Insuring Your Life: Unraveling the Mysteries of Life Insurance with Karl Susman

Published Date: 01/09/2024

Unraveling the Mysteries of Life Insurance: What You Need to Know

When most people hear the phrase life insurance, they think of one thing—death. It’s not the easiest topic to talk about, and that’s part of why so many people misunderstand what life insurance actually does, how it works, and who it’s really for. In a recent episode of Insurance Hour, host Karl Susman took listeners on a deep dive into the subject, breaking down not just the types of life insurance available, but also the motivations behind buying it, the hidden benefits it can offer, and why it may be one of the most important financial tools you’ll ever own.

Why Life Insurance Exists

As Susman points out, most types of insurance are inherently self-serving. You buy health insurance for your medical needs, auto insurance to fix your car, homeowners insurance to rebuild after a disaster. Life insurance, however, is different. It’s the one kind of policy you buy not for yourself—but for the people you love.

That’s the key distinction. Life insurance isn’t about you; it’s about ensuring that your family, business, or chosen beneficiaries are protected financially when you’re no longer around to provide for them.

Some of the most common reasons for purchasing life insurance include:

• Income replacement: Protecting your family’s financial stability if you’re the main breadwinner.
• Paying off debt: Ensuring your loved ones don’t inherit credit card balances, mortgage debt, or car loans.
• Final expenses: Covering funeral and burial costs, which can easily exceed several thousand dollars.
• Estate planning: Creating liquidity for taxes or leaving a planned inheritance.
• Charitable giving: Using life insurance to make a lasting impact on organizations or causes you care about.

As Susman puts it, “If I die, they pay money—that’s true, but there’s much more to it than that.”

Understanding the Two Main Types: Term and Permanent Life Insurance

Although the industry offers many subcategories, nearly every policy falls into one of two broad types: term life or permanent life. Think of them as temporary protection versus lifelong coverage.

1. Term Life Insurance: Simple, Affordable Protection

A term policy covers you for a specific period—commonly 10, 20, or 30 years. During that time, the premiums stay the same, and if you die within the term, your beneficiary receives the death benefit. Once the term expires, the coverage ends, or you can renew or convert it—often at a higher cost.

Pros of term life:

• Lower initial premiums compared to permanent insurance.
• Straightforward—no cash value or investment component.
• Ideal for covering temporary needs, such as paying off a mortgage or raising young children.

Cons:

• Coverage ends at the end of the term.
• Renewal can become expensive as you age.
• No cash value or savings component.

Susman refers to term life as the “temporary safety net”—an affordable way to make sure your family is protected during the years when your financial responsibilities are greatest.

2. Permanent Life Insurance: Coverage That Lasts a Lifetime

Permanent life insurance—which includes whole life, universal life, and variable universal life—doesn’t expire as long as premiums are paid. These policies also include a cash value component, which grows over time and can be borrowed against or withdrawn during your lifetime.

Pros:

• Guaranteed lifelong coverage.
• Builds cash value that can be used for loans, retirement, or emergencies.
• Premiums can be fixed for life, depending on the policy type.

Cons:

• Higher premiums than term insurance.
• Can be complex, especially policies that combine insurance with investments.
• May require ongoing management and financial review.

As Susman humorously notes, “Permanent policies expire after you do, not before you do.” It’s his way of emphasizing that these policies are designed to remain in place as long as you’re alive—and beyond.

Buying Life Insurance for Children: Morbid or Smart Planning?

One of the most interesting questions during the show came from a parent asking whether it’s appropriate—or even ethical—to buy life insurance for a child. It’s a question many parents have but few are comfortable asking.

Susman’s answer reframed the entire idea. “It feels weird,” he admitted, “because nobody wants to think about it. But once you understand the why, it stops feeling strange.”

He highlighted two practical reasons for insuring children:

1. Guaranteed Insurability:
   Health conditions or accidents later in life can make someone uninsurable. Buying a small policy early locks in lifetime insurability—no matter what happens.
2. Savings Vehicle:
   Certain permanent policies allow parents to overfund premiums, building tax-deferred cash value. That value can later help with college, a first home, or other major milestones.

In short, it’s not about anticipating tragedy—it’s about building financial security and opportunity from an early age.

Life Insurance and Wills: What’s the Difference?

Another caller asked whether having a living will eliminates the need for life insurance. Susman’s explanation was clear: a will and a life insurance policy serve entirely different purposes.

A will is a directive—it distributes assets you already own. Life insurance, on the other hand, creates new assets that didn’t exist before. When you die, your will tells the court who gets what; your life insurance policy delivers a check that adds to that “what.”

“If you want your son to inherit more,” he said, “life insurance gives you a tool to create more wealth for him. The will just decides where it goes.”

He also reminded listeners that life insurance proceeds typically bypass probate, meaning they go directly to the named beneficiary—fast, private, and tax-advantaged in most cases.

Specialized Coverage: From Earthquakes to Nonprofits

In true Insurance Hour fashion, the conversation also veered into unexpected territory—touching briefly on earthquake coverage and nonprofit insurance before circling back to life insurance.

• Earthquake insurance, Susman reminded listeners, cannot be mandated by lenders, even in California, but it’s often a smart buy. Private carriers like GeoVera offer broader options than the state’s California Earthquake Authority, including flexible deductibles and single-limit coverage that lets you allocate funds where they’re needed most after a quake.
• Nonprofits, he explained, need insurance just like for-profit businesses. “A nonprofit’s exposure is the same as any other business,” he said. “The difference is only in the tax filing, not in the risk.”

The through-line connecting all these topics: insurance exists to protect value—whether that’s a person, a property, or a purpose.

Choosing the Right Policy: Key Considerations

Buying life insurance can be intimidating, but Susman emphasizes that it doesn’t have to be complicated. Start by asking these key questions:

1. What are you protecting?
   Income, debts, dependents, or legacy goals?
2. How long do you need coverage?
   A 30-year mortgage may align better with a term policy than a lifelong plan.
3. What’s your budget?
   You can always start small—something is better than nothing.
4. Do you need flexibility?
   Some permanent policies allow you to adjust premiums or death benefits as circumstances change.
5. Who should be the beneficiary?
   Keep this current—especially after life changes like marriage, divorce, or the birth of a child.

Susman recommends working with an independent broker who can compare multiple carriers, explain differences transparently, and help tailor coverage to real-world needs.

The Psychology Behind Life Insurance

Life insurance forces us to confront uncomfortable truths: mortality, dependency, and responsibility. But it also reveals something profoundly optimistic—the desire to take care of others.

As Susman put it, “Every other kind of insurance is for you. Life insurance is for someone else.” That shift in perspective transforms it from a grim necessity into an act of love and foresight.

He also addressed the emotional side of life insurance, jokingly calling other coverages “selfish insurance” because they benefit you directly, while life insurance benefits those left behind. That’s why it’s often described not as a financial product, but as a financial promise.

Final Thoughts: The Real Value of Life Insurance

At the end of the day, the purpose of life insurance isn’t just to replace income or pay off debts—it’s to create stability in a moment of chaos. When loss happens, it gives loved ones time to breathe, grieve, and recover without the crushing weight of financial stress.

Susman’s closing message summed it up best:

“Let there at least be something positive when you’re gone—something that helps those you care about carry on.”

Life insurance may not be for you, but it’s one of the greatest gifts you can give to the people who matter most.