Life can be like a box of chocolates. But shopping for life insurance is more like ordering coffee at Starbucks, says Faisa Stafford, CEO and president of Life Pass, an industry-funded nonprofit organization that educates consumers about insurance. there are so many options it’s hard to know what to get. “It can be extremely confusing,” she says.
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In fact, confusion about how much and what type of life insurance to buy is one of the top reasons people give for not having life insurance, according to a survey by Life Pass and Limra. But the COVID-19 pandemic has been a wake-up call for many Americans, with nearly one in three people (31%) reporting they are more likely to buy a policy because of the pandemic, according to the California Insurance Barometer study. 2021.
Reading: How to choose life insurance plan
If you’re considering buying life insurance but confused, these 10 tips will help.
tip #1: Assess your current financial situation
You need a true picture of your financial health before you can determine what kind of life insurance you need and how much, Stafford says.
Consider what you have to support your loved ones who are financially dependent on you. This would include an emergency fund, retirement savings, and any life insurance coverage through work. you may find that you’re not as prepared for the unexpected as you thought.
Stafford recommends working with a financial planner to discuss what needs to be covered by life insurance, whether it’s a mortgage to be paid, children to be supported, a small business to support, or a legacy you want. let. Your workplace may offer access to a financial planner as part of your benefits. Or you can find a payment planner through the National Association of Personal Financial Advisors.
tip #2: know how much coverage you need
People often underestimate the amount of life insurance they need, says adam winslow, chief executive of aviva uk & ireland general insurance, part of aviva’s international savings, retirement and insurance business. they tend to think only of how much it would take to pay off their main debt, such as a mortgage. however, they should consider how much more would be needed to help a spouse or partner pay bills, support children, pay for college tuition or cover any other long-term needs, he says.
A general rule of thumb is to have a policy with a death benefit equal to 10 times your annual salary. but your own financial situation and goals may require you to have more, or less, than that amount. a financial planner can help you get a more accurate number.
tip #3: choose a type of life insurance policy
Life insurance buyers often think of term life insurance versus whole life insurance. A term life policy will provide coverage for a certain period of time, usually 10, 15, 20, or 30 years. It can be an affordable way to get coverage until you reach a certain financial milestone, like paying off your mortgage or sending your kids to college.
There are other types of permanent life insurance besides whole life. Permanent life insurance provides coverage for life, which is one of the reasons it is more expensive than term life insurance. it is also more expensive because it builds cash value. That cash can be used for whatever you want: to cover emergencies, supplement retirement income, help pay for long-term care, or even cover policy premiums. Whether you choose a term or permanent policy depends on your financial needs and goals.
Tip #4: Understand what affects your life insurance rate
The two key factors that life insurance companies consider when determining the rate you pay for coverage are health and age. The younger you are when you buy life insurance, the cheaper it tends to be, Winslow says. That’s because you’re more likely to be healthier when you’re younger, and therefore less risky to insure.
The rate you pay also depends on the type of policy you get and the amount of the death benefit. If you get a term life insurance policy, the term length you choose will also affect your premium.
If you can now only afford a term life policy but want permanent life insurance, most term life policies offer the option to convert to permanent life insurance. You can lock in a low rate with term life insurance now and switch to a permanent policy if your income increases.
tip #5: compare life insurance companies to get the best rate
Many insurers offer free quotes online, making it easy to compare life insurance quotes. Because rates can vary, you should get quotes from multiple companies to help you decide which company to apply to for coverage. You can also work with an independent insurance agent who works with multiple insurance companies and can help you find the best coverage for the best price.
best life insurance companies
We analyzed cash value life insurance policies based on data provided by Veralytic, an independent life insurance research company. Here’s a look at the companies that earned a spot on our list of the best life insurance companies.
tip #6: don’t just focus on premium
The rate you pay for life insurance is important because you want to make sure the premium fits your budget. after all, a policy won’t do you any good if you can’t pay the premiums. however, price should not be the only factor to consider.
If you’re buying a cash value life insurance policy, the internal costs of the policy can be just as important as the premium you pay. If you’re looking for indexed universal life insurance, pay special attention to the guaranteed versus unguaranteed portions of the policy illustration. Consumer advocates are concerned about dishonest sales practices for indexed universal life insurance.
Look for a company that has strong financial ratings in the range of independent rating agencies like a.m. best, moody’s and standard & Poor insurance companies provide ratings on their websites. You can also ask your life insurance agent to provide company ratings.
Tip #7: Be prepared to answer a lot of questions when you apply
The quote you get from an insurer is usually just an estimate of what your premium will be. To get a policy, you’ll need to fill out a lengthy application. You will be asked questions about your age, weight, personal medical and mental health history, family medical history, and tobacco use.
The insurer will also ask you about your driving record and if you have a dangerous job or hobbies that make it riskier to insure. this information is used to determine what your actual insurance rate will be.
tip #8: be truthful in your application
Be careful not to omit or hide any information on your life insurance application. winslow says it’s very important to be truthful because insurance companies use third-party sources to validate the information you provide.
For example, the insurance company may obtain information about you by accessing your medical records, prescription drug history, motor vehicle report, and public records. You may also need to undergo a medical exam, including blood and urine tests.
tip #9: the process doesn’t have to be painful
You don’t need to be poked and prodded during the application process. More and more insurers have turned to no-exam life insurance options, Stafford says. instead, they rely on third-party resources to verify the information applicants provide and data modeling to determine their risk class.
Note that there are different types of no-exam life insurance policies:
- expedited underwriting policy. This type of policy often involves a lengthy application, and the insurance company will collect information from outside sources, such as your prescription drug history. premiums are often competitive with a fully medically underwritten policy with an exam.
- simplified problem. This type of policy only requires applicants to answer a handful of questions and relies on few, if any, third-party sources. Since there is less information about you, these types of policies tend to have higher premiums.
- guaranteed issue life insurance. this type of policy asks no health questions and is often the most expensive way to buy a no-exam policy. cannot be rejected.
tip #10: block temporary coverage
If the underwriting process will take a few weeks or more for the policy you’re purchasing, you can usually secure temporary coverage by enclosing a check for your first premium payment with your application. this gives you coverage and peace of mind while you wait for the application to be processed. ask your life insurance agent about this option.