Written by Kevin Burkle, CFP®, CSLP® | Founder: HCP Wealth Planning
I'm a CFP® and I've pretty much always practiced what I preached. However, I did make one financial mistake in my own life that almost cost my family dearly. It doesn't have anything to do with investing. In that regard I've always followed the tried and true principals of taking a long-term, disciplined approach. That worked out just fine during the great recession and I'm confident that it will ultimately work out just fine even with the current challenges to the markets that we face.
My single biggest financial mistake has to do with insurance, and more specifically, term life insurance. Term insurance is where you purchase a policy to cover you for a designated number of years, and as long as you pay the premiums, if you die during that time, your beneficiary receives a designated death benefit amount tax free. Keep in mind this is different than permanent life insurance which pays out no matter when you die, but is much more expensive and often sold inappropriately by agents. So how did I screw up? I relied solely on a group term policy offered through my employer.
When you participate in a group policy, your monthly premiums are generally less expensive than if you were to purchase a policy on your own through an insurance provider. You also are generally not required to be subject to a physical. So even if you have health issues, it won't affect your premium. When I was in my twenties and single, I purchased a small amount of term insurance though my employer. Once I got married I at least was smart enough to purchase a much higher coverage amount through the same group policy at a very reasonable monthly premium.
So what was the issue with this group policy? It wasn't portable, meaning once I stopped working for my employer, I wasn't able to take it with me and keep the same low premiums. This meant that if I left my job I would have to hope I would have access to an affordable policy through a new employer, otherwise I would then have to buy my own individual policy. There are two drawbacks to purchasing your own policy as opposed to buying it through your employer:
- As we touched on before, your premiums will be higher because you are no longer getting a group discount.
- You will likely be subject to a physical exam so the insurance company can determine how much to charge you based on the level of risk you pose to them. Generally, the younger and healthier you are, the lower your premium.
Being a CFP®, I knew all of this. But I was busy with life and work and would always make the excuse that I would go shopping for individual term insurance sometime before I turned 40.
Fast forward to 2 years ago. I left my employer of 11 years and made the decision to start my own firm. This meant I didn't have access to a group policy. At the time I wasn't really concerned about purchasing my own coverage because I exercised regularly, was in good shape, and as far as I knew, I was perfectly healthy and still only 34 years old. However, when I applied for coverage, the results of my required physical indicated that I may have some potential issues with my kidney functions. I was sent to see a nephrologist at the Mayo Clinic where I live in Jacksonville, FL. They performed a battery of tests over the course of a couple of weeks.
The thoughts running through my head at this time are why I'm writing this article. I went down the Google rabbit hole and stated reading everything I could about kidney disease. I no longer had my substantial group policy so I started to fear that If something happened to me, I would have failed miserably in providing the financial protection my pregnant wife and unborn daughter needed. Luckily, the nephrologist determined that I had a benign condition and I was perfectly healthy. However, the insurance company was of course still concerned. I ended up having to purchase a 10 year policy for the same price I should have been able to obtain a 30 year policy for. The strategy was to circle back a year later to get a new physical which hopefully produced better results, and then convert my policy to a 30 year term at a reasonable price.
That is ultimately what happened. But I look back now and think about how dumb I was to have put myself and more importantly my family, in that position in the first place. So I apologize for sounding a bit preachy, but it's always better to learn from other peoples' mistakes than your own. So learn from mine. I know for a fact there are a lot of young professionals out there who don't carry individual term coverage and are most likely making the same excuses I did.
If you don't have individual term coverage, you need to stop making excuses and get it. You never know what might happen with your health or your job in the future. Your premiums for it will be a bit higher than a group policy, but if you are young and healthy, extremely affordable. You don't have to meet with agents face to face and the process really doesn't take up too much of your time. Ideally you want to find an independent agent who can shop multiple quotes from multiple companies as opposed to an agent who can only sell their own company's products. It's even better if they work on straight salary. There is no time like the present.
If you want to learn more about term and disability life insurance, along with other core components of financial wellness, check out our free, Wealth Foundations E-Course for Healthcare Professionals.