The Simple Dollar’s Guide to Life Insurance
There’s no way to get around it: death is not a pleasant topic of conversation. However, loss does happen and when it does, it’s crucial to know that the people who depend on you are taken care of. That’s why the team at The Simple Dollar spent weeks researching the ins and outs of the life insurance purchase process.
Finding the Best Life Insurance
The best life insurance companies have these five things in common:
- They underwrite their own policies — not every life insurance company owns the products it sells, rather they act as a middleman to service other companies’ policies. To avoid unnecessary confusion and obstacles, look for a companies that deals with you directly.
- They can definitely be able to pay on a claim — the Insurance INformation Institute recommends getting ratings from two or more independent ratings agencies to ensure that you can feel confident with the company you select. Look for ‘financial strength ratings’ from A.M. Best, Standard & Poor’s, and Moody’s (hint: if they have below an A rating, it may be best to keep looking)
- You’re able to renew your policy without another medical exam — if you develop a serious illness near the end of your policy’s term, you could be left paying exponentially more, or worse, have no coverage at all when you need it most. While premiums go up with age regardless, keep yourself protected by opting for a company that offers guaranteed renewability.
- You can turn a term policy into a whole life one — your needs may change, and making sure you’re picking a company that accomodates this change is incredibly valuable.
- Similarly, you can customize your coverage — the best policies are flexible, and offer riders to help you feel secure about your specific situation and needs. Keep an eye out for options like cost certainty, which ensures that your premiums won’t rise, multiple options for term lengths (i.e. 10-, 15-, 20-, 25-, and 30- year term options), and disability protection, which allows you to maintain coverage and prevent your insurance from lapsing if you should become disabled during your term.
What You Need to Know When Buying Life Insurance
- There are two types of life insurance: term and permanent
Term life insurance is in force during a set period of time, but is a much cheaper option, making it the right choice for many. The term typically coincides with your prime working years, creating a safeguard for your dependents should anything happen to you and cannot provide for them. Most people can expect that their kids will be able to provide for themselves by the end of the term, at which point, life insurance becomes less of a need and can be replaced by smart investments in retirement.
- Although permanent life insurance can be necessary for some, don’t purchase it as an investment.
Permanent policies make sense for certain people, like parents of children with special needs, who will likely have to take care of them for much longer. However, if you are considering opting for a permanent policy, don’t do so because of the alleged ‘returns’ on your investment. While many permanent life policies come with cash-saving features, the returns are generally very low and there are a ton of restrictions of how you can use the cash value of your policy.
- Your health and age at the start of your policy are the biggest determining factors in your premium rate.
Your physical health and age taken into account in order to gauge life expectancy. However, you only have to have your health measured once during a medical exam when you first apply for coverage. Insurance companies determine your projected average risk of dying and use that figure to set your premium price. That means that the younger and healthier you are at the start of your policy, the lower your premium will be.
- You should take a medical exam even if it’s not required.
If you’re enough, you can bypass the medical exam when purchasing life insurance with some companies. However, what they don’t tell you is that doing so could raise your premium rate. Without the medical data to prove your health, you can be considered a riskier investment for the company, and therefore have to pay more.
- Your driving record and credit score matter!
Though these factors are not weighed as heavily as age or health, companies can see behavior like traffic violations or poor credit as risky, driving up your premium.
- You and your spouse should buy individual term policies.
If you’re the primary earner in your family, you may not have considered the real cost of replacing the work your partner does. Even household tasks can add up if you outsource them, so investing in separate term policies can offset potential future costs.
The Key Takeaways
- If you have dependents (spouses included) that would be shaken up financially in the event of your death, it’s better not to wait.
- Think about how much life insurance you really need. Consider your long-term debts like student loans and mortgages and ask yourself how much it would take to sustain your household at your current spending habits.
- Don’t assume anything! If you have employer-sponsored coverage, check to see what that really entails and whether you should supplement with your own.
- Get quotes from multiple providers before settling on a policy — every provider has different risk factors and premiums and rates can vary from person to person as a result
- After doing your research, sit down with a broker and review your options. You don’t have to commit to anything and most companies assume a broker fee when they set their premiums, so you shouldn’t be paying extra to have the conversation.
For more information regarding life insurance, including a helpful calculator tool to help you put everything into perspective and The Simple Dollar’s recommendations visit: http://www.thesimpledollar.com/best-life-insurance-companies/
