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How to Find the Right Life Insurance Policy for You

Policygenius.com CEO and co-founder Jennifer Fitzgerald joins our Your Money's Worth podcast to offer advice on choosing a life insurance policy. Also, our hosts Sandy Block and Ryan Ermey discuss pandemic-related fees and changes to the Dow Jones Industrial Average.

Ryan Ermey: If you're considering adding a life insurance policy, you should know that not all policies or indeed types of life insurance are created equal. Jennifer Fitzgerald, CEO and co-founder of online insurance broker Policygenius.com, breaks down the nuances in a main segment interview.

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Ryan Ermey: On today's show, Sandy tells us about new fees that have cropped up since the pandemic, and I break down changes to the Dow Jones Industrial Average. That's all ahead on this episode of Your Money's Worth. Stick around.

Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey, joined as always by senior editor Sandy Block. Sandy, how are you?

Sandy Block: I'm good, Ryan. How are you?

Ryan Ermey: Not too bad. Headed back to Jersey this weekend, which is always a treat. In the meantime, we're talking about something a bit less nice and that is fees. And we've seen some trends of fees cropping up that are specifically related to the pandemic. So what are we talking about Sandy?

Sandy Block: Well, the biggest one that's really shaken a lot of people up, because interest rates are so low that a lot of people are refinancing their mortgages to save money. Fannie Mae and Freddie Mac recently announced that they're going to attach what they call an adverse market fee of 0.5% to any mortgages refinanced through them. And they originally said it was going to take effect September 1st. Now they're saying it's going to take effect December 1st, which means people have time to refinance before then. But they are basically citing additional risks related to the pandemic in refinancing mortgages in announcing this fee.

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Sandy Block: Again, people are refinancing to save money. This fee is going to mean that they won't save as much as they thought. And the Mortgage Bankers Association, which really had a big problem with this fee, is saying that it would cost the average refinancer about $1,400 in fees. So it's something to be aware of. If you're planning to refinance your mortgage, you might want to try and time it. And that's just one of several.

Sandy Block: Another one that will really annoy some people, is some colleges are attaching a fee to the cost of lab fees, testing, screening for the pandemic. And these fees can run anywhere from . . . Ryan, it hasn't been all that long since you were in college, but you may remember these annoying fees that they would tack on to your tuition, right?

Ryan Ermey: Oh, baby. $50 library . . . donation baked in, that you had to opt out of.

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Sandy Block: Or the gym fee for the gym you never used or whatever, or the student activity fee. Well, this is a pandemic fee, and it runs anywhere from about $50 to at least one college charging more than $400 per semester to students who are taking in person classes. Students are already annoyed at going to school, being told to go home, so these fees are not going to please them.

Sandy Block: The last fees I want to mention -- and this is very specific to where you live -- but some service industries that have reopened are charging extra fees. We have an example of a Texas hair salon that added a $3 sanitation charge. A dentist in Florida is charging an extra $10 per visit for personal protective equipment. And then there was a Missouri restaurant that added a 5% surcharge, which it cited to rising food prices related to the pandemic.

Sandy Block: So we're working on a story now -- and I think we'll probably talk about this in the podcast at some point -- about how people are saving a lot more. Basically, because they don't have any place to spend their money. When you do start spending money, whether it's your refinancing, going back to school or getting your hair done, you need to be prepared that you might have to pay a little extra and you can thank the pandemic for that.

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Ryan Ermey: Now the latter of those makes quite a bit of sense to me. If you're going through and buying all of these cleaning supplies to keep the place sanitized for all of your customers or if indeed, you're the subject to rising food prices, which we've talked about on this show, when we talked about inflation, it makes sense to me that that cost can be passed onto the customer, in some sense. We're all in this together and especially a hair salon, you're going in there with the comfort that they've kept everything clean, that they're going to do everything the proper way and socially distanced, as safe as possible way. So that's a fee I'm more or less happy to pay. The college ones, I would be pretty pissed.

Sandy Block: Oh yeah. I think so.

Ryan Ermey: Because, if I'm going back and risking my, I mean, you can say risking your life without being too hyperbolic, but even just having a lot of extra risk to be on campus, then I'm not sure why I'm paying extra for that. I mean, is this a case Sandy, where you may be able to ask them to waive the fee?

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Sandy Block: Well, I don't know that, but I think you should. I mean, I think it would be perfectly . . . a lot of times, again, it's been a while since I've been in college, but sometimes people who have objected to other kinds of college fees have gotten them waived. So I would certainly raise it. I would certainly raised it if you're not going to school.

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Ryan Ermey: Oh yes.

Sandy Block: If you're in one of these hybrid situations where some people are going to school and some people are staying home, you certainly aren't going to want to pay a fee to be screened and tested if you're not there. So I would certainly raise that issue if you're not going to school. And, unfortunately, some students may have paid this fee, gone to school and then been sent home as we've seen happen. But yeah, especially if it's a high fee, I would definitely raise a question about that with my school.

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Ryan Ermey: Yeah, because as I said, GW where I went to school, it has been a few years since I've been in school. I graduated 2013, but the GW part of the tuition that was just baked in, was a, I think $50 donation to the library.

Sandy Block: I love it. I love it.

Ryan Ermey: Well, it's like, it's not a donation if I haven't decided to donate, thank you. And so if you wanted to not pay, you had to call in and tell them, "No, thank you. I'm opting out of the donation that you assumed that I was making." As if the tens of thousands of dollars in tuition that kids are paying aren't enough, they have to nickel and dime you on all these fees.

Ryan Ermey: So, yes, I think, Sandy, the advice with these fees as with any fees that you don't want to pay, is always call and ask if you can not pay them, because you'll never know if you don't ask.

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Sandy Block: That's right.

Ryan Ermey: And it seems that not only in colleges, but when it comes to credit cards, when it comes to a lot of different industries, they're willing to help you out, if you ask.

Ryan Ermey: Do you even need life insurance? And if you do, what kind do you get and how much? The answers to these questions and more after the break.

Ryan Ermey: We are back and we are talking about life insurance policies today in our main segment. And we are excited to welcome Jennifer Fitzgerald. She is the co-founder and CEO of Policygenius. So, Jennifer, thank you so much for coming on.

Jennifer Fitzgerald: Thank you for having me on.

Ryan Ermey: So let's start with the $64,000 question. Does everyone need life insurance? And if not, at what point should I be considering getting myself a policy?

Jennifer Fitzgerald: That's a great question and where we always like to start with our customers. So the short answer is, not everybody needs life insurance. So the people who need life insurance are people who have any sorts of financial obligations that would outlive them. So this includes if you have kids, if you have a spouse who depends on your income, if you have a mortgage and other people besides you live in that mortgaged home, you would need life insurance to make sure that whoever's left behind with those financial obligations, has the replacement income to take care of those.

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Sandy Block: So, Jennifer, at Kiplinger's we've tended to like . . . term life insurance, because it's less expensive, less complicated. But as we know, there are also different other kinds of insurance; there's whole life insurance. And I'm wondering if maybe you could explain the difference and help people figure out what's right for them.

Jennifer Fitzgerald: Sure. So the advice is right, that for most people who need life insurance, they just need a plain vanilla term life insurance policy. So the difference between term life insurance and different types of permanent insurance, which includes universal life or whole life, is that term life insurance lasts only for a specific term. So you can get a term life insurance policy for 20 years or 30 years; that's the term. Whereas a permanent life insurance policy, like a whole life policy, will last for your whole life, as long as you keep paying the premiums on the policy.

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Jennifer Fitzgerald: And the reason why term life insurance is recommended for most people who need life insurance, is that most people don't need it for their whole life, right? You only need life insurance typically, for as long as the financial obligations that you have. So usually people will get term life insurance through retirement, because life insurance is an income replacement if they were to die early, or to get their kids through college age, because again, that's often a big financial obligation for parents, or to match the length of a mortgage, for example. So that's why term life insurance really is recommended. And you're correct that it is very, very affordable and a lot more affordable for the same amount of coverage than a permanent life insurance policy.

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Ryan Ermey: So what is the rule of thumb for determining how much coverage you should get? Because, I seem to remember reading an article that we put out, that a good amount of people end up underestimating how much coverage they actually need.

Jennifer Fitzgerald: Yes, in fact, most people who do have some life insurance actually don't have enough of it, so we've seen that in our customer research, as well. So a quick rule of thumb on life insurance, is you should have an amount that equals 10 to 15 times your annual income, and you should have it for a duration that gets you to retirement age, right? So that's the general rule of thumb and a good place to start.

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Jennifer Fitzgerald: There are, however, more complicated calculators. We've got calculators, for example, that can take into account any existing life insurance, the number of kids that you have, their ages. So you can get more granular and more sophisticated in the calculation, but the rule of thumb is 10 to 15 times your income and a term that will get you to retirement age.

Sandy Block: So Jennifer, what kinds of things will influence how much your premiums will be? And let's just talk about term here, because whole life, it gets on a whole other issue. But if you're looking for a term policy, what kind of factors will affect how much you'll have to pay, and how can you get the lowest cost possible?

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Jennifer Fitzgerald: So the biggest factor on how much you'll pay for life insurance is your age and your health, because the cost depends on your mortality risk to the life insurance company. So the younger you are, the healthier you are, the lower those term life insurance rates are going to be.

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Jennifer Fitzgerald: But that said, even for older applicants or people with health conditions, there are hundreds of life insurance companies out there. It's a very competitive market. Meaning that for in almost all cases, there will be a life insurance company that can offer a policy to you.

Jennifer Fitzgerald: So because of that, to get the best rate, your best bet is to shop a full panel of life insurance companies. Because every life insurance company is going to approach underwriting, meaning risk evaluation differently. So for an applicant in their 50s, for example, there's going to be life insurance companies that are going to be more competitive on pricing there. Different life insurance companies might be focused on more competitive pricing for younger consumers.

Jennifer Fitzgerald: So your best bet is to work with an independent broker like Policygenius or a brick-and-mortar broker, who can shop your profile around to all the top life insurance companies. That's the best way to make sure that you're getting the best price.

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Ryan Ermey: And should I be shopping around even if I have a policy through my work? Because I think a lot of people probably think it's kind of like health insurance and say, "Oh, I get it through my work," and that's that. Is it still worth shopping around, even if I already have a policy at work?

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Jennifer Fitzgerald: Is absolutely worth shopping around if you have a life insurance policy through work, and that's for a couple of reasons. One is most life insurance policies issued through an employer, tend to be smaller in amount. So the average amount for a workplace life insurance policy is either 50 or $100,000, so a flat amount or based on your income. And that's typically around one max, two times your annual income.

Ryan Ermey: Right.

Jennifer Fitzgerald: So you go back to our rule of thumb of having at least 10 to 15 times your annual income. You can see the shortfall there. So the big reason to shop around is that your workplace life insurance policy, probably isn't enough to cover all of your financial obligations and to protect your family if you were to pass early.

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Jennifer Fitzgerald: The other reason why it's useful to shop around, is if you are paying for life insurance through your employer, meaning it's not employer paid, you will probably be paying more than if you were to get it on the open market. And that's because group life insurance takes into account that there's a pool of people, some younger, some older. So if you're on the younger side of that spectrum, your life insurance premiums are actually subsidizing some of the older applicants in the pool. So if you just go out on your own as a younger, healthier applicant, you're likely to get better life insurance rates with an individual policy versus a group life policy that you're paying the premiums on.

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Sandy Block: So, Jennifer, when you buy term life insurance, and obviously you're hoping you'll never have to use it, but you are asking an insurance company to pay out a large amount of money if something terrible should happen. How can you be sure that the insurance company that you're with is going to be able to stand behind the policy?

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Jennifer Fitzgerald: The big thing to look for is just financial stability and financial rating. So there are ratings agencies like AM Best that will evaluate the financial health and stability of the life insurance company. They issue ratings, anything above an A rating means that it's an excellent or a secure life insurance company. So at this point, most life insurance companies that are authorized and admitted to issue policies, you don't really have to worry about whether or not they're going to pay the claim, especially past the two year contestability period for life insurance policy. As long as there's a valid cause of death, they can't contest anything about the application.

Jennifer Fitzgerald: So, what we like to say is, as long as you're going with the company that's well known and has a rating issued by one of the ratings agencies, you don't have to worry about, "Hey, is the claim going to get paid if it's a valid cause of death?" The one exception typically is suicide within the first two years of a policy, because obviously, that's adverse selection that the life insurance company wouldn't be paying for.

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Ryan Ermey: Certainly a lot of people thinking about this. If people do want to be shopping for life insurance policies, why should they be headed to your site -- to Policygenius?

Jennifer Fitzgerald: Sure. So we have actually paved the way for online life insurance shopping and for comparison across all of the top insurance companies. So if you're in the market for a term life insurance policy, we've got all the top life insurance companies in the market. We've got a really great way to enter in your information, including health information, age, all the factors that would determine the premium. You can compare apples to apples, side by side, all of those quotes from the life insurance company, so we do all the work for you. In addition, we actually have some exclusive life insurance products that you can only get through us.

Jennifer Fitzgerald: So earlier this year, we announced a new term life insurance policy partnership with Brighthouse Financial. Brighthouse is a big A-rated life insurance company. And this life insurance is some of the best rated, best priced life insurance for applicants. And the best part, is it's instant decisions. So a 15 minute conversation, an interview with one of our licensed agents, and we can give you an instant decision at a rate that does not take into account any additional factors for the privilege of instant decisions.

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Jennifer Fitzgerald: So we've seen a huge uptick in Brighthouse life insurance customers on our platform, because especially during this covert situation, people might feel nervous about getting a medical exam. This doesn't require a medical exam. This is instant decision, if you qualify.

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Ryan Ermey: Well, all fantastic information, go out and shop policies, make sure that you get the best deal that you can get, and Policygenius is likely an excellent place for you to start. Jennifer, thank you so much for coming on. We really appreciate it.

Jennifer Fitzgerald: Thank you, Sandra and Ryan. Glad to be on.

Ryan Ermey: After the break, learn why a change at Apple has triggered a shakeup in the Dow Jones Industrial Average. Don't go anywhere.

Ryan Ermey: We are back and we are recording here on August 27th. The episode will be coming out on August 31st, which is a day that a couple of interesting things are happening in the stock market . . . things that I was hoping to enlighten our listeners a little bit about, Sandy.

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Sandy Block: Enlighten away.

Ryan Ermey: Well, right before we get there, I mean, have you ever felt like a true prognosticator when you've covered something for Kiplinger's? Because this is what's happened to me. I got an e-mail from my editor that had Exxon Mobil in the subject line. And I was like, "Oh no," because listeners may remember that I jettisoned Exxon Mobil (XOM) from the Kiplinger Dividend 15, despite the fact that they've paid consistently rising dividends since the beginning of time. But the news was that Exxon is being jettisoned from the Dow Jones Industrial Average, as well.

Sandy Block: Kicked to the curb.

Ryan Ermey: And I just really felt mystical in that moment. Like, I-

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Sandy Block: I called this.

Ryan Ermey: I beat the S&P, Dow Jones Indices and the Wall Street Journal to doing this. Now look, getting kicked out of the Dow doesn't mean that they don't like it anymore, but it felt like I knew something in advance. Anyway, S&P Dow Jones Indices, which is a global index provider that oversees the Dow Jones Industrial Average, has announced that it will replace three companies as of market open the day this comes out; August 31st.

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Ryan Ermey: So joining the index will be Salesforce (CRM), Amgen (AMGN), and Honeywell International (HON). And leaving, along with Exxon Mobil are Pfizer (PFE) and Raytheon Technologies (RTX). Now it's interesting that Exxon is leaving, because it is the longest tenured member of the Dow. It's been in the index since 1928.

Sandy Block: Oh my goodness.

Ryan Ermey: So, quite a long time, considering it was before the Great Depression. So what triggered the change? Well, that's another big thing that's going on in the market on the same day. And that is that Apple (AAPL) is doing a 4-for-1 stock split on August 31st.

Sandy Block: Okay, interesting.

Ryan Ermey: So how are these things related? Well, Apple is in the Dow and a 4-for-1 stock split is a big deal for constituents in the Dow, because unlike other indexes -- and we talked about this a little bit -- I talked about the differences between the indexes. But one of the things that makes the Dow quirky is that it's price weighted. So the stocks with the highest share prices occupy the biggest portions of the index. And that's because the Dow is really old and you needed to be able to calculate a quick way to do it.

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Ryan Ermey: Nowadays, most indexes are weighted by market capitalization, which is share price times shares outstanding. So basically, the bigger the company, the more weight it occupies, but in this case, in the Dow, it's the higher priced company. So right now, Apple makes up a pretty big portion of the Dow, due to the fact that its share price is so high.

Ryan Ermey: Now with a 4-for-1 split, the share price is going to be divided by four. The idea being that if you hold one share of Apple, you're now going to get four shares for your one that are priced blower. The rationale behind that is typically so that more investors . . . can trade it.

Ryan Ermey: So, this is going to have a big effect on the index. Apple is no longer going to have an outsize portion of it. It's going to be more in the middle of the pack. So Dow Jones Indices is saying the index changes were prompted by Apple's decision to split its stock, which will reduce the indexes weight in the technology sector. So the announced changes were to help offset that reduction.

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Ryan Ermey: The Dow aims to be the 30 most influential companies roughly, right? They have some restrictions on what they can hold. If things are way too highly priced, they can't hold it, because it'll be too big of a portion of the index. But they want to be a representation of the US economy and hold the most influential companies.

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Ryan Ermey: So obviously tech is a really, really big driver of the U.S. economy these days. So they wanted to maintain the allocation to tech. So Howard Silverblatt, I don't know if you can call him a friend of the pod. He's certainly a friend of mine.

Sandy Block: A friend of yours, yeah.

Ryan Ermey: He's a frequent source of mine.

Sandy Block: He's your BFF, man.

Ryan Ermey: I love that guy. We should have him on the pod, because he's got a truly awesome-

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Sandy Block: I think you've got him on speed dial, Ryan.

Ryan Ermey: I very well might. He also has a truly awesome old school, Brooklyn accent . . . which would be just excellent to listen to on the pod. But he says, overall, the Apple split alone will reduce the weighting of tech from 27.6% down to 20.4%. On an issue basis, Apple will decline 3.36% waiting from their pre- split 12%. And it's going to increase the weight of the other 29 issues by 10%.

Ryan Ermey: So in other words, Apple, despite being a $2 trillion company; trillion with a "T" these days, Sandy, it's going to be in the middle of the pack. It's going to be the 17th largest holding in the Dow. So that's really what forced S&P Dow Jones Indices to make a change, to keep the weighting of tech more prominent in the index.

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Ryan Ermey: So that's going to be what's happening today, as the pod comes out. If you hold the fund that tracks the Dow Jones Industrial Average, things are going to look quite a bit different. So, if you were holding that and wanted a certain allocation to Apple, maybe it's time to review your asset allocation. Although, not a whole lot of people, I don't think, hold Dow Jones Industrial Average funds. There are a few of them out there.

Ryan Ermey: And otherwise, yeah, I feel as though people wanted an explanation for why that was going to be going on, that was certainly it. People were anticipating that the Dow was going to take a hit upon the split. So we'll see how that will actually behave returns wise, but there you have it.

Ryan Ermey: And if we can all just take a moment to remember that I did jettison Exxon Mobil.

Sandy Block: Yes, you did.

Ryan Ermey: Really, really makes me feel like a professional.

Sandy Block: You are, but quit your day job, but . . .

Ryan Ermey: That's right, thanks.

Ryan Ermey: And that's all for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/podcast. You can stay connected with us on Twitter, Facebook or by e-mailing us at podcast@kiplinger.com.

Ryan Ermey: And if you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

Links and resources mentioned in this episode:

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