Life Insurance in Maryland

Who needs life insurance in Maryland

Anyone who has people relying on their income, or debts that someone else would inherit, should look at it. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, the median household income in Maryland is about $103,678, the median home value is about $419,900 and owners with a mortgage pay a median of about $2,347 a month. A death in a household with those numbers can mean a lost second paycheck, a mortgage that cannot be paid and years of child care or college still ahead.

Take a couple in Laurel, ages 36 and 34, with two children under five and a $380,000 mortgage. If one earner died, the survivor would need money to pay off or keep the house, replace income during the years of raising children and fund college. The answer is a number, and it is usually much larger than people guess. Our life insurance guide walks through how to calculate it.

Term and permanent insurance, plainly

Term insurance covers you for a set period, such as 20 or 30 years, and pays only if you die in that time. It costs the least for a given amount and works for most families. Permanent insurance, including whole life and universal life, lasts for your lifetime as long as premiums are paid and builds cash value, which makes it much more expensive. It suits specific needs such as estate liquidity, a special-needs trust or business planning, not the typical young family.

A common mistake is buying a small permanent policy when a larger term policy would protect the family better. A common second mistake is letting a term policy lapse at the end of the term when a need still exists. Before you buy, write down the reason, the amount and the number of years. Then pick a product that fits that reason.

Federal employees and FEGLI

Maryland has a very large federal workforce, and most of those employees have Federal Employees Group Life Insurance. Basic coverage is a multiple of salary and is cheap early in a career, but it reduces after retirement unless you choose to keep more coverage, and extra options cost more as you age. Employees often assume they have enough because of the automatic coverage. Run the numbers, since one year of salary falls well short of a typical need. Many federal families buy a private term policy in their thirties and keep FEGLI as a supplement. Retirees should decide, before they leave, which FEGLI options to carry and whether the premiums are worth it.

Contractors do not have FEGLI, and the group coverage from a contract employer can end when the contract changes. A private policy that you own and carry from job to job is more reliable. Cleared professionals in Anne Arundel and Howard counties, where defense work is concentrated, often add individual coverage for this reason.

Estate and inheritance tax planning

Maryland charges an estate tax on large estates above a state exemption and an inheritance tax on property that passes to certain heirs. Life insurance interacts with both. Insurance owned by the person who dies is counted in the estate for tax purposes, even though the beneficiary does not pay income tax on it. An irrevocable life insurance trust can own the policy outside the estate, though it needs careful drafting and a lawyer. Insurance can also give liquid cash to pay taxes so that heirs are not forced to sell a family farm on the Eastern Shore or a house in Annapolis in a hurry.

The inheritance tax raises its own question. If a policy names a niece or a friend, the state’s rules on insurance proceeds and inheritance tax matter, and an attorney can explain how. Our estate planning guide covers beneficiary designations and trusts. Confirm current thresholds with the Register of Wills in your county.

Insurance for stay-at-home parents and caregivers

A parent who stays home provides child care, cooking, transportation and household management that would cost a lot to replace. In the Washington and Baltimore areas, child care alone can rival a mortgage payment. A term policy on the non-earning spouse is cheap and covers that gap. The same goes for adult children who care for a parent: if the caregiver died, the family would need to buy services. Include them in your plan.

Business owners and key people

Maryland has many small firms, and owners usually carry a large part of their value in the business. A buy-sell agreement funded with life insurance lets surviving partners buy the share of a deceased owner at a fair price without borrowing. Key person coverage protects a firm that depends on one rainmaker or one engineer. Ask an attorney and a tax adviser to review the structure, since it affects estate valuation.

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Medical exams, riders and underwriting

Most term policies require a short medical exam, blood and urine samples, and a review of your history and prescriptions. Some insurers offer simplified policies with no exam, which cost more. Riders add features such as waiving premiums if you become disabled, converting term to permanent coverage or accelerating benefits for a terminal illness. Convertibility is valuable if your health could change. Be honest on the application, since mistakes can lead to a denied claim later.

What affects the price

Age, health, tobacco use, amount, term length and occupation all matter. Rates rise every year you wait, so buying in your thirties costs far less than in your fifties. Hobbies like private flying or scuba diving can add cost. People who fly planes, work around heavy equipment or serve in the military may need to ask about special rules. Compare quotes from several insurers, and check the financial strength ratings of each, since the company has to be around in thirty years.

Life insurance in the Chesapeake region

The bay region brings its own risks to a family budget. Commercial watermen, marine workers and those who work around the Port of Baltimore face job hazards that insurers look at closely. A death benefit does not replace a flooded house, but it can help a family rebuild. Pair life coverage with flood insurance and homeowners coverage so that one disaster does not undo the other. Check that your beneficiary forms are current after any major event such as a move, a divorce or a new child.

Checking an agent or insurer in Maryland

The Maryland Insurance Administration licenses agents and insurers and handles consumer complaints, and you can look up an agent’s license on its website. The Maryland Life and Health Insurance Guaranty Corporation provides limited protection if an insurer fails, within set limits. For advisers who also manage investments, check the SEC adviser database and FINRA BrokerCheck, and contact the Securities Division of the Maryland Attorney General. Ask whether the agent is paid by commission and whether a cheaper product would meet the need.

Reviewing policies you already own

Pull out every policy you have, including workplace coverage and any old whole life policy a relative bought for you. Note the amount, the beneficiary, the cost and the end date. Compare the totals with your current needs. Update beneficiaries after life changes, and never name a minor child directly without a plan for who will manage the money, since a court may appoint a guardian of the property. A trust or a custodian account can solve this problem.

Coverage for researchers, doctors and nurses

Maryland has one of the densest concentrations of research and medical employment in the country. Scientists at the National Institutes of Health, the Food and Drug Administration and Johns Hopkins, and the staff of the hospitals that surround them, often have group life insurance through an employer. The amount is usually one or two times salary, which falls short for a household with a mortgage and children. Physicians in training who carry large loans should check whether their loans are discharged at death, since private loans may not be and a cosigner such as a parent could be on the hook. A resident in Baltimore with $250,000 in student debt and a newborn is a good example of someone whose need is high and whose budget is thin, which makes level term coverage on a long schedule a practical fit.

Disability insurance matters as much as life insurance for this group. A surgeon who loses a hand or a lab director who cannot work is more likely than not to need income help before death. Ask whether your employer plan covers your own occupation or any occupation, and whether the benefit is taxable. Our financial advisor guide explains how to find someone who looks at both.

Military and veteran families

Aberdeen Proving Ground, Fort Meade, Joint Base Andrews, Patuxent River and the Naval Academy bring service members and their families to Maryland. Servicemembers Group Life Insurance is cheap and large, but it ends after separation unless converted to a Veterans Group Life policy, and the conversion window is limited. Spouses often hold no coverage of their own, and military pay stops if a service member dies in the line of duty, although survivor benefits exist. Families with a retiring service member should price a private term policy before leaving, because health changes after separation can raise rates.

Coverage for people in their fifties and sixties

Premiums are higher later in life, but needs do not disappear. A couple in their late fifties with a daughter in college and a mortgage on a Columbia home still depend on two incomes. Pension survivors, adult dependents with special needs and a spouse with limited savings all raise the question. A hybrid policy that combines life insurance with a long-term care benefit appeals to some families, as it pays out either way. For others, setting money aside in an investment account and giving up the premium costs works better. Our retirement planning guide shows how coverage fits into a plan for income after work.

Frequently asked questions