Choosing the best life insurance policy does not need to be a confusing or overwhelming experience. As one of the most important financial decisions you’ll ever make, buying life insurance requires some forethought as to what you and your family need. With many different options available, working with an experienced insurance professional can help you gain peace of mind and confidence in your decision. Here are a few questions to consider at the start of your life insurance selection process:
- My employer provides life insurance – do I need more?
Group employer policies are typically very affordable and easy to enroll in without a medical exam. However, these policies may not provide the coverage you and your family need. In fact, most group policies only pay an amount that equals one or two years’ salary. When you take into consideration the amount of your monthly mortgage payments, living expenses, debts, education costs for children and more, it’s likely you will need a larger policy. Having a personal policy to supplement your employer’s group policy is critical to ensuring the overall coverage needed.
- What types of life insurance should I consider?
Term Life Insurance: Individuals typically buy term life insurance to cover the cost of living expenses for their families such as annual living expenses, amount it would cost to pay off the mortgage, education costs and more. Those without dependents may choose to purchase enough coverage to just cover end of life expenses and funeral costs.
With policies provided for a limited time such as 10, 15 or 20 years, term life insurance coverages typically range from $25,000 to $2 million. If you pass away during the term of the policy, your designated beneficiary will receive the death benefits from your policy. Premiums are guaranteed for that time and if you choose to continue after the time period is up, your premium may increase.
Whole Life Insurance: As the most common form of permanent insurance, whole life insurance provides lifetime coverage. Premiums are fixed and build cash value that may be tax-deferred. Consider this type of policy if you need life insurance for as long as you live. For example, a permanent policy will pay a death benefit whether you die tomorrow or live to be over 100 years old.
It is important to note that while premiums on whole life insurance policies are generally higher than term insurance, the cost remains the same no matter how old you are.
Whole life insurance policies are also a great option if you want to accumulate a savings element that grows on a tax-deferred basis as well as acts as a source for borrowed funds – regardless of your credit status.
Universal Life Insurance: Also a form of permanent life insurance protection, universal life insurance policies offer access to tax-deferred cash values and the ability to adjust how much you pay each year. These policies allow you to reduce or increase the death benefit more easily than a traditional whole life policy and provide a guaranteed rate of return on your cash values (depending on certain stipulations). The best part about universal life insurance policies is that they provide lifelong coverage at rates that can be considerably lower than other forms of permanent insurance.
Variable Life Insurance: If you are comfortable with assuming investment risk for the potential for greater returns, variable life insurance may be a good option for you. Because of investment risks, variable policies are considered securities contracts and are regulated under the federal securities laws; therefore, they must be sold via a prospectus. You can use the policy for many of your planned financial needs, such as supplemental retirement planning solutions, business planning solutions, long-term care and education funding. As a securities product, it’s important to understand that fund performance could lead to declining cash value or death benefit over time.
Long Term Care Insurance: Individuals are living longer lives and long-term care insurance can protect your retirement savings from being hit with devastating expenses from medical expenses, nursing homes, assistance facilities and more. Paying for care out of pocket isn’t practical or cost-effective for many people. With the right long-term care coverage, you can use the benefits to cover home health care to ease the stress on family members.
- What health factors will be considered before obtaining my policy?
Most often, a medical examination is required when buying life insurance. The purpose of the exam is to get a snapshot of your overall health. You may be asked to fill out a questionnaire about your health, provide a blood sample, a urine sample, and if you’re an older candidate – you may be asked to undergo an EKG.
Through the process of underwriting, insurance companies determine the cost of a policy based on a number of factors that are acquired during the medical exam process:
- Height & Weight
- Existing Medical Conditions
- Tobacco Use
- Hobbies & Occupation
If you are in good health, don’t use tobacco and don’t have a hazardous hobby or job, it’s likely you will have lower premiums.
- What are my family’s needs?
If you have dependents or others who rely on you financially, it is important that you strongly consider life insurance. Having enough insurance to pay your debts and provide your loved ones with some income will give you the peace of mind that they will be able to sustain or exceed their current quality of life when you are gone.
Consider these questions to help you determine how much life insurance is right for you:
- Do I need to replace my income for my spouse, children, or other family members?
- Do I have debt, such as a mortgage, credit cards, student loans, or other debt?
- Do I want to help my children pay for college?
- Will my family need money to pay for my funeral costs or the cost to settle my estate?
- Do I have a large estate that could be subject to state or federal estate taxes?
- Does my lifestyle put me at increased risk?
There are many different heath factors that affect your life insurance premium, but did you know that your lifestyle, hobbies and occupation also impact the cost of your premium? Many insurance companies will ask you to disclose any hobbies that put you at risk, dangerous professions and even your driving record. Certain factors may result in an increase in rates or even denial of coverage if they carry a heavy risk of accidental death.
- How do I find an affordable policy?
It is important for individuals to put the cost of life insurance into perspective. How much do you spend each day on coffee… getting your nails done… a slice of pizza? The fact of the matter is that 8 out of 10 Americans overestimate the cost of life insurance. Additionally, the average monthly amount spent on take-out food is $75, where the average cost of life insurance is only $30. So while you think you may not be able to afford a life insurance policy, it’s important to look at how you can fit the critical protection needed for your family into your budget. Consult with a knowledgeable insurance professional and learn what is available at a cost you can afford.
When you head out the door each day, you face risks both big and small. Would you take the same risks when it comes to your loved ones? Probably not. That’s why getting life insurance, or what we like to call Love Insurance, just makes sense. Learn more about how TWG Insurance can provide the information and resources needed to help you protect your family.