How Many Life Insurance Policies Does One Attorney Need? The Answer Might Surprise You.

I’m sitting with new clients, both of whom are successful attorneys in different practice areas: he owns his own firm as an estate attorney, she works for another firm as a patent attorney. As we are doing the initial review of their accounts, income, savings, debts, and insurance, I start feeling confused…there’s a life insurance policy for $250,000, another one for $300,000, two others for $150,000, yet another one for $200,000, and then two bigger ones at $1,000,000 and $900,000…fourteen life insurance policies total between husband (9 of those), wife (3), and their two children (1 for each child).

I had never seen anything like it, until I talked with another attorney, and another, and came to find out that attorneys are routinely targeted by life insurance companies, especially when they are associates or otherwise relatively new and making more money than they’ve ever made before. As new lawyers they learn enough to know that life insurance is important (and it is, no argument there), and then they trust the insurance agent across the desk that they are doing what’s in their best interest to help protect their family.

The problem here is three-fold: they’re likely overpaying for the insurance, they’re likely not getting the right amount of coverage for their needs, and their heirs will have to deal with a logistical nightmare when they pass away.

First: The overpayment issue.

Life insurance companies price policies with what are called “break points.” We’ll use $100,000 versus $500,000 versus $1,000,000 as examples. Life insurance is priced at “cost per thousand” meaning $xx for every $1,000 of coverage. The higher the death benefit, the lower the cost per thousand as you hit certain breakpoints. All insurance companies have their own rates, but here’s an example for a healthy 42-year-old woman applying for a 20-year term life insurance policy:

• A $100,000 policy has a $100 per year premium = $1.00 per $1,000
• A $500,000 policy has a $389 per year premium = $0.79 per $1,000
• A $1,000,000 policy has a $680 per year premium = $0.68 per $1,000

It’s easy to see why you’re better off getting fewer policies that cover your entire need when you know how pricing works. To give a real example, the couple mentioned above was paying over $12,000 per year for all their life insurance policies combined, when just consolidating to one policy for him and one policy for her would have lowered their annual cost to about $4,500 by hitting the breakpoints discussed above. To say they felt taken advantage of when they learned about breakpoints is an understatement!

Additionally, it’s common knowledge that insurance salespeople earn commissions for the policies they sell. Unfortunately, as consumers have come to realize, when people are paid solely (or at least heavily) on commission they are frequently motivated to sell to anyone who seems likely to buy whether it’s 100% appropriate for the customer or not. With the recent increase in fee-awareness across the whole financial sector, Registered Investment Advisory (RIA) firms that are “fee-only” have really stepped in to provide their clients with transparency when it comes to how they are paid. Fee-only means there is a clear fee schedule, whether it is a percentage of assets managed, a flat rate for a specific service, or an hourly rate, and they do not receive commissions for selling products. This shift in financial planning culture has started to extend to other areas of the financial world, including insurance providers. There are now insurance brokers who work with RIAs to provide commission-free insurance products as well, which reduces the premiums illustrated above even further, and allows clients to compare between many insurance carriers since there isn’t an incentive for the advisor to push one company’s product.

Second: Not knowing how much coverage you need.

There are some “rule of thumb” calculations to give you a basic idea of how much life insurance you need, but the old rule of assuming you need 10-times your earnings isn’t necessarily the right answer. Depending on your lifestyle, debt payments, and plans for your future (Paying for college for multiple children? Retiring early? Leaving money to charitable causes?) 10-times your earnings could be way too little or way too much coverage. Working with a financial advisor that does holistic planning can help you figure out the right level of coverage for your family.

Third: Too many life insurance policies make estate settlement more complicated.

When you have that many life insurance policies, it becomes much more difficult for the surviving spouse or children to work through the estate settlement. Lawyers typically keep excellent records, and you might think it should be easy to call up the insurance company and request the payout. But looking at it from the perspective of the survivor, the sheer amount of administrative work needed to collect the death benefits from many different life insurance policies becomes a real burden when it’s coupled with all the other mentally and emotionally draining work of settling an estate. One of the main points of having life insurance coverage is to ease burdens on your survivors, so consolidating life insurance coverage and reducing the administrative work while your family is still grieving is a real kindness.

So, take a look at your life insurance coverage. How many policies do you have? Do you know how much coverage you should have versus what you have now? What will the process of settling your estate look like for your own family if you were to pass away? Answering questions like these isn’t always easy, but it’s important. As lawyers, you’re good at doing the hard work for everyone else. Make sure you’re taking care of your own family the same way.

Hannah Chapman is a wealth advisor and financial planner based in Cincinnati, OH working with women entrepreneurs and business owners from coast to coast. Connect with her at her website, and on LinkedIn, Facebook, and Instagram.