10 Things You Should Know Before Buying Life Insurance
Life insurance is the foundation of any solid financial plan. It can provide essential protection for your loved ones if you pass away unexpectedly. In most cases,life insurance provides a tax-free death benefit to beneficiaries. The good news is that life insurance rates have never been more affordable. If you are ready to buy life insurance, there are a few things you should know. We’ve compiled a list of 10 things that you should know before buying life insurance. Following these tips will help make the buying process easier for you.
1) There is no reason to be underinsured – How much life insurance is enough? There are many different ways to figure out how much life insurance coverage you need. Some suggest simply using a multiple of income but it is better to take a more comprehensive approach when determining life insurance needs. First, immediate obligations should be determined such as mortgage, credit cards and funeral expenses. Second, future income to sustain your loved ones should be determined as well. These obligations should be compared against the current assets available. This will give you a thorough analysis of your needs. The calculator at www.lifehappens.org will provide a thorough assessment of your life insurance needs. Once you have your needs analysis completed, you can get a quote to see how much coverage would cost. Making sure that you buy enough insurance the first time will prevent you from having to buy more coverage later when you are older and rates are higher. Term life insurance rates have come down substantially over the years. You will be surprised at how affordable term life insurance can be for an amount that will allow your loved ones to maintain their current standard of living.
2) Choosing the wrong product can be costly – Life insurance is not a “one size fits all” product. A good agent will describe the benefits and drawbacks of the different types of insurance policies available. The two most common types of life insurance are term insurance and cash value insurance (whole life and universal life). You should only buy cash value life insurance if you have a permanent need. Cash value life insurance costs substantially more than term insurance because it lasts a lifetime and because a portion of the premium is set aside and invested. But do you really need coverage that lasts your entire life? You might, but in most cases term insurance will provide the coverage necessary for most families. Many people buy cash value policies only to find that they can’t afford the higher premiums over the long haul which could cause the policy to lapse leaving them with no coverage at all. Make sure that you consult with an experienced agent who can tell you which product best fits your needs based on your situation. You do not want to over insure your needs from a duration standpoint and you most certainly don’t’ want your coverage to expire when you still need it.
3) Procrastinating can cost you and your family– The best time to buy life insurance is when you are young and healthy, assuming that you need it of course. Many people do not make it a priority or are too busy to sit down with an agent and get coverage. And let’s face it, who really likes to talk about death? There are three main reasons why you shouldn’t procrastinate. One – even if your health stays the same, you will pay more for insurance every year that you wait because life insurance rates increase as you get older (obvious enough). Two – your health may deteriorate. Many people in their 30’s and 40’s go through life altering medical issues like heart attacks and cancer. These people will either have to pay much higher premiums or worse, they become uninsurable. Three – the biggest risk in putting off buying life insurance is, of course, dying without having any. Imagine how devastating that would be to your family.
4) Not all companies use the same underwriting standards – Every insurance company has their own underwriting guide that explains the basic criteria an applicant needs to meet in order to get standard or better rates. Some companies are more lenient than others when it comes to how they measure such factors as height/weight ratios, cholesterol and blood pressure levels and past medical issues. An independent agent can compare the underwriting guidelines of many insurers to make sure you get the highest health rating possible for your specific case.
5) You can get life insurance even if you have medical issues – The improvement of medical treatment over the years has led many insurers to be a bit more lenient in how they view certain medical conditions. Although there are certain medical conditions that insurers will flat out decline, there are still many other conditions that they will underwrite. Some insurers will still underwrite applicants who have had past issues such as certain types of cancers, controlled diabetes and other moderate health and lifestyle impairments.
6) Tell the truth on the application – Leaving out important medical or personal information so that you can get a higher health rating and lower rates is not a good idea. Be honest about the medications that you take, your medical history and any high risk hobbies that you might have. Life insurance companies use several resources to find out important information about you during the underwriting process. If you die within two years of buying a policy and the insurance company suspects that you weren’t truthful on your application, they can deny your beneficiary’s claim or reduce the death benefit.
7) Look at the financial ratings of the insurance companies you are considering – It is of the utmost importance that the insurance company that you choose has the financial strength to keep its promises to you. That is why it is important to look at the financial strength of the insurer you are considering. Insurance companies are rated by major credit ratings agencies such as Standard and Poor’s, Moody’s, A.M. best and Fitch. A company that has an A rating or better is considered to have a strong capacity to meet its financial obligations. Ask your agent what the financial rating is for the insurer he or she recommends.
8) Choose your beneficiaries carefully – Choosing the right beneficiaries can make the difference between a smooth transition or a drawn out legal process if you pass away. There are parents who make their children the direct beneficiaries of their life insurance policies. Most life insurance companies will not pay out a death benefit to a minor, so a guardian will have to be appointed to control the money until the child reaches the age of majority. In other circumstances, if a special needs adult directly receives a death benefit, it might put their government benefits in jeopardy. Choosing beneficiaries before you buy a policy and reviewing them periodically after a policy is in force is very important. Most of these issues can be addressed through the use of trusts and other options.
9) A policy through your employer may have its drawbacks – Getting life insurance through an employer group plan is pretty simple and most companies will give their employees a certain amount of coverage for free. Most plans allow employees to get additional insurance without a paramedical exam and pay premiums directly from their paychecks. Sounds like a pretty good deal right? There are some drawbacks to group insurance plans though. Premiums over the long haul can be much more expensive than if you were to get an individual level term policy, especially if you are healthy. Some group plans will also limit the amount of insurance they offer leaving you underinsured. Group policies usually are not portable, so if you leave your job coverage will lapse in most cases. If your have health issues though, it might make sense to maximize your group policy benefits.
10) Choose your agent carefully – There are several options that you have when buying life insurance. You can buy a policy (1) through a dedicated agent (2) through an online company like SelectQuote (3) directly from the insurance company itself. It makes sense to work directly with an agent that is dedicated to serving your needs and one that you can call directly or meet with face to face. It doesn’t cost you any more to work directly with an agent who can give you more personalized service. Premium rates are the same for a specific company’s policy whether you buy it online or through an agent. For instance a 20 year term policy from American General will be the same whether you buy it from a local agency or an online provider. The difference usually comes down to service. A dedicated agent can be more responsive to your needs and give you the attention and explanations you need when you have to do things like an in force review of your permanent coverage, term conversions and any beneficiary designation changes. Working with an independent agent versus a captive agent will better serve you as they are not bound to working one company and they will be able to shop your case based on policy features, underwriting standards and cost to multiple carriers. This is especially important if you have or have had medical issues.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
