Life insurance is complicated business and that is partially do to the industry that has created it. The complications and confusion can ultimately work against you though. When consumers are confused often they will just give in and overspend on product.
If you want to save money on life insurance you need to beware of this.
Some Life Insurance Basics:
There are basically two categorizations of insurance: Cash Value and Non Cash Value Life Insurance. Cash Value Life Insurance includes: Whole life, Universal life, Variable life and others. Non Cash Value life insurance is Term Life Insurance. Term life generally has a specified period of time where the yearly premium is guaranteed for. They are often sold in bands of time such as 10, 15, 20, 25, and 30 years.
The Correct Coverage Amount and Time Frame:
There are countless methods used to calculate how much life insurance you may need. The old ten times earnings rule is a great simple tool to use. You essentially multiply your income by ten. For example if you make $30,000 per year than you might need $300,000 in life insurance (ten multiplied by thirty thousand dollars.) There are other more complex methods used to calculate how much insurance you should consider.
Deciding on what length of term life insurance policy to procure can be slightly harder. My specific suggestion is that clients discuss this with their insurance agent. Many financial experts suggest getting life insurance for long enough that their kids are fully grown and out of the house.
How to Save on Life Insurance:
Check the Financial Strength Rating, Each and Every Time you are considering any form of insurance. A financial strength rating is an opinion written by a Credit Rating Agency of an insurance companies ability to pay out claims. Aim for A (or better) rated carriers. FSRs are really a simple way for the average consumer to understand the murky math of insurers overall financial situation. Financial Strength Ratings are issued by four different Credit Reporting Agencies: S&P, Fitch, Moodys, and AM Best. AM Best specializes in the insurance industry.
Get life insurance quotes from multiple insurance agents and or agencies. Although this seems amazingly obvious, its not. Many consumers get caught up in a relationship with someone that they know and do not ask around enough. A side benefit of talking to multiple agents is that you may end up learning a lot more about life insurance and save money for this reason as well.
Compare life insurance quotes with an Independent Agency. Independents are generally able to provide quotes from dozens of life insurance companies. This may or may not save you money, but certainly it can not hurt. Often for people that have a specialized condition – an Independent Agency is able to shop your given situation around to many life insurers. And more is better right?
Be honest with the insurance agent and ask about your health, hobbies, and lifestyle. If you think you can save money not being truthful about your lifestyle when applying for life insurance, more than likely you will be wrong. Insurance companies, in general will find out the truth. Even in the event that they do not discover the truth a material misstatement on the life insurance application could void the policy. “Just Be as Honest as You Can.”
Be cautious buying any form of life insurance for any reason other than pure insurance. Some insurance agents will pitch life insurance as a tool to do all manners of various financial activities, such as saving for college, a retirement account, etc. I would be very cautious with using life insurance for any of these purposes. Many financial advisers suggest keeping your life insurance and investments separate.
Only Buy the Life Insurance you can Afford. If a life insurance policy seems expensive the first year, than a typical level life insurance policy will not get any cheaper. The one important caveat to keeping life insurance in force is that you need to be able to make the premium payments each and every year. If you miss a payment your policy will lapse.
Don’t sign anything that you do not fully understand. Since life insurance can be complex, many people just do what an insurance agent tells them to. This is why it can be so important to work with someone that you trust. But trusting people, may only get you so far in life. Ask questions about the documents you are signing and try your best to understand them. If you get a weird odd answer – try googling it or ask another agent.
Other Useful Things to Know about Purchasing Life Insurance:
- Both Spouses, working or not, probably need some form of life insurance.
- Even people that do not have kids, may find life insurance valuable.
- But – Not everyone needs life insurance.
- It would be great if people signed up for life insurance right when their first child was born, but often that is just not possible. If you are new parents at least try and accomplish this in the baby’s first year.
- Generally speaking its very easy to change life insurance beneficiaries.
- Some forms of life insurance are underwritten with aparamedical exam. A paramed is when a registered medical professional comes to your house to conduct, blood, urine and other tests on you in order to assist the life insurance company in pricing out a proposed policy for you. Paramed exams are generally at no cost to the consumer.
- Depending on life insurance through your employer can be a bit of a gamble. Sometimes the gamble can pay off and other times not. Consider what would happen if you were laid off. In general accept any free life insurance and shop around for the necessary additional amount that you and your family may need.
- Seek counsel of your attorney if you have revocable trust set up. Your attorney may wish that the trust be listed as a beneficiary and they may also advise against this.
- Only work with licensed, insured, and potentially bonded insurance agents.
About the Author;
Scott W Johnson is the Owner Agent of WholeVsTermLifeInsurance, a division of Marindependent Insurance Services LLC. License oH11625. Scott believes in educating clients so that they can make their own informed life insurance decisions. He is based in California.