We polled 50 Life Insurance Agents and asked them: ‘What 5 things MUST you know BEFORE buying Life insurance?’ Here is what they said…and more!
5 Things…In no order of importance:
1) Coverage Amounts
Do you know how much coverage you need or are you just rounding and guessing. It seems like the life insurance business has turned into multiples of $100,000. Don’t take the easy way out and just guess at a number.
We have created a tool/calculator to use when determining how much is enough. Use it. You don’t have to take its advice. You should know what it is telling you.
Instead of going on and on about this subject, we will let the tool do the work. Here is the link for our life insurance calculator.
Do not move on to number 2 until you have done the calculator. Promise?
2) Know the difference between permanent and term life insurance
Term Insurance is temporary insurance and will expire at some point. Be sure you know when your policy automatically expires. There is nothing you can do about the expiration date. Term insurance premiums increase over time unless you have ‘level’ term insurance.
The premium is fixed for a number of years. At the end of the ‘level’ term period you may be able to keep the insurance or it may just expire. If you can keep it, it will go up in cost, sometimes dramatically.
It’s pure coverage. Term is much cheaper than other types of life insurance and only pays you if you die. There are no additional cash reserves or benefits. Whole Life insurance is for your ‘whole life’ as long as you continue to pay the premium.
In addition to the life insurance death benefit, It does have an ‘account’ that earns interest. The amount of interest is dependent on many factors and usually starts slow.
In many cases, you won’t have what you have paid into the policy until around the 10th year, give or take. There is also Universal Life, Variable Life, etc. Both are take-offs on the whole life insurance concept. Ask your agent about the differences.
See also: How We Chose the Best Cell Phone Providers
3) Is It Too Late to buy Life Insurance?
It’s critical to buy life insurance when you can. Depending on how much coverage you want and how old you are, life insurance can be difficult to get. Life insurance depends on your health and habits.
Health issues like heart problems, diabetes, cancer, etc. can prevent you from getting life insurance. Avocations (hobbies) like skydiving, scuba diving, etc. can also affect your ability to get life insurance.
The best time to get life insurance is while you are younger and healthier. Don’t put this off. Everyone eventually gets the little ailments and health issues that can prevent you from getting the best possible price for life insurance.
Another benefit…once you have it, we don’t know of a reason they can take it away from you. Instead of saying ‘never,’ we encourage you to read your policy carefully. Listen to the agent when he asks you the questions on the application.
But again, the answers to the questions on the application are always better received when there are no health issues and dangerous hobbies.
4) Smokers pay higher premiums.
You can’t smoke in buildings anymore, you get naughty looks from people who get the slightest whiff of your smoke, and you generally are looked at as unhealthy. Unfortunately, we don’t have any good news here.
Life Insurance companies do not like smokers. Premiums reflect that. You will pay dramatically more for a life insurance policy as a smoker than as a non-smoker.
Don’t believe me? Ask the agent to run the same insurance policy as a smoker and non-smoker. Pretty dramatic, huh? Maybe this is the incentive you need to quit, maybe not. If you stop smoking, after 13 months, some insurance companies will consider you a non-smoker…some good news after all.
5) Financial Planners Agree that You Should Avoid Certain Products
Don’t buy mortgage life insurance or credit life insurance. It is mostly used when you buy those products on ninety-day-same-as-cash, don’t pay it off in ninety days, and convert the loan to payments; you were probably sold credit life.
Credit life is extremely expensive and easily the worst type of insurance for the money. Any lender can require you to have adequate life insurance to cover a debt. The lender cannot require you to buy it from him.
Mortgage insurance isn’t much better. Buy a level term product and you’ll save probably half the premium. Don’t buy insurance from a lender, no matter how good they make it sound.
Things to think about:
6) Don’t forget about coverage for your spouse.
Do both of you work? How much of the take home income is your spouse responsible for? What will you do it that income is lost? What will you do if your stay at home spouse dies?
Who will take care of the kids? How much would it cost for someone to look after your kids? For how long?
How will you make ends meet? The answers to those questions almost always determine whether or not you need life insurance on your spouse?
They are really hard questions that deserve honest answers. Go through the calculator in Number 1 again. This time use your spouse as the case study.
7) Keep up with changes in your life.
Don’t forget to do a review of your life insurance every couple years. At a minimum, review your life insurance program when major changes occur (birth of a child, significant change in household expenses, etc.).
8) Put Your Best foot forward
When you apply for life insurance put your best foot forward. Example: A guy takes a 10-mile jog the day before his physical. He takes the physical and the level of triglycerides in his urine sample alarms the life insurance company.
It takes another physical, lots of calming down of the prospect and family (who now thinks he’s got health problems), and lots of explaining to the life insurance company…just because the body reacted to a 10-mile jog.
The issue here is timing. Don’t do anything out of the ordinary before a physical. It’s best not to do anything, out of the ordinary, for a couple of days. Don’t have 5 cups of coffee before you take your physical.
Don’t take your physical during the stressful part of the day. It also doesn’t hurt to clean up your act in advance of the exam. You need life insurance to cover your family. What if you are overweight?
Go on a diet and loose those extra pounds before you take the exam. Lower your cholesterol, Start exercising, and get yourself in the best shape you can.
You’ll feel better and the snapshot you give the insurance company will be better. Most examiners will coach you on the basics. The level of coverage will determine how many hoops you have to jump through.