The Right Way to Purchase Life Insurance
It is only human nature for most consumers shopping for a new product or service to become swept over by low price tags. This tends to make their buying decision based on price alone. This happens everyday to thousands of Americans and sometimes no serious problems are created. Purchasing life insurance is all together different than buying that new refrigerator or kitchen table. Making a poor buying decision now could create a world of financial problems for your dependents later on down the road.
Is term going to be your best bet?
On an average, most people will greatly benefit from the purchase of low cost term life insurance vs the other plan designs. A persons specific needs for life insurance can vary but term life insurance can usually do a good job at providing excellent financial protection. Most people look at term as the best possible choice due to the low cost factor and affordability. The largest percentage of consumers decide to purchase their life insurance late in life. This leads to high premium costs or even a decline if they have medical conditions to contend with. Term in many cases is the only plan design they can afford.
Here is the biggest mistake we find consumers making
A very large percentage of term insurance buyers do not understand exactly what they buying. Their biggest blunder is failing to purchase a long enough term period. I see young people who in reality will need life insurance for the rest of their life purchasing 10 and 15 year term policies. After the short term period is over, they have nothing left for life insurance. They still maintain a large volume of financial liabilities that will be past down to their spouse and children.
If they decide to purchase another policy the cost will be much higher since they are 10 or 15 years older now. If they have been diagnosed with any medical conditions. The cost of more insurance will be much more expensive and possibly impossible if they have a serious medical issue to deal with.
Longer term periods are much better than too short
Everyones needs are different so that is why we have a considerable choice of options for life insurance. For example, some people will need coverage for the rest of their life. Some will need it for 30 years and some for only 10 years. Due to the fact we don’t all have a crystal ball, we simply don’t know what the future will have in store for us. Don’t sell yourself short with too short of a term period. You can always cancel your policy if you find you no longer need it. This is a lot smarter that trying to replace coverage when your policy suddenly ends. Then you will receive that dreaded letter in the mail from your life insurance company informing you that your coverage has ended.
Don’t get the short end of the stick
Most so called financial advisors will promote a short term (10 & 15 year) plan design because it is cheap. They feel you will be impressed with the very low premium. They know you will be more likely to quickly sign on the dotted line. This in turn will make them look like heroes saving you money. In reality, they are more interested in improving their finances than yours. Ten or fifteen year term plans are great if this is actually what you need. In many cases these shorter term plans designs are simply too short for your needs.
The smart way to purchasing life insurance is through a licensed independent insurance agent and not one of these financial carpetbaggers. Life insurance companies make huge profits on these shorter term period policies. This is because they generate very few death claims. The insured simply outlives the policy and all those premiums were easy money for the carrier. The insurance companies come out smelling like a rose but the insured bites the bullet.
Advantages of purchasing term life insurance
- They offer a large selection of Riders available to customize the policy design for you.
- Term can be converted to a permanent Universal Life policy.
- If you only need life insurance for a specific time, you can designate the time period.
- Your death benefit is level and never changes with time.
- Your premiums will always be exactly the same from year to year.
- The cost of the policy will always be the most cost effective compared to other plan designs.
If You Want Permanent Life Insurance, Term Can Still be a Good Choice
If you are wondering how Term can still be a good choice even though it is a temporary plan design, keep on reading. Term normally has a 5, 10, 15, 20, 25 or 30 year term period before it expires. But, as I mentioned it can be converted into a permanent universal life insurance policy. This can be done at a specific point in time designated in your policy. You can also combine a separate universal life policy to have the best of both worlds.
You can buy term insurance for the period of time where you will have the highest financial liabilities. The additional universal life insurance policy can be purchased with a lower face amount. The universal life policy will still be giving you financial protection long after the term policy has expired. This method works out great for people and creates a perfect life insurance portfolio.
Low cost term life insurance vs. whole life insurance
There is absolutely no comparison in comparing term life insurance vs. whole life insurance. Many years ago whole life insurance was sitting on top of the hill as the the number one life insurance product. Today whole life insurance is near obsolete and many companies no longer even offer it. If you are looking for a permanent life insurance product, review the universal life insurance plan designs. As a rule, when people actually see what whole life would cost, they get a severe case of sticker shock and drop that thought right away.
Term plans have a list of riders that you can add
Here are just some of the riders available to add to a Term policy:
- Guaranteed Insurability Rider
- Return of Premium Rider
- Child Term Rider
- Accidental Death Rider
- Long Term Care Rider
- Accelerated Death Benefit Rider
- Family Income Death Benefit Rider
- Waiver of Premium Rider
How do the companies determine my premium?
The cost of term insurance will depend on several main factors such as:
- Your Current Age
- Your Gender
- Driving Record
- Credit History
- Health History
- Height & Weight
- Dangerous Sports Involvement
- Hazardous Occupation
- Parents Health History
Some applicants may be classified as a higher risk than others
Usually the main factors that will impact your rates will be medical conditions. Also your occupation and the sports you are involved in. If you have any serious medical conditions. Your rates can increase based on the severity of your health issues. For example, Cancer, heart disease, and any condition that is life threatening can drastically increase your rates. Your application could even be declined.
If you have a dangerous occupation, your job will also be taken into consideration. For example occupations such as pilots, commercial divers and storm related electrical workers can have an increase in job related deaths due to their hazards. Dangerous sports can also come under the microscope such as rock climbing, drag racing, skydiving and scuba diving among many others. Any sport that has a history of fatalities will be taken into consideration.
Group term insurance through your employer
There is nothing wrong with having term life insurance through your employer. The only problem is you can’t count on it being there for the long haul. If your employer decides to cut expenses, your life insurance could be the first expense to go. No matter how secure you think you job is. You cannot depend on having life insurance with your employer. Your families financial future depends on having you continuously having life insurance, so a personal policy is the only way to go. You can consider life insurance through your employer as just supplemental coverage at best.
Health History Questions on a Life Insurance Application
If you have a mild medical condition, it might not make any difference on a life insurance application. Here are some questions that will hold a lot of weight on an application:
- Have you been admitted to a hospital in the last 10 years?
- Have you been prescribed any chronic medication in the last 10 years?
- Were you required or asked to have surgery in the last 10 years?
If any one of those questions apply to you, they may effect your application.
Height and weight factors when applying
If there ever was an important ingredient on a life insurance application, it is your height and weight. Applicants that are overweight or obese can be looking at increased rates or even a decline. Being overweight is an issue life insurance companies take seriously. A person that is overweight can develop serious medical problems such as Diabetes, heart disease or strokes. Being overweight can definitely play a big part when deciding your health classification.
Ways to Save Money When Purchasing Term Life Insurance
Rate bands – Purchasing a face amount that will allow you to take advantage of life insurance rate bands will help you save money. Just something that is very simple like rounding off a number like $200,000 to $250,000 can work wonders. As another example, if you are interested in a $450,000 face amount, rounding it off to $500,000 would reflect another decrease in the cost of coverage. Most people have never heard of rate bands, but working with them can help to reduce your premiums.
Laddering policies – Laddering policies is where you use two or more policies with different term periods to create a life insurance portfolio. Here is a good example of how laddering policies can reduce your life insurance expenses. If an individual needs $1,000,000 in life insurance coverage. You don’t have to buy one policy with a face amount of $1,000,000. Let’s just say you need life insurance for 30 years with a total death benefit of $1,000,000.
In this scenario you need the the most coverage for the first twenty years to cover a mortgage and college tuition. You can purchase a 20 year term policy for $750,000 and then purchase another policy for $250,000 for 30 years. After twenty years, the 20 year Term policy drops off and you are now left with another 10 years for $250,000. This will be a lot less expensive that purchasing on policy for 30 years with a $1,000,000 face amount.
Here is a few more ways to save money
Paying annually if possible – Your mode of payment can also help save you money. You can save as much as 10% paying on an annual basis vs. monthly or quarterly. Many people choose a billing mode dependent on their budget. If you can comfortably afford to pay your premium on an annual basis, do it and save some money. This will help you save money for years to come when you look at how many years you will be paying premiums.
Underwriting reconsiderations – If your agent receives the final rates and he believes the health class could be improved, he can ask for a reconsideration. If this does not work, you agent can use your application to re-apply with additional companies.
Face amounts – A face amount is also known as a death benefit. Make sure you spend enough time to carefully plan out your best face amount needed to provide just the right amount. If you buy too much you will be overinsured and you will have higher premiums to pay. If you don’t purchase enough, your dependents can be left with a financial dilemma. Look closely at what your dependents would need to live on if your income suddenly stopped. Use our face amount calculator to help you arrive at a logical number.
Medical pre-screens help determine what company to apply with
A medical pre-screen only takes a few minutes to complete but it could help save you a lot of money. We offer an online medical pre-screen form that we have applicants with health conditions complete. This information gives us the advantage to determine which carrier we should have our new applicant apply with. We get all health conditions out in the open before the applicant sits down to apply. Your identity is never given to the carriers on a medical pre-screen, just your health conditions.
All Life Insurance Rates Are Regulated by Law in Each State
Many consumers believe that the price of insurance can vary from one agent to another. Nothing could be farther from the truth. This means you can’t find a better price for the same insurer’s product. There are no “sales prices” or special discounts or rebates. The price of all forms of insurance are etched in stone with no variation from where you buy it. Each state has a department of insurance that regulates all of the insurance prices. If the insurance product is exactly the same, the premium will also be exactly the same. Read our blog post life insurance rates are regulated by law for more information.
How can I make sure I receive the best rates if I apply?
Getting the best rates possible will depend on how hard your agent works to shop the market for you. We work with over 40 of the most competitive companies. We also shop the market hard to get our clients the lowest rates. But always remember, getting the lowest premium will depend extensively on your health history along with your lifestyle. We are always bound and determined to secure the best rates because our reputation depends on it.
There you have it!
Now after reading this blog post. I am sure you are an expert in shopping for the best term life insurance rates. Just kidding, if you want to get the lowest premiums just give us a call and we will be glad to help you. The good part is there is no cost or obligation for our help! Insurance can be a little confusing at times but you don’t have to bear the burden. Let an experienced independent insurance agent do all the work for you.
All the best,
*We are here to help you with no cost or obligation. Take a moment to set up a time to discuss your life insurance needs.