Let’s face it: Life insurance isn’t the most fun subject to dwell on at length or think about during your time away from work. In fact, most of us don’t want to think about this subject at all. According to the Insurance Information Institute, one-third of all U.S. families with a new baby at home don’t update their life insurance coverage.As unpalatable as the idea of planning for your own death might seem,there are plenty of reasons to look into buying life insurance now –even if you already have a policy. For one thing, having the right kind of coverage can give you incredible peace of mind. Another detail to consider: Prices have been dropping significantly. The Insurance Information Institute notes that premiums have plummeted 50 percent for standard-risk term insurance since 1994, and they’re expected to drop by another 4 percent this year. Honestly, how often do you hear about rates dropping for anything these days? The following tips can help you secure good coverage without spending too much.
1. Understand Why You Need It.
While most people may need life insurance at some point in their life, don't buy a policy just because you heard it was a good idea. Life insurance is designed to provide families with financial security in the event of the death of a spouse or parent. Life insurance protection can help pay for mortgages, a college education, help to fund retirement, provide charitable bequests and of course is a key element in estate planning. In short, if others depend on your income for support, you should strongly consider life insurance. Even if you don't have any of these needs immediately, you still may want to consider purchasing a small "starter" policy, if you anticipate you will have them in the future. The reason: the younger you are, the less expensive life insurance will be. You can use online calculators to get a rough idea of how much money it would take to cover your surviving spouse’s expenses until retirement, and/or your children’s expenses until they reach adulthood or finish college. The Life and Health Insurance Foundation for Education offers this calculator.
2. Term of life.
A term-life policy is the best and simplest option for most Americans ranging in age from about 20 to about 50. Cash-value life insurance can make sense for wealthy people over the age of 60 – but for most people, term insurance is the way to go.
3. Get quotes online.
Web sites that can give you plenty of pricing information fast – although all of it will be subject to a more detailed application process and a medical exam.
4. Get in shape.
To improve your risk class, you can take steps such as quitting smoking, losing weight and reducing your cholesterol and blood pressure if they’re high. You also can get that exam before you apply for insurance so you’re not hit with any surprises. In some cases, the changes you make can save you tens of thousands of dollars over the life of a policy.
5. Decide how to buy.
You can go it alone and buy insurance directly from the company, seek guidance from a fee-only financial planner, buy it through a commission-based financial planner, or buy it through an insurance agent.
6. Understand how these folks get paid.
Insurance agents and commission-only financial planners don’t make money unless they sell you insurance products. Fee-plus-commission (or fee-based) planners charge both a fee and a commission on products. Fee-only planners charge a fee for their guidance but don’t sell products; you would buy the insurance coverage on your own. If your broker makes a recommendation in the first meeting, you know that they have not really analyzed your situation and looked for best options. So just say, “No, thank you” and keep researching.
7. Do your homework.
Make sure you do your homework before purchasing an insurance product. Make sure it fits your needs and budget, and make sure you understand the contract. The advisor is obligated to explain it to you. Don’t sign until you understand the contract.
8. Buy from a financially strong company.
The insurance company should have an “A” rating or higher from rating agencies such as A.M. Best, Standard & Poor’s, Duff & Phelps, Weiss, Moody’s and Fitch Ratings.
9. Be alert for red flags.
Avoid advisers who say they’re more knowledgeable about the insurance company than the rating agencies, or who claim the ratings are unimportant or unavailable. If you have a complaint, contact the adviser’s customer service department and speak up. You also can file a complaint with your state’s insurance department or attorney general’s office.
10. Make adjustments as needed.
Your life insurance needs will change over the years – most notably when you marry, divorce, have a child or start caring for an aging parent. At a certain point – once your kids are all grown up, and once you know you’ve saved enough for retirement – you can decide to stop paying for life insurance entirely.
11. Understand term insurance versus permanent insurance.
Understanding the difference between term and permanent life insurance (such as whole life) can help you make an informed decision about your insurance needs. Today, a term insurance policy should be able to cover most of your debt and financial needs. In turn, you may not need to purchase a whole life policy. Try not to be sold by the “what if” scenario you might hear from an insurance sales rep. Insurance companies traditionally make more profit from whole life policies than term policies, so be prepared to hear a sales representative promote whole life as the best possible choice (even though it might not be the best fit for your needs). Remember, buy what you need and make adjustments as changes become necessary. Term insurance is typically renewable and should have a convertibility clause which allows you to make changes in the future. There are certain situations where a whole life policy maybe more advantageous than term; however, do not purchase it simply because your sales representative told you should.
12. Take a 30-day free look.
You have 30 days to look at the policy and understand it. If you are not satisfied with it during that time, cancel the policy and you will get your premium back.
13. Keep it simple.
Do not make your insurance planning complicated. Because it is based on protecting your family, it should be based on your needs. Don’t fall for all the bells and whistles the company may try to sell to you.
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