legal fees and damages.

  • Bundles: most insurers offer umbrella insurance but require that you carry your auto, homeowners, condo, or renters insurance with them, too.

  • Limits: most umbrella policies stop at $5M coverage, but insurers like Travelers offer policies up to $10M, while Chubb’s limits go up to $100M. what umbrella insurance covers and doesn't

Once you're all umbrella'd up, in addition to having life insurance, you can rest easy knowing that your ducks are in a row. But alas, you're still playing checkers. Read on to learn how the rich are playing chess.

level 3: go premium.

"...I'm gonna go ahead and spring for the premium package..."

It's no surprise that the wealthy have access to strategies that the average joe doesn't. Insurance is no different, and as always, gravy's here to break it down. The wealthy ($5M+ net worth) use a strategy called premium financing, which allows them to use their existing assets to borrow funds to pay their insurance premiums without liquidating investments or impacting their cash flow. The strategy is complex, but when structured properly, it can help them to protect the net worth they've built while at the same time helping them transfer assets to charities, their kids, and grandkids while reducing taxes.

how premium financing works


source: all merits Premium financing is typically set up through an Irrevocable Life Insurance Trust, which owns the life insurance policy outside of your taxable estate so that beneficiaries receive the death benefit free of estate & income taxes.

The trust then takes out a loan to pay the premiums using the policy as collateral, which may not be sufficient in the policy's early years. You may need to use some of your investment portfolio to make up the difference. So, there you have it. The wealthy even use OPM for their life insurance. You gotta give 'em credit, though--they don't just live well, they die well too! join the conversation: Here's the recording from gravy's "Art Collecting & Investing" conversation held on June 3rd, featuring art experts Lewis Long & Melanie Edmunds hosted by gravy's Brandon Jones & Blk&Home's Stephanie Smellie.

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