If you were the head of the family looking to safeguard the future of your spouse, kids from any kind of financial liabilities. then you must consider to buy a Life Insurance Policy.
Having a life Insurance Policy, you can get rid of all the future financial worries of your loved ones in any unfortunate case if you were die unexpectedly.
11 Things must consider Before Buying Life Insurance
1: How much Affordable is the Insurance plan ?
lets understand this with a good real life example. A 37-year-old woman has purchased both whole life insurance and a term life insurance.
She has to pay about $62.40 per month or $717.50 annually for 20 year long term life insurance policy for $750,000. But for her Whole life insurance policy it would cost her $859.13 per month or $9,875 per year for $750,000.
This is definitely a huge difference, so that's why I always say a Whole life insurance is a bad investment. Anyways, keep that in mind before buying a life insurance you should think about all its pro's and con's before purchasing an entire life insurance or term life insurance.
Whole Life insurance provides a death benefit your whole life (until you die), it’s a stretch to say the benefit of perpetual life insurance is always worth the added expense.
According to Chris Huntley, president of Huntley Wealth & Insurance Services scoring an affordable life insurance policy is not only important now – it is important for the future, too.
This is simply because when time get much tough and life becomes harder, the first thing people stop paying for is their life insurance.
So, if you let your life insurance policy lapse, you will find it very difficult to reinstate it as it is very expensive to reinstate, or even some time it is impossible if your health has changed.
Hence it is quite essential that you must have an affordable Life Insurance, you will be much more likely to be able to hold onto it without making any serious cuts on your budget.
2: Look For Insurance Policy With Immediate Payout
Many of you may have seen commercial on TV like they were offering you quick and easy Insurance with no medical exam. But did know why they were ready to give such type of offer, it is simply because they were offering offers which were known as “simplified issue” life insurance.
Since there were very few questions on the application and no exam, it’s true that you can easily qualify for these type of insurance policies.
But there is a catch in that their is often a waiting period of 2 to 3 year before they pay out 100% of your money upon your death. If you want life insurance coverage that starts right away, this is obviously imperfect.
The most important before buying an insurance is that you must make sure that your policy pays 100% of the “face value” from day one if possible. You must stay away from simplified issues insurance policies until there is any other option available.
3: Underwriting Leniency
According to Chris Huntley, you could be making a huge financial mistake if you buy a policy from a company that does not treat your particular health or personal activities fairly.
The insurance companies pricing range varies widely on based of your medical history and its risks like diabetes, smoking, travel outside the U.S or your family’s medical history.
It is better that you should always consult or buy Insurance from a knowledgeable independent agent who can compare various companies pricing and other benefits to find out best rates for you according to your particular situation. If you don’t, you might face the risk of overpaying for a life insurance policy.
4: Choose a company that offers Automatic Payments
There are certain bills that you may want to pay manually, also you may want to pay life insurance premiums manually. But the best option is to set up as an automatic bank draft or credit card charge – especially in the case of term life insurance where your premium stays the same.
The reason for setup automatic payments is very important that if you accidentally forget about your life insurance premium and don’t make your payment on time or within your grace period, which is usually 30 days, your policy may be cancelled altogether.
At this point, your issuer may not allow you to pay back your missed premiums, and they’re not required to reinstate your policy, either.
So you must look for a life insurance company that allows you to pay your monthly premium automatically, so that you will never have to worry about getting your policy lapse or missing any premiums.
5: Look for Policies with Conversion Feature
While buying a term life insurance, you must definitely look at the fact that whether your insurance policy allows conversion feature or not. You must stay away from those policies that don’t allow you to “convert” your term insurance policy into a permanent one.
This feature typically allows you to convert your term insurance policy into a permanent plan (such as universal life plan or whole life plan) without proving you are still healthy.
Suppose that you buy a 20-year term life insurance policy and you decided after 19 years that you still need coverage. But at that time you may have developed some medical conditions since your initial term purchase.
The policy conversion feature would allow you to keep your coverage. Whereas you may not be able to qualify if you were to go back out to the market for a new policy.
Most of the term insurance policies include a conversion feature, but not all allows the conversion feature. So you must choose your policy wisely.
6: Look for Insurance with Living Benefits
Now a days Insurance market is getting more and more competitive thanks to a new wave of life insurance companies striving to meet consumer needs, and providing more and more benefits to customers. Many companies are now providing more benefits to use in life insurance while you’re living.
There is lots of newer policies that allows you to receive payments if you get a chronic illness or needed to be placed in a care facility.
Also there are several companies also give you 20- or 25-year windows at which you can get back some or all of your premium paid into the policy if you no longer want or need the coverage,” he adds.
If you want the option to get cash out of your life insurance policy if you get cancer or need end-of-life care, then looking for a company that offers this option is a smart move.
7: Look for a best suited insurance plan for you
There are two types of insurance policies available in the market based on plan cover: term plan and permanent plan. While all life insurance policies pay a death benefit to beneficiaries as well as it can serve as an investment plan for the customers.
Term life Insurance: This plan covers insures you for a definite/ fixed time period, like 20 or 30 years. At the end of the term plan, the insurance coverage terminates, unless you decide to renew the insurance policy.
Most term life policies provide level term coverage, which means the face value remains the same from the beginning to the end of the term.
Secondly a decreasing term policies is also there which feature a decreasing death benefit during the policy term. Term life policies don not build a cash value. You were no longer get covered with term plan, at the end of term plan.
There will be no return of the funds that you have paid. Typically, you just need to pass a medical examination to qualify for this type of term plan coverage.
Whole life Insurance: It provides a fixed death benefits and covers you starting from the time you purchase a insurance policy, until you die. In whole life policies you will require to pay a set od premium on a regular scheduled basis.
Unlike term life insurance, whole life insurance builds a cash value based on the value set by the insurer . Once your policy matures, you can take out a loan from the policy or cash out a portion of its value at any time, if you decide to drop the coverage.
Universal life Insurance: It is a new and modern variation of whole life insurance. In whole life policy you cannot change the face value of your policy, but in universal life policy you can increase the death benefits.
In Universal life insurance you need to pass a medical exam which is generally require in most of the policies.
Universal life policy also gives you the flexibility to change your premium payments, after the policy matures. Universal life policies also provide an investment feature, which typically earns money on your investment based on a money market rate.
Term life is the most affordable type of life insurance. It requires you to make monthly payments throughout the term, which you can usually set up as an automatic payment.
Term life is a great option for young adults starting a family. For instance, you may purchase a 20-year term policy to cover you until your kids leaves.
Oftentimes, whole life and universal life policies do not require an initial medical exam for people under 50. While whole life policies are more expensive, they provide coverage throughout your life and build a cash value.
People buy whole and universal life policies for various reasons and at different times in life. Some parents purchase these types of policies for their children as minors, to provide coverage in case something unexpected happens, and to get the kids started on the road to investing.
Other people purchase whole life policies after their kids have left home to provide a death benefit for a surviving spouse. In addition, some adult children buy whole or universal life policies for their aging parents to provide them with protection in their golden years or to protect against the loss of assets associated with long-term care expenses.
Long-term care riders are another option commonly offered by life insurance companies. The rider pays a percentage of the face value of your policy — typically 1% to 4% — if the insured becomes terminally ill or needs long term care. Usually, these riders cap the level of benefit.
8: Focus on purpose for Buying life insurance
If you’re looking for an investment vehicle in a life insurance policy, term life won’t get you there. Term life only provides a death benefit for a defined period and doesn’t build a cash value.
Whole life insurance builds a cash value over time, but universal life provides potentially higher dividends, because they accumulate value based on a money market rate of interest.
However, two other types of life insurance can provide even better investment vehicles, but only if you have some investment experience.
Variable life policies feature a death benefit, along with a savings account. These flexible policies enable you to choose how you want to invest your savings, in bonds, money market mutual funds or stocks.
But, a variable life policy carries more risk than whole life and universal life policies. If your investment doesn’t perform well, you could end up with a reduced death benefit and investment.
Variable-universal life policies combine the flexibility of a universal life policy and the investment options of variable life coverage.
This type of policy enables you to adjust your death benefit and premiums, while also allowing you to choose the type of investment you prefer for the savings account.
But, like variable life, variable-universal life policies carry the risk of losing part of the death benefit and savings when investments tank.
9: If I am on a budget or have bad credit how does that impact my life insurance application process?
For most people, term life coverage is the most affordable life insurance policy. A 25-year-old, non-smoking mother in good health can often purchase a 20-year, $500,000 term life policy for as little as $16 per month.
If you’re on a super tight budget and can’t afford the rate for the term and amount of coverage you need, consider purchasing a policy based on the amount of coverage you need, but for a shorter term.
Most term life policies enable you to renew at the end of the term, but at a higher rate. If you buy a 10-year policy, but need 20 years of coverage and expect your income will increase over the course of a decade, you’ll be able to afford the renewal rate.
Most states allow insurance companies to consider your credit rating when determining your premium, because statistically, people with poor credit file more insurance claims.
If you have poor credit and need car insurance, you can expect to pay a higher rate than someone with good credit. However, when it comes to buying life insurance, your credit score is usually less important.
Underwriting guidelines vary among companies, but most insurers place more emphasis on a life insurance applicant’s life expectancy, than their credit rating.
For example, when reviewing applications for term life policies, whose policies are underwritten by MassMutual, does not consider an applicant’s credit score when determining eligibility or rate.
If you ever filed for Chapter 7 or 13 bankruptcy, a provider may deny your application, but only if you’ve recently filed or you’ve fallen behind on payments in the last couple of years.`
10. Look to Save Money on Life Insurance
Now that you know what to look for in a life insurance policy, you need to know the best ways to score a policy at the perfect price. As you shop for life insurance, consider these money-saving tips:
- Compare the costs of term and whole life before you buy. If you decide whole life insurance is best for your needs, that’s perfectly fine. But you still might want to shop around for term life insurance so you can compare costs. In the example I shared above, whole life insurance could have cost me $9,000 more per year for the same $750,000 in coverage as a term policy. In the case of such a big disparity, you might discover you’re better off buying term life insurance coverage and saving the difference yourself.
- Get several quotes online. Applying for life insurance coverage online or with a broker that sells multiple policies is a much smarter move than visiting a life insurance agent that works with a single company. Ideally, you’ll want to get life insurance quotes from several companies so you can compare costs as well as policy details.
- Don’t buy way more coverage than you need. Buying the right amount of life insurance (and not too much) is one way to cut down on costs. A good life insurance calculator can help you figure out how much coverage you need.
- Buy now, not later. Last but not least, don’t put off your life insurance policy for another year – or even another week. The rates you’ll pay for coverage will go up every year, no matter what. The sooner you buy, the better chance you have at affording the level of coverage you need.
11. In terms of how much life insurance coverage you should buy?
According to most of the term life insurance agents, you should buy a term life insurance about 5 to 10 times your income in coverage. Like if you earn $500,000 you should consider$250,000 to $500,000.
However, you may need even more coverage if you have a lot of liabilities, or kids, or expenses coming up in the next 10 to 30 years.
The length of your ideal policy also depends on your personal circumstances. If you’re fairly young and want income replacement for your entire career, then a 30-year term policy could be ideal.
If you’re older, or you have few debts and tons of savings, on the other hand, a shorter-term life insurance policy might be better.
Life Insurance Policy Simplified:
- Term life is the most affordable life insurance.
- Avoid simplified issue policies, because they don’t offer an immediate payout.
- Avoid overpaying by requesting quotes from several insurers or a broker.
- Set up automatic payments to prevent a coverage lapse.
- Shop for term life policies that allow you to convert to permanent coverage.
- Search for term policies that offer a long-term care rider.
- The most common life insurance policies include whole and universal life, which build cash value over time, and term life, which only provides a death benefit.
- Variable life and variable-universal life policies offer the best investment options, but can pose higher risks if your investments don’t perform well.
- Many insurers don’t charge higher life insurance rates to people with poor credit.