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May 7th, 2021
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Guest Post by Liana Corwin As a new or soon-to-be parent, there are so many things to consider for the first time, or reconsider in a new light. Starting a family is an amazing adventure but it also requires us to consider how to secure our loved ones’ futures should anything happen to us. While the to-do lists may be long — and will probably be ever-growing — life insurance is one item worth an extra look. Why new parents need life insurance New parents need life insurance for the same reason anyone with dependents does: to make sure your loved ones are cared for in case you’re no longer around. You are now in charge of a new person who won’t be financially independent for a long time. While you may have some form of life insurance through your work, it may not be enough — and, like any other employee benefits, it is typically tied to your job — you leave, it may not move with you. Another important consideration is that, regardless of your age, the best time to buy life insurance is always right now. That’s because any kind of life insurance comes with higher premiums the older you are. As such, it makes sense to get a policy as soon as possible to lock in the best price. Which kind of life insurance is right for new parents Broadly speaking, life insurance policies come in two variants: “term life” and “whole life.” With the former, you choose a given time period (the “term”) during which you will pay monthly premiums and receive coverage for a given amount that, should you die within this period, will go to your beneficiaries. Conversely, “whole life” is an open-ended contract with no expiration date: if you keep paying in, it will cash out whenever you die. Some whole life insurance policies also include a cash value component, whereby a portion of the premiums are invested and accrue interest, raising the overall value (and cost) of the policy. “Term life” is likely the right kind of life insurance for new parents for several reasons: One, it is generally cheaper than whole life (3–10x less expensive), possibly an important factor given the impact of having children on a family’s budget. Two, it’s relatively easy to figure out the appropriate term length — typically 10 to 30 years — if your goal is ensuring your children receive support until they’re financially independent. Three, while “whole life” may offer an investment component of some kind, a financial strategy called “buy-term-and-invest-the-difference” may have higher returns and you control the investment. In this case, a customer buys term life insurance, then saves or invests the difference between the payment for that term life product and what it would have cost for a permanent life insurance product that provides the same coverage amount. Typical term life insurance can be rather limited, however. With most term policies, you select a policy and you're pretty much locked into it for the duration of your term—that means you have to project at the time you're taking out your policy what your family and financial picture will look like over the next 10, 20, 30 years. Typical term life insurance can be rather limited, however. With most term policies, you select a policy and you're pretty much locked into it for the duration of your term—that means you have to project at the time you're taking out your policy what your family and financial picture will look like over the next 10, 20, 30 years. That’s where laddering, or flexible term life insurance, comes in. Your life is dynamic, and you should have the option to change your policy as your needs change. Ladder gives you the option to decrease your coverage over the course of your term life policy, which decreases your premiums by the same proportion. For example, when your kids are grown up and no longer financially dependent on you, or when you pay off your mortgage early, you can decrease your coverage (and payments) with a few clicks online or taps in the app. Or maybe you apply to bump up coverage because you have a new baby or move to a city with a higher cost of living. As you increase or decrease your coverage throughout your term, your monthly premium payment will increase or decrease accordingly. Staying on top of your life insurance needs is a smart way to save money over the years while keeping your loved ones covered. Why both parents should get life insurance It’s important to note that we’ve been discussing which life insurance is right for new parents, plural. Whether you and your partner are both working or one of you is a stay-at-home mom or dad, you should consider both getting life insurance. That’s because the support provided by a parent isn’t only counted in dollars earned: if one parent isn’t around anymore, there is suddenly a deficit in terms of how much time they used to put into childcare, managing the home, cooking, transport, and so on. All of this non-salaried work will have to be provided by some other means, and a second life insurance policy will go a long way towards maintaining your family’s standard of living. What to consider if you’re a single parent If you are a single parent, one point to note is that most life insurance policies won’t pay out to minors, so it is worth consulting with an attorney to determine how best to make this work if you want the money going to your child(ren) or for their care. It is generally easy to do, you just want to make sure it's done correctly. Next step: figure out your life insurance needs If it all feels a little overwhelming, don’t fret! A free online calculator will help you figure out your needs in just a few minutes. Another item checked off the list! Liana Corwin is the Director of Communications and Editor of the Financial Literacy Blog at Ladder, an award-winning insurtech that’s using technology to make life insurance smart, easy, and affordable. Passionate about helping consumers, Liana has spent nearly a decade working with brands that solve hard problems and make consumer experiences delightful.
You may find yourself wondering: Is life insurance really worth it? Do I even need it? The answer to these questions depends on what your life looks like. As you assess your life insurance needs, here are six questions to consider: Are your funeral expenses taken care of? What would happen to your debt? Do you have dependents? Are you a dependent? Are you interested in an asset? Do you want to leave a legacy? 1. Are your funeral expenses taken care of? When was the last time you saw a GoFundMe fundraiser for a funeral? The National Funeral Directors Association reported that the median cost for funerals in 2019 were $9,135 for burials and $6,645 for cremations. Ask yourself the following questions: Are your funeral costs taken care of? (You can set aside your own savings, purchase things like burial plots in advance, or work with a funeral home to prepay your funeral.) Can your friends or family cover the funeral costs while waiting for your will to be processed fully? If you answered either of these questions "no," considering a life insurance policy can help your family pay their respects and focus on their grief rather than how they'll fund your funeral. Personal experience Randy VanderVaate president and owner of Funeral Funds, "I learned first-hand the importance of life insurance when my father died on May 10, 2017, without life insurance. When my father died without life insurance, our family had to figure out how to pay for his final expenses, which was emotionally stressful and financially burdensome. This experience reinforced my conviction that people need life insurance if they don't want their family or friends to struggle emotionally or financially after they're gone." Back to List 2. What would happen to your debt? Some debts are shared. Others are not. Review your debt to be sure you understand what debts would become the full responsibility of another or just be collected from your estate if you passed away. If any of your debt would become someone else's responsibility personally or professionally, be sure to have a life insurance policy in place to cover these debts. Personal experience: Business loans Matt Schmidt, Diabetes 365 Founder, "There are many reasons an individual may need life insurance coverage, but one popular example of why you may need a policy is to satisfy obligations for a SBA Loan. Every year, thousands of people will apply for a SBA loan. One little known fact that many are unaware of is that the lender will require a life insurance policy for collateral assignment. I personally went through this process about 10 years ago and got through to the very end before they stated to me that I needed a policy for a specific amount. While I was thrown a little bit off by this requirement, it obviously made perfect sense as to why the lender would require this type of collateral. Being able to find a very affordable life insurance policy was a relief, and ultimately the loan went through without a hitch. Obviously receiving the loan amount was of tremendous use." Learn more about entrepreneurs and life insurance. Back to List 3. Do you have dependents? Whether you work or not, a life insurance policy is especially important if you have dependents. Consider what your partner and dependents would need to replace the work you do. If you provide income for your family, make sure you buy enough life insurance coverage to replace your income. If you are a full-time parent, think about the costs of child care, food preparation, tutoring, cleaning, etc. when deciding how much coverage to buy. Personal experience: Growing family Kelan Kline, personal finance expert and cofounder of The Savvy Couple, "We recently got life insurance when we started to grow our family and felt the need to protect them better if something were to happen to my wife Brittany or myself. Since we run an online business, it's even more important to have all of our ducks in a row with our will and life insurance. We both got policies from Haven Life after shopping around for a bit. We ended up both getting a 30-year term life insurance policy covering us each for $500,000. We also recently set up our will so everything is in place and our family is protected." (Incidentally, Haven Life ranks first on Best Company's list of life insurance companies and agencies. Read customer reviews of Haven Life.) Personal experience: Special needs child Kari Lorz, Head Mama Money Nerd for MoneyfortheMamas.com, "My husband and I have a few different life insurance policies in place, although we didn't intend to do this. We have a very typical 25-year term insurance policy for each of us (different amounts); we did this when we purchased our first home. Term policies are great to bridge the gap until you have enough in savings to be self-insured. My husband is 20+ years military, so he has a smaller policy through an ARMY package as well. We have a 5-year-old daughter together, and she has Cerebral Palsy. We're unsure of her future ability to earn enough income to support her needs. As part of a larger dependant care plan (Revocable Living Trust for us, a Special Needs Trust for her, an ABLE account, etc.), we found we were $1.2 million short of having enough to cover her costs for her lifetime. Hearing that dollar amount was comically sobering (I even laughed out loud a bit when our planner told us our figure). To help bridge the gap, we took out a whole term policy to leave behind significantly more funding. Yet, it still (most likely) won't be enough. A special needs parent's greatest fear is what will happen to their child after they aren't there anymore. I never want her to have to worry about money, so we are doing everything possible to make sure we reach that $1.2 million!" Back to List 4. Are you dependent? If you depend on someone else's income for support, you can buy a life insurance policy to insure their life and name yourself as the beneficiary. If you receive alimony or child support, buying a life insurance policy on the person paying these costs can help you maintain your income and financial stability. Back to List 5. Are you interested in an asset? Permanent life insurance policies grow cash value. The cash value can be used as an asset as long as the policy remains in force. This asset can be useful in some circumstances. However, it should not be your primary reason for buying a life insurance policy, unless you have extra cash lying around. Personal experience Karen Condor, insurance expert for TheTruthAboutInsurance.com, "When my husband and I became engaged in our early twenties, my father-in-law advised us to get life insurance. We didn’t see the point of it given our age, not planning to have children, and not wanting an additional expense. But he kept urging it, so we acquiesced. And he was right, of course: Our life insurance helped 10 years later when we had the opportunity to move from Pennsylvania to California for job promotions. We needed money upfront for moving expenses, with our company reimbursing us after the move. But we were strapped for upfront money since both of us were wrapping up a decade of paying off our student loans, working second jobs to make ends meet. We also didn’t want to dip into what little savings we had, in case of any emergencies. But since whole life insurance builds cash value, we were able to “borrow” the money we needed and repay the account over time at favorable terms. Without having life insurance, I don’t know if we would have been able to accept those better jobs and experience a better life." Back to List 6. Do you want to leave a legacy or pass on wealth? Life insurance policies can be used to build generational wealth because the death benefit is not subject to income tax. If you have extra money and want to use it to buy a life insurance policy to leave your children, it can be a nice way to grow your family's wealth over time. Even if you don't have dependents, you can use a life insurance policy to leave a legacy. Maybe there's a non-profit you care about. You can name this organization as the beneficiary of your life insurance policy. If this is your only reason for buying a life insurance policy, then it's not necessarily a need. Life Insurance Policies and Companies If you need life insurance, check out our top life insurance companies and agencies based on customer reviews. View Top Companies
A life insurance policy reflects long-term commitment. It is a nice gift to give loved ones. Buying a life insurance policy on your life and naming your partner as the beneficiary is a valuable way to show your partner you care about them and their future. You can also consider purchasing a whole life insurance policy for your children. Once they are old enough, you can pass the policy on to them. Using the cash value of the policy can help them pay for school and other life goals. Before you decide to get a life insurance policy as a gift, you need to consider your financial needs and goals. Consider whether or not your family members need life insurance. Work with a trusted financial adviser to determine whether life insurance is a good financial move. Depending on your situation, life insurance may not be a good fit as a gift. For example, if you've only been dating for a week, a life insurance policy is at least overkill and at worst a red flag. (You most likely won't be able to show insurable interest anyway.) Farmers Agency Owner John Williams says life insurance can be worthwhile gift under certain circumstances: "It’s a great gift if it is to cover your loss of income, expenses, and debts for your loved ones. It’s a good gift if your other option is receiving nothing. And it’s a pretty smart gift to protect the future insurability of your children or grandchildren." If life insurance is a good fit for your family's situation, here are eight things to know as you look into buying life insurance as a gift: Start with a conversation. Gather necessary details. Research your options. Evalutate premium costs. Choose a good insurer. Consider insurtech. Know the application process. Ask about policy transfers. 1. Start with a conversation. If you're buying an insurance policy to insure someone else's life, you'll want to have a conversation with them before you start the process. The insured has to provide information for underwriting, and you don't want them to be surprised when they're contacted by the insurer. While this makes a life insurance policy not a surprise, it does show your thoughtfulness and planning. If you're buying a policy for a minor, you'll usually need to understand the applicable rules. Felix Malitsky, Fortis Lux Financial president, identifies a few: "Generally, insurance coverage will be limited to a maximum percentage of the coverage on a parent. All siblings must have an equivalent amount of coverage. The child must be at least 15 days old. Ages 15 and younger need parental sign-off even if the policy is owned by a grandparent." If you're a grandparent, you'll need to have a conversation with your grandchild's parents about buying a life insurance policy. You may be able to make your gift a surprise if you're buying a life insurance policy to insure your life and naming your partner as the beneficiary. Depending on family dynamics, a conversation can still be worthwhile, especially if the person you're buying the policy for will take responsibility for premium payments. Jacob Irving, Willamette Life Insurance Founder, recommends approaching these conversations focused on the value of the policy: "Explain why you are providing this gift. It could be to leave kids/grandkids an inheritance, charity donations, or to provide a lasting legacy. Build a value that you know they will be able to understand and see." Back to List 2. Gather necessary details. Before you apply for a policy, know whose life you're insuring, who the policyholder will be, and who you'll name as beneficiaries. As you choose the policyholder, insured, and beneficiaries, you'll want to avoid the Goodman triangle. If all three parties are different people (even if you name multiple beneficiaries and one is also the policyholder), the policyholder will be subject to gift taxes. To avoid these issues you can work with a tax professional to discuss using an irrevocable trust as the policy's beneficiary. More simply, you can have the policyholder and the beneficiary be the same person or the policyholder and the insured be the same person. (The insured person cannot also be the beneficiary for obvious reasons.) When you apply for a policy, you'll want to have basic information about the insured: name, gender, birthdate, and health history. These details are necessary to complete the application and underwriting. "When buying a life insurance policy as a gift you will also need to know the person you are insuring personal information such as a driver’s license and Social Security number. Finally, make sure you know the health of the person so you can answer the medical questions completely and accurately," advises Manny Lirio, Vantis Life AVP Consumer Direct Marketing. You will also have to provide insurable interest, which shows you have a reason to buy an insurance policy. For example, you can't just buy a policy on your favorite singer. You have to have a familial tie or strong financial connection. "It should be a direct relative, or perhaps even a business partner with a mutual business interest, but should always be discussed with the person who you are purchasing the policy beforehand as they may have to answer questions or have tests done to determine their eligibility," says Duncan France, State Farm Agent. Back to List 3. Research your options. There are many types of life insurance policies. You can find temporary and permanent policies. Some policies are fully underwritten, which means a longer and more thorough application process. Others require a less thorough application and review like guaranteed issue life insurance. Policies can be customized with riders that add benefits or protect your policy. "Some policies accumulate cash value, such as whole life, final expense, or universal life policies, where others, such as term policies, can maximize your dollar but are only in force for a set period of time. Cash value policies can be accessed by the owner of the policy at any time, so keep that in mind when gifting insurance," says France. All of these options can be daunting, so understand why you're buying life insurance and what your needs are. Working with a trusted life insurance agent or agency can also help you explore and narrow down your options to find a good fit. Back to List 4. Evaluate premium costs. "Gifting life insurance is a great idea, as long as you understand that most of the time it is not going to be a one-time gift. You will need to understand the type of policy and the premiums (cost) associated with the policy. There may be annual premiums that will need to be paid each and every year for a set period of time or forever," says Michael Foguth, Foguth Financial Group founder. The policyholder is responsible for covering monthly premiums. If you're the policyholder, know what your budget looks like and how much you can spend on premiums. If you plan to transfer ownership of the policy, be sure you have a sense of how much the new policyholder can afford in terms of the monthly premium. However you plan to handle your gift of life insurance, be sure that you or your gift recipient are prepared for the financial commitment. Back to List 5. Choose a good insurer. Be sure that you purchase a policy from a trusted insurer. A.M. Best rates insurers for their financial strength. The highest ratings are A-, A, A+, and A++. Insurers with these ratings are financially stable and will likely be able to make claims payments. Aside from choosing a financially strong insurer, you'll want to consider the customer experience, particularly when it comes to claims. Read trusted customer reviews and check government sites for formal complaints. If you decide to work with an insurance agent, you'll want to find someone trustworthy and with good experience. Customer reviews and referrals from friends or family can help you with this. It can also be worthwhile to double check that your agent has a license to sell insurance in your state. Top Life Insurance Companies Learn more about your life insurance options by looking at the top-rated companies and their offerings. Learn More Back to List 6. Consider insurtech. Insurtech companies are making applying for life insurance simpler, faster, and more convenient. You can apply for temporary and permanent life insurance policies online. In some cases, you'll need to complete medical underwriting either with a medical exam or with an at-home kit. Most insurtech companies offer policies from highly rated insurers. Before you work with an insurtech company, check the insurer that underwrites the policies for its financial strength ratings. If you're looking for a quick application process, purchasing life insurance through an insurtech company is a great option. Life Insurance InsurTech Companies Learn more about eight insurtech companies by looking at their offerings and customer review data. Learn More Back to List 7. Know the application process. You can apply for a policy by working with a life insurance agent, using an online platform, or working directly with an insurer. However you decide to apply, ask questions about the application process to make sure you understand what to expect. Most online applications are straightforward and user-friendly. However, you should understand how the platform uses your application. Does it stay with the insurer? Does the site allow you to compare policies from multiple insurers? Will your application be sent to multiple insurers or just to the insurer you selected? Does the company keep your information anonymous until you decide to buy a policy? If you're working with a life insurance agent or directly with the insurer, ask questions about how long the process will take and what to expect from underwriting. Back to List 8. Ask about policy transfers. You can change the ownership of a life insurance policy. Be sure you understand how to change the ownership of the policy. Review any tax ramifications associated with transferring policy ownership. This is particularly important if you're buying a whole life insurance for a child or grandchild and plan to transfer ownership to them. You may be required to pay gift taxes, so evaluate your options and plan the transfer with a tax adviser. "The Internal Revenue Service limits the amount that people can give tax free to a child in a particular year. For larger premium policies, a properly structured ownership arrangement allows you to take full advantage of those limits. The policy’s cash value grows on a tax-deferred basis and may eventually be worth far more than your original gift," says Malitsky. If you transfer ownership, you may also pass along responsibility for premium payments. If you want to avoid this situation and the potential of a policy lapsing, One Stop Life Insurance owner Zhaneta Gechev recommends buying a financed policy: "What we recommend is if you want to buy life insurance as a gift, make sure you pay off the policy before signing off to them. There are 10-Pay or 20-Pay policies. For a few extra dollars a month, you will have the opportunity to completely pay off the policy before signing it to the insured. In this case, you would gift them a life insurance policy, without the monthly bill. It will stick and they will appreciate it more."
Maybe 2020 was the first year you've ever considered buying life insurance. Life insurance offers valuable financial protection for your dependents. The death benefit can help your family finish paying off the mortgage and replace your income. How life insurance works, its terminology, and its policy variations can be difficult to navigate, especially if you're applying for it for the first time. Here are four things people wished they had known about life insurance: You've got options. You can layer term life insurance policies. You may not have to pay a life insurance premium for the rest of your life. You may find permanent life insurance beneficial. 1. You've got options. "What I wish I had known before purchasing life insurance, are all of the options. I purchased term life insurance because at the time it was most affordable, but with the intention of converting it to a permanent policy later on so that I would always have some coverage available. However now that I know of all the available options, it may have been more beneficial to start with a permanent policy." Nick Baldes, life insurance agent from Savewithcote.com. Exploring and evaluating life insurance policy options will help you find a policy that meets your needs. You'll find a wide variety of life insurance policies on the market. With such variety, you can find policies that fit your budget and meet your needs. "As for those that do not or have not yet purchased life insurance, the biggest "I wish I had known that" moment we always hear is that there is a policy for EVERYBODY. No matter what medical conditions one might have, there are life insurance options out there for people. There are policies where no medical exam is required, there are guaranteed issue policies you can have which will issue regardless of any underlying conditions," Baldes adds. Life insurance policies vary in underwriting, policy length, coverage levels, and features. While some of these aspects are easy to evaluate on your own, others are not. Underwriting is perhaps the most difficult to assess on your own. Insurers use underwriting to assess the risk of insuring someone. Certain policies require full underwriting. Others require minimal underwriting. The level of underwriting can affect your premium rate. Policies with less thorough underwriting (e.g. guaranteed issue policies) usually have higher premiums than those that have more thorough underwriting (e.g. fully underwritten policies). You'll also want to pay attention to how the insurer underwrites certain conditions. With life insurance, some insurers underwrite certain conditions more favorably than competitors. Working with a trusted life insurance agent or agency can help you find a good policy with the most favorable underwriting. For example, Quotacy's agents anonymously shop your policy with multiple insurers to find the best policy fit for your needs, including the most favorable underwriting. Back to List 2. You can layer term life insurance policies. "One thing I wish I had known before buying a life insurance policy is that you can layer fixed term policies, and this helps to keep your premiums low. Luckily, I found this out in good time." William Taylor, Career Development manager for VelvetJobs. Your coverage needs can also change over time. If you bought life insurance to cover your mortgage and provide for dependents, you may need less coverage as time passes. Making payments on your home lowers your debt. As your dependents grow up, they probably won't rely on you as much for financial support. You can also prepay funeral expenses, which again reduces the coverage you need. Although term life insurance is cheaper than permanent life insurance, saving on monthly premiums with layering frees up your monthly budget. Another option to layering term life insurance policies, is to look into insuretech companies that have developed adjustable policies or policies that automatically adjust coverage over the life of the policy. Ladder offers adjustable term life insurance policies. With one of these policies, you can decrease your life insurance coverage at any time, which lowers your monthly premium. If needed, you can also apply to increase your coverage. Increasing your coverage generally also increases your monthly premium. Everyday Life takes a different approach. It offers policies that automatically lower your coverage level over the course of your term policy. Your premium rate also adjusts as your coverage level changes. Back to List 3. You may not have to pay a life insurance premium for the rest of your life. "There are financed policies. They come with a higher cost but you only contribute for a few years." Jacob Naig, real estate agent and investor. Term life insurance policies only require premium payment for the term of the policy. However, permanent life insurance policies can require premiums for your lifetime. Luckily, you can find policies with customizable payment plans or pay for a policy with a single lump sum. Insurers offering these fully paid options for permanent life insurance include New York Life and State Farm. Back to List 4. You may find permanent life insurance beneficial. "I have had Term Life Insurance coverage since I was 27. I am literally 55 years old today…and what I wished I had known was how much 'cash value' I would have been able to accumulate by now had I invested more premium payments up front. I sincerely wish the two different agents who’d sold me the Term Life policies would have shown me the difference. I am grateful to have the coverage and I’ve essentially 'rented' the Term Life where I would have 'owned' a Universal Life or Whole Life Policy and this additional Asset for my family." John Stellar, Everyone's PR and Stellar Universe, Inc. The cash value offered by permanent life insurance policies can be accessed without making a claim. For example, you can borrow from it. Keep in mind that the death benefit will be reduced by the cash value amount you haven't paid back. You'll also want to pay attention to your policy's terms to ensure that you don't overborrow from the cash value and lose your policy. Depending on what your insurer offers, you may be able to add an over loan protection rider. Although permanent life insurance offers nice advantages, it may not be the best fit for every situation. Carefully assess your life insurance needs and budget as you choose between term and permanent life insurance policies. Working with a trusted life insurance agent or financial advisor can help you determine your needs and wants. Be aware that permanent life insurance policies are usually fully underwritten, so the application and approval process can take longer than other policies. However, if you're looking for an online, quick application process, Vantis Life offers online applications and approval for whole life insurance.
If you're just starting to shop and apply for life insurance, you've probably got a lot of questions. In this guide, we cover some of the most important questions about term life insurance: What is life insurance? What are my life insurance options? Why term life insurance? What riders should I consider? Do I need life insurance? How do I know if I've got a good life insurance company? What are the best life insurance companies? You'll also benefit from customer reviews and BestCompany.com company rankings. We verify each review before it's posted to our site to ensure that it comes from a real person. Our ranking system is based on an algorithm that heavily weights customer ratings and reviews. You can trust the customer reviews and ratings on BestCompany.com. Buyer's Guide: Term Life Insurance Use our guide to learn more about term life insurance, what to look for in a life insurance company, and BestCompany.com customer reviews and ratings. Download
Life insurance purchases should be based on your needs. Before buying a life policy, you'll want to carefully evaluate your needs to make sure that life insurance is something you need. To ensure that you get the best advice as you make this decision, consult with a trusted financial advisor. "There are a lot of very smart sounding 'life only' agents or 'advisors' as they refer to themselves that have no fiduciary duty to make sure they put your interests ahead of their own. I would put a large amount of emphasis around finding yourself a fiduciary who is legally bound to do what's right for you without regard to how much commission they will receive if you buy a product through them. The two places you can look to find honest, trustworthy advice are going to be what are referred to 'fee based' financial or retirement advisors, and if you work with an Estate Planning attorney they will likely be able to get you going in the right direction. Both have fiduciary responsibilities to act on your behalf, but nothing is ever guaranteed so you'll still want to do your own homework," recommends Ian Grove, associate advisor for Robert Green & Company. While you set up your meeting, this article can help you start thinking through several aspects that are part of the life insurance decision and purchase process. I reached out to life insurance experts to learn more about what aging adults need to know as they're buying life insurance. If you're buying life insurance for a parent, grandparent, aunt, uncle, or other senior loved one, the expert advice below will help you understand how to evaluate policies to find the best fit for your needs. Do you really need it? How much do you need? What can you afford? What kind of policy should you get? How should you buy it? Do you really need it? report_problem Attention: Most aging adults won't need life insurance. While aging adults don't usually need life insurance, there are circumstances that can make it a good purchase. The questions in this section will help you determine whether or not you need it. Before you work with a life insurance agent or contact an insurer, you should consider whether or not you actually need life insurance or if you just think you need it. "As you get older and into your senior years, it can become less critical to have life insurance. For many people, they have paid off many debts at this stage and no longer have fully dependent children. However, that’s not the case for everyone, and there are still important reasons to at least consider if it’s necessary for your family. If your spouse or a child is still heavily dependent on you for financial support, that may be reason enough to have a policy. There may be a time where it simply no longer makes sense to have life insurance; however, it’s best to carefully consider this every step of the way and make the decision that best fits your life at each stage," says Brett Wilson, Ethos vice president. If you are considering life insurance, here are questions to think through before you buy it: Do you still have dependents? Would your spouse become responsible for paying your debts? Will you need to be in an assisted living or have long term care? How will your funeral be paid for? Are you trying to leave an inheritance? Do you have enough saved for retirement? Do you still have dependents? If you have dependents or a spouse, a life insurance policy may be right for you because it can provide money to pay tuition, living costs, etc. that you would pay for if you were living. Think about your current financial situation, retirement savings, and other assets before purchasing a policy. Charles Read, CPA, and former life insurance agent shares his experience: "I am now a widower and carry no life insurance. While my wife was alive, I carried no life insurance the last ten to fifteen years or so of her life. Why? No need. I have a retirement program that would have kept her in the lifestyle she was accustomed to for her entire life." If you don't have dependents, you may not need to buy life insurance. "When is life insurance desirable? When you have small children that need to be raised. So unless you are a senior raising a grandchild that will need to be brought up and educated if you are not there, why buy a poor investment?" adds Read. search Highlight: If you have dependents, you may want to consider life insurance. Consider your current financial situation and savings. If there wouldn't be enough to care for your dependents if you passed away, you may want to purchase a life policy. Back to "Do you really need it?" Would your spouse or someone else become responsible for paying your debts? In most cases, your outstanding debt will just be paid by whatever amount of cash or assets you leave behind, which will reduce or eliminate any inheritance. But, the bottom line: most of your debt, if it's solely in your name, won't be passed on to your dependents. "What if you have outstanding debt? So what. They can’t get money out of a dead person and your kids are not responsible," says Read. Before you get life insurance to cover outstanding debt, take stock of your debt and understand what would happen to your debt if you passed away. Your debt may not go to your kids, but your spouse or partner may become fully responsible if they're still living. Depending on what the rest of your financial situation looks like, you may want to purchase a life policy to alleviate those burdens. search Highlight: If someone else would take responsibility for your debt, you may want to get life insurance. Again, review your current financial situation and savings. If your debt would be passed to someone else or you wouldn't be able to leave enough for your dependents to live on, a life policy can be a wise purchase. Back to "Do you really need it?" Will you need to be in assisted living or have long term care? While you can't predict the future, you need to think about what health challenges you may face down the road. What are your options if you can no longer live on your own? Do you have children, nieces, or nephews that can help you? Will you need to live in an assisted living facility or pay an aide to help you at home? If you think you'll need assisted living or long term care, understand what your payment options are. You may be in a position to pay for that with savings. If you qualify for Medicaid, that coverage may help pay the costs. You can also look into long term care insurance, but these policies can be expensive and difficult to qualify for. Grove explains why: "The traditional LTC insurance underwriter will look to qualify you on what they call Mortality tables which basically means they are trying to make their very best estimate on how you are going to die or how sick or incapacitated they think you will get when you begin the process of 'moving on.' The later, Mortality table wants to know not how you die but instead when they think you will die. This makes it far easier to get past the underwriters with things like a bad hip or sleep apnea. Next, the cost. Traditional LTC insurance was one of the most expensive coverages you would ever purchase, primarily due to the likely need for a claim. If you make it to your sixties, it's more than a flip of a coin that you will need some type of long term care and the costs can be staggering. Where I live in Napa, California you can expect to pay upwards of 12,000 a month for a decent private room in a care facility." If long term care insurance is out of your budget and you don't have savings to pay for long term care, you may want to consider a life insurance policy with a long term care rider or even an accelerated death benefit rider. "Seniors need to know that more and more life insurance companies are offering life insurance with chronic illness or long term care benefits. A life insurance policy can serve a dual purpose to help provide their beneficiary with a cash payout if they die and/or to help pay for possible long term care or home health care someday. The living benefits mentioned above are available on both term and permanent life insurance," says Gordon Conwell, III, owner of Americanterm.com. search Highlight: Life insurance as a way to pay for long term care isn't a standalone reason to buy a policy. You don't know whether or not you'll need long term care and you may have other options like moving in with a younger family member. If you qualify for Medicaid, it may cover your long term care costs. If you're buying life insurance for another reason, consider a policy that offers an accelerated death benefit or long term care rider. Back to "Do you really need it?" How will your funeral be paid for? While you won't be around to foot the bill for your funeral, you may want to think through how those costs would affect your loved ones and what you can do now to alleviate costs for them. "I carry no life insurance now because why would I need it. My funeral expenses will be paid for. Cremation is less than $2,000, and the VA provides my burial plot and marker. The other reason is funeral expenses so as not to be a burden to your children. Save $5,000 and preplan. Buy the cheap casket that the funeral director would talk your children out of. Flowers, will you care? Give me a break! Here in Texas they can actually bury you in a cardboard box or nothing at all, cheap!" advises Read. While your situation and final wishes may be different from Read's, you should explore your options for covering funeral expenses so that your family doesn't have to worry about it. Before you prepay for your funeral, vet the funeral home carefully. You don't want the funeral home to fold before you pass away since prepaid funerals can't be passed to a different funeral home. Alternatively, a burial insurance or final expense insurance policy will make a cash payout that can be used as the beneficiaries see fit. Just remember that you'll need to make premium payments to keep your policy effective. search Highlight: Life insurance doesn't have to be part of your plan for paying funeral costs. Figure out how much your funeral will cost. Do you have a burial plot already? What do funeral prepay options look like? Would your lingering savings be able to cover expenses? Determine what matters to you, and make a plan to cover those costs. Back to "Do you really need it?" Are you trying to leave an inheritance? Some aging adults may approach buying life insurance as a way to leave an inheritance without paying income taxes. If this is something you're considering, meet with a financial adviser to discuss the best way to move forward. Depending on your situation, you may be better off investing on your own. "Life insurance is a terrible investment as well. Take the same money and put it into a diversified portfolio, you will do much better. Life insurance funds large salaries and big dividends to investors, you get a fraction of what you pay for. They have buildings full of actuaries to make sure. Do you want to leave an inheritance? Save the amount of the premium and invest it, in all probability you will leave more money than the life insurance will pay. The insurance company actuaries know this but won’t tell you. If they do, salaries at the insurance company will have to be cut, including that of the actuary and management," says Read. search Highlight: Meet with a financial adviser before buying life insurance to leave an inheritance. While one of the biggest advantages of life insurance payouts is that they are not subject to income tax, you'll want to talk to a finanical adviser about whether or not this is a good option for your financial situation. Life insurance payouts are subject to estate taxes, so they're not entirely tax-free. Back to "Do you really need it?" Do you have enough saved for retirement? Consider what your retirement accounts look like, how much you'll get from Social Security, and how much longer you plan to work. Do you have enough to cover your expenses? If you have a permanent life insurance policy that accrues cash value, you can use your policy to supplement your retirement income. Keep in mind that your beneficiaries may not end up with a death benefit payout if you use your policy's cash value. "One of the benefits to leveraging these permanent insurances is there is a savings component built into the policy. If designed properly, you can gain the protection the life insurance provides and at the same time have a savings account inside that policy you can access while you're still alive to help supplement your lifestyle in retirement. As attractive as that function is, it is not the main reason most seniors look to fund a life insurance policy," says Grove. Alternatively, you can invest or save what you would spend on monthly premiums to have additional retirement income. search Highlight: Life insurance can supplement your retirement income, but you can invest on your own instead. Supplementing retirement income isn't a good reason to buy a life insurance policy. Remember, whatever cash you receive while living is usually taken out of the death benefit. However, the ability to get income can be an additional benefit to consider if you have other reasons for needing life insurance. Back to "Do you really need it?" Back to Menu How much do you need? If you do need life insurance, you'll want to consider what you can afford and carefully calculate the amount you need. Reviewing the questions in the previous section will help you understand whether or not you need life insurance and why you're buying life insurance if you do need it. Understanding why you're buying a life policy will help you determine how much to buy. "Seniors, like all life insurance shoppers, need to evaluate what a policy will help protect. A thorough needs analysis should be performed to make sure they are not under or overinsured," says Michael Quinn, Life Insurance Blog owner and director of marketing. If you're young and overinsured, there isn't usually much of a difference in premium amounts. It will make a big difference if you're an aging adult. "For a 30-year-old man, the difference between $500,000 and $1,000,000 of 10-year term is less than $10 per month. For a 70-year-old man, the difference per month for the same policy could be $300 or more. By taking the time to correctly assess your coverage needs, you could save yourself thousands of dollars a year in premiums," notes Dennis Ho, cofounder and chief executive of Saturday Insurance. report_problem Attention: Save money by only buying the amount you need. If you don't have a trusted financial advisor, talk to a few life insurance agents to see how much they recommend buying. Getting recommendations from different agents will help prevent you from overbuying and help you find a policy that meets your needs. Back to Menu What can you afford? You also need to buy a life insurance policy that you can afford long-term. If you stop making premium payments, you'll lose your coverage. "Seniors should only buy life insurance they can afford from someone they trust," advises Ross Quade, Insurance Agent and Owner of Prime Mutual. Buying a policy from a trustworthy agent is also important because life insurance is a big financial commitment, and you don't want to be upsold or buy more than you need. As you work with your agent, be clear about budgetary restrictions and any health conditions that may affect your premium rates. Being clear will help them find a policy that fits your needs and budget. "It's also very important to be honest and forthcoming to their agent about their health and other qualifying information. Their agent will be researching which companies they can qualify with based on this information," says Quinn. Keep in mind that what you can afford may change depending on your age and health circumstances. "Seniors should understand that health and age are the biggest factors that play into life insurance. The healthier and younger one is, the cheaper the life insurance policy will be. Seniors should understand that acquiring health insurance before after being diagnosed with a condition will lower their chance of obtaining an affordable life insurance policy or obtaining one at all as most insurance policies require medical exams," says Jasmine Young, MBA, CPA, CFE, and Southern Tax Prep founder and CEO. Back to Menu What kind of policy should you get? There are many kinds of life insurance policies available, each with different features that make it advantageous for certain situations. While some insurers have ages at which they'll stop issuing policies. "The most important thing that seniors should understand about insurance is that options are available. Insurers are much more comfortable offering new coverage older ages today and insurance can be issued to folks as old as 80," says Ho. Term life insurance Key Takeaway: Term life insurance isn't always a good fit. If you're buying life insurance to cover debt, a term policy is a good option because your debt will decrease as you make payments over time. Otherwise, be careful with term life insurance. It may expire before a claim is made. If you renew the policy, you'll likely renew at a higher premium rate. Term life insurance only offers coverage for a set period of time. Term policies typically have lower premiums than permanent ones, which can make these policies attractive. "Term life insurance is the best option for seniors. Term life insurance guarantees payment of a stated death benefit during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the policy to terminate. As seniors get older, they may have paid off all their debts or their children may become fully independent. In this case, they may not need or want life insurance anymore, and therefore would not want to be stuck with a whole life policy," suggests Wilson. A term policy may work for you if you're primarily buying coverage for debts. If you think you'll need coverage longer, term coverage may not be a good idea. "While it may be tempting to purchase a 10-year term policy to minimize costs, if there is a chance you need insurance longer, you might be better off getting a 20-year term or permanent insurance to be safe because extending your coverage in the future or purchasing another policy may be prohibitively expensive or even impossible if your health changes," cautions Ho. Quade agrees: "For many seniors, it's imperative that the coverage does not expire before they die, which is why term policies are often not the right fit." Whole life insurance Key Takeaway: Whole life insurance may be a good fit for some. If you're in good health, you can take advantage of a fully underwritten policy for lower premium rates on a permanent policy. Assess your insurance needs carefully and consult with a financial advisor to determine if a whole life policy is best for you. Whole life insurance is permanent life insurance coverage. As long as you make your premium payments, you'll maintain coverage with no premium increases. A whole life policy also accrues cash value that you can use while still living. The downside is that these policies are the most expensive type of life insurance. "Whole life insurance is the best life insurance option for seniors. Whole life insurance does not terminate at a specific age like term insurance is designed to do. Term life insurance for seniors often increases in price every five years and cancels after age 80. With whole life insurance, your coverage will last up to 121 years old. Whole life insurance is guaranteed to be there when you need it the most, as long as you keep paying the premiums on time," says Randy VanderVaate, Funeral Funds owner and president. If you're in good health, you may be able to find lower premium rates by buying a fully underwritten whole life policy than a guaranteed issue final expense policy. Before you buy a whole life insurance policy, remember why you're buying life insurance. Is it a permanent need like funeral costs and leaving an inheritance? Final expense insurance Key Takeaway: Final expense insurance is great if you're worried about passing underwriting. If you're buying life insurance to cover funeral costs, a final expense policy works nicely. You can find guaranteed issue policies that do not require underwriting. Remember, this means that you'll pay higher premiums. You'll only be able to buy a low amount of coverage. Final expense insurance is meant to cover funeral costs. "A more popular option for seniors is final expense insurance because they allow for elderly people to obtain an affordable policy without a medical exam. The benefit is smaller, often under $25,000, and can be approved within the same day," says Quade. If you're just looking for a policy to cover funeral expenses or have health issues that would affect underwriting, a final expense policy may be a good fit. These policies offer permanent coverage and level premiums. These policies are sometimes also referred to as burial insurance. "Most of the best burial insurance companies have lenient underwriting for the typical health problems that come with age, such as high blood pressure, high cholesterol, or diabetes are generally accepted for first-day coverage. These whole life insurance plans for seniors are designed to be easy to qualify for and be affordable for seniors on a fixed or limited income," says VanderVaate. As you consider final expense policies, you'll want to keep in mind that only lower amounts of coverage are available with these policies: "Final expense benefit amounts usually max out around $50,000 which will pay for their funeral and other final expenses. Most seniors aren't looking for big policies like when they were in their thirties and needed typical coverage for their mortgage and income replacement," says Quinn. You should also understand that your final expense policy may have a graded death benefit. "Some final expense policies don't pay the full death benefit right away. They can have what's called a graded benefit that might not pay the full amount for a year or two. These types of policies are offered to those with health issues — those who might not qualify for a non-graded plan. If the owner passes away early, then their beneficiaries will only receive the premiums paid into the policy, 10 percent on top for example, says Adam Hyers of Hyers and Associates. But, these policies may not be the best fit for you: "The biggest thing seniors need to know about life insurance is that they shouldn’t settle for the common final expense plans advertised everywhere. These plans are more expensive and have low coverage amounts since they are more accepting of high-risk clients. As a senior, you should go with traditional permanent coverage because you’ll save a ton of money. In addition to that, you won’t have any waiting periods and be able to get much more coverage. So keep the final expense plans as the last resort," advises Mack Dudayev, founder InsureChance Inc. Universal life insurance Key Takeaway: Universal life insurance may be a good fit for some. Universal life policies are typically cheaper than whole life policies. For approval with these policies, you'll go through underwriting. If you're not in good health, you may want to pursue another option. There are several kinds of universal life insurance. Work with your financial adviser to figure out which type is ideal for you. There are several types of universal life insurance. A few experts recommended a guaranteed universal or fixed indexed universal life insurance policy: Guaranteed universal life insurance "For the healthiest seniors, looking for coverage that is $30,000 or above, I would recommend looking into a Guaranteed Universal Life. It is a type of policy that ensures that they would not outlive their policy and when the time comes, they have a policy in place. These policies are considerably less expensive when compared to traditional final expense policies. However, they have more extensive underwriting. Oftentimes they require a medical exam. Again, this is a great option for people with average or above-average health," recommends Zhaneta Gechev, founder of One Stop Life Insurance. Fixed indexed universal life insurance "The best policy to purchase would be a FIUL or fixed indexed universal life policy. The cash value will grow tied to positive stock market index performance, but not fall when the index drops in value," recommends Mark Charnet, founder and CEO of American Prosperity Group. Policy riders Key Takeaway: Policy riders add value, but don't forget why you're buying life insurance. You may want to consider a policy with living benefits like cash value and an accelerated death benefit rider that can help you with challenges as you age. However, remember that the riders aren't the reason you're buying coverage. Focus on finding the best policy for your purpose and budget. Whatever type of policy you decide is best for you, pay attention to policy add-ons called riders. You'll also want to consider other features built into the policies you're considering. "Today, many policies have optional riders that can help you further customize your life insurance to your situation. For example, many insurers offer accelerated death benefit or long-term care riders that allow you to access a portion of your death benefit if you get a terminal illness or need long-term care. For seniors, riders such as these can greatly improve the value of their policy and are worth considering," suggests Ho. Don't get caught up in policy features and riders, though. Remember the core reason you're buying life insurance. Grove cautions: "I think the one biggest factor in all of this is to make absolute sure you've done your due diligence in understanding why you are going to look into the different types of life insurance policies and not get super distracted by one specific feature without weighing what you're sacrificing for that feature." Learn more about life insurance policy riders by reading "7 Common Life Insurance Policy Riders". Back to Menu How should you buy it? You've got several options when it comes to how you buy life insurance. You can work directly with the insurer, work with an independent broker, or buy online. Life insurers file their rates, so choosing one option over another won't find you a better rate from the same insurer. We'll go over each option briefly here. For an in-depth explanation of the pros and cons of each option, read "What's the Best Way to Buy Life Insurance?: What You Need to Know About Buying from an Insurer, Agency, and Online Retailer". If you buy directly from the insurer, you'll limit yourself to the policies and rider offered by that insurer. If you've looked around at a few insurers and have settled on one, then buying directly from an insurer isn't a bad option. However, if you have health issues, you may want to work with an independent life insurance agent or agency. They are familiar with how insurers underwrite certain conditions, which means they can help you find an insurer and policy that fit your needs. "Using an independent broker who offers multiple companies gives them the best chance at getting affordable coverage. This will avoid wasting time applying for companies or policies that may deny or rate them up at a much higher rate," says Quinn. Be careful when you're looking at policies online. Some websites generate leads for companies. If you give these sites your contact information, you'll end up with a bunch of sales calls. If a site won't show you a quote unless you share your contact information, find another site to use. Whatever purchase method you choose, be prepared to spot red flags in insurance companies and agencies. Choosing trustworthy and reliable companies will also help you make a good purchase. Truly understanding whether or not you need life insurance, your options, and what considerations to make will help you make a wise choice for yourself and loved ones.
If you're looking for a way to leave money to your children, other family members, or friends, a whole life insurance policy is a nice way to do that. In addition to leaving money as an inheritance, the policy's death benefit can be used to take care of funeral costs and any other debt. Whole life insurance is expensive. However, its premiums are fixed, so they will not increase or decrease over time. Whole life insurance also offers coverage for a lifetime (as long as you pay premiums) and accrues cash value that you can use as an asset while living. As you consider buying whole life insurance, here are nine things experts say to evaluate before you make a purchase: Advice from your financial adviser Your purpose Cash value growth Policy loan options Dividends Riders Coverage amount Affordability and sustainability Universal life insurance Advice from your financial adviser Whole life insurance is a major purchase with continual monthly fees, so you'll want to carefully evaluate how a whole life insurance policy fits into your overall financial plan. "ALWAYS seek the counsel of a qualified financial advisor. This does not describe most life insurance agents, who do not possess the knowledge or skill to provide comprehensive financial advice," advises Rob Drury, Association of Christian Financial Advisors executive director. Discussing your financial goals, current budget constraints, and why you want a whole life policy with your trusted financial adviser will help you determine if whole life insurance is a good fit and how much you should buy. Back to List Your purpose The second thing you should think about is why you're buying life insurance. "Individuals need to ask themselves what goal they are trying to achieve with the purchase of life insurance. For most, the goal is to provide for their dependents should they pass away prematurely. In those cases a term life insurance policy would make more sense. They are less expensive than whole life policies because they only have a death benefit component to them," says Alan Schoenberger, CFP® and Endeavor Financial Planning founder. If your coverage needs are short-term, then a term life insurance policy may be a better fit. However, if you want to have an asset to borrow from or leave a tax-free inheritance, a whole life insurance policy can be a good fit. Keep in mind, however, that while the death benefit is not subject to tax, it can be taxed as part of an estate. For more tips on choosing between term and whole life insurance, read: "Term Life Insurance vs. Whole Life Insurance". Back to List Cash value growth One advantage of whole life policies is that they typically have a guaranteed growth rate for the cash value of the policy. As you compare whole life policies, consider the rates of return offered by different insurers. Zhaneta Gechev, One Stop Life Insurance founder, also recommends looking at other investment options: "What is the interest rate that the carrier is guaranteeing you? Are you able to have a greater rate of return with a different investment tool?" In some cases, it may make more sense to increase your investment in a retirement plan because of the rates of return, like a 401(k) or IRA. Back to List Policy loan options As you consider investing more of your money in retirement accounts versus investing in a whole life insurance policy, realize that retirement accounts typically have tax penalties for early withdrawals in addition to paying taxes on the withdrawals. In contrast, there are no tax penalties for borrowing from your insurer with your whole life insurance policy as collateral. However, you will need to pay taxes on the loan amount you receive. If you do not repay what you borrowed, the insurer will take the balance from your life insurance policy. Before you buy a whole life policy, you also need to understand the insurer's terms for taking a loan from your policy: "What are the policy loan option details? Different companies have different loan provisions, so it is very important to understand the loan details. One option may be more favorable in certain market conditions, while another option may be more suitable for other conditions. It is important to understand the details and draw out multiple scenarios so that you are not caught by an unexpected surprise in the future," advises Henry Hoang, CFP® Bright Wealth Advisors, LLC. Reviewing these terms with your financial adviser will help you think through multiple scenarios and find a policy that best meets your needs. Back to List Dividends If you're buying a whole life insurance policy, there's an advantage to choosing a mutual insurer over a public insurer because mutual insurers are owned by the policyholders instead of stockholders. Mutual ownership means two things: 1. The insurer only answers to policyholders, so it will make decisions focused on what's best for policyholders without needing to consider stockholder interests. 2. When the insurer's investments do well, it pays dividends to its policyholders. "Because of the guarantees offered by whole life policies, they are underwritten very conservatively; therefore, premiums paid are typically far in excess of the amounts necessary to pay death claims. The excess premium collected by non-participating companies simply becomes additional profit to the insurer. For participating companies, particularly mutual companies that are literally owned by their policy owners, these excess amounts are distributed back to policy owners — either directly in cash, in the form of paid-up additions (additional death benefit), or applied directly toward future premiums," says Drury. If you're going to spend money on expensive premiums, you're better off choosing a mutual company because you'll get any excess back in dividends. "This is why most participating policies can become self-sustaining (no further premium payments needed) at about the 12–15 year point. It is important to note that dividends are dependent upon the actual amounts paid in death benefits, and are not guaranteed. However, most household-name participating companies have consistently paid dividends each and every year of their existence, many for well more than a century," he adds. When you're comparing whole life policies from various insurers, look into their history of paying dividends. How consistently had the company paid policyholders dividends? Does the insurer offer information on how much dividends it paid last year? As you consider potential dividends from your insurance policy, you should also pay attention to how the insurer treats dividends when policyholders take policy loans. Insurers have two methods for treating dividends: direct recognition and non-direct recognition. Direct recognition means that the insurer changes dividend payment rates to policyholders with outstanding policy loans. Non-direct recognition means that the insurer does not change dividend payments if a policyholder has an outstanding policy loan. Reviewing these terms with your financial adviser will help you understand which option would work best for you and give you a better sense of the value you can expect from dividend payments. Back to List Riders You can add policy riders to further protect your policy, add additional coverage, or permit early access to the death benefit. Some insurers include some of these riders as features in their policies. Others allow you to add them to your policy for an additional premium cost. A few valuable riders often available with permanent policies are: Disability waiver of premium — Allows you to maintain your policy without premium payments if you become disabled. Long term care — Allows you to use some of the death benefit to pay for long-term care if you need it. Accelerated death benefit — Allows you to receive some of the death benefit early if you are diagnosed with a terminal or chronic illness. Back to List Coverage amount The most important part of any life insurance policy is how much coverage you're buying. Usually the death benefit should be enough to allow your beneficiaries to cover funeral expenses and any lingering financial obligations. Work with your financial adviser to determine how much you should buy. Since whole life policies are the most expensive, you may want to buy what you can afford and then buy the rest of the coverage in a term life insurance policy. Gechev offers an example: "A father of two small children has $50,000 in whole life insurance only, and he is the primary breadwinner. It is clear that he is way underinsured, but his budget allows him to get only $50,000 of whole life insurance. In this case, he needs to supplement his coverage with a term policy." Back to List Affordability and sustainability Gechev's example leads us to one of the most important factors to consider: the policy's affordability and sustainability. "Whole life insurance can be an expensive option for coverage, relative to other options such as term insurance, in some cases costing 10 times more. Roughly 40 percent of policies are surrendered within the first decade, largely because purchasers overestimate their ability to continue making premium payments for years to come. Unfortunately, due to surrender charges and earlier premiums paying for upfront costs, commissions and admin fees, surrendering a policy within the first few years will likely result in a cash value significantly lower than the premiums paid into the policy," says Jonathan Seif, The ProFolio Group founder. To avoid surrendering your policy, follow Drury's advice while you're still in the decision-making phase: "Prioritize financial planning objectives within your budget. This will help determine how much money is available to pay life insurance premiums. Whole life is often the most cost effective option, but if the premium is too high, it may be appropriate to purchase some or all term insurance that has an option to convert to permanent coverage when the budget allows." If you're considering buying some whole life insurance and supplementing it with term life insurance, read "10 Things to Consider When Buying Term Life Insurance" for more expert tips. You should also consider what would happen if you suddenly lose your job and have trouble finding a new one. Would you still be able to maintain your life insurance policy? What safeguards can you put in place through personal savings to avoid losing your policy? Remember: you're playing the long game with these policies. Back to List Universal life insurance Because whole life insurance is typically the most expensive kind of permanent life insurance, you may want to consider other permanent life insurance options. Universal life insurance offers many of the same features as whole life insurance. However, the rate of return on the cash value is not guaranteed and the premiums are not fixed. Depending on the kind of universal life insurance you buy, you may have more control over where your insurance policy is invested. These policies are cheaper because you assume more risk. In addition to a whole life insurance policy from a mutually owned insurer, John Hill, president of Gateway Retirement, recommends the following types of universal life insurance: "The second recommendation is a Fixed Indexed Universal Life insurance policy, which is designed to grow your money without loss because of the market and could become tax-free income later in life. This is the 7702 policy from the IRS tax code. You want to spend your money wisely. For seniors, I would recommend a GUL, guaranteed universal life policy. It is like a term to 100. With some companies, you can take money out of the face amount for critical and/or chronic illnesses." Gechev also recommends a guaranteed universal life policy. "A guaranteed universal life insurance policy is a type of product that could be designed to give you guaranteed coverage up to age 121, the same as whole life insurance. The key differences are that it does not build much of cash value but oftentimes could cost a third of a whole life policy," she says. As you evaluate your options in the context of your financial situation and long term goals, be sure to get the advice of a financial planner. Taking your time through this process will help ensure that you make a good choice for yourself and loved ones. Life Insurers and Permanent Policies Learn more about life insurers and their permanent policy options by looking at the top-rated companies and their customer reviews. Learn More
Big purchase decisions must be weighed carefully — you've got a lot of money on the line. Life insurance is one of those big purchase decisions that can help you or your family maintain financial stability. Buyer's Guide: Term Life Insurance Download our free guide to learn more about term life insurance, how to decide if you need it, tips for choosing a life insurance company, and customer reviews. Download Guide As you consider buying term life insurance, here are 10 things experts say to consider before you make a purchase: Your need Your purpose Coverage amount Term length Policy riders Affordability Age and health Underwriting Purchase method Advice from your financial planner Your need As you're considering this purchase, you should evaluate how much you need a life insurance policy and if a term policy meets those needs. Jake Tamarkin, Everyday Life CEO and cofounder says, “Contrary to what some old school industry hacks may tell you, life insurance is not for everyone. However, it's a critical financial planning tool if you have a loved one who depends on your support to maintain their standard of living, particularly: Spouses/partners Underage and special needs children Elders and other adults you care for Co-signers of some private student loans (check with your provider — most but not all will actually cancel your debt upon borrower's death or permanent disability)." If you've got people who depend on you financially, you'll probably want a life insurance policy. Don't ignore other ways people depend on you. "Consider both the financial and caregiving support you provide your loved ones. If you were gone tomorrow, would they have the resources they need to replace that support?" advises Tamarkin. Don't forget that you can buy a life insurance policy on someone you depend on. For example, if you cosigned loans for someone and wouldn't be able to pay them back if they passed, you can buy a policy to insure their life with yourself as the beneficiary. Term insurance is a great fit for this example because you likely only need coverage until the loans are paid off. In addition to considering who depends on you, you'll also want to consider your financial obligations. "You may need money for your mortgage, a college fund, or income for those left behind if you were to pass. Knowing how much you will need for a mortgage is easy, but a college fund will take some planning — and don’t forget to factor for inflation. Income needs can be calculated by finding what it takes to run your household, multiplied by the number of years you want to cover," says John Hill, president of Gateway Retirement. As you're evaluating your life insurance need, you should also consider funeral costs and final expenses. These are quite expensive, with the most recent medians being reported as $7,360 for burials and $6,260 for cremations from the National Funeral Directors Association. The only drawback to using term life insurance for this purpose is that it will only provide a death benefit for a certain period. Once the term finishes, you won't have coverage. In these cases, a permanent or final expense policy may be better options. Though, most final expense policies are available to people nearing seniorhood. Once you know what your life insurance needs actually are, you'll be able to tell if a term life policy is the best fit for you. Back to List Your purpose Once you understand your life insurance needs, you'll have a clear purpose for buying life insurance. “When you’re trying to decide between a term and permanent policy, ask yourself: Are my financial obligations temporary? Think: A mortgage, student loans and college tuition. If your responsibilities have an end date, term life insurance is your best bet — and as a bonus, it’s the cheapest and most straightforward policy," advises Katia Iervasi, insurance writer for Finder.com. Knowing why you're buying life insurance gives you more direction through the buying process. Back to List Coverage amount How much coverage you buy really depends on your needs and purpose. Nick Kolbenschlag, Crown Wealth Group managing partner, identifies good questions to think through as you decide the amount of coverage you need: How much debt do I currently have? What goals for my family would need to be funded if I passed (ex: kid’s college education, spouse retirement)? What monthly income would my family need to maintain their current lifestyle? How many years would they need to maintain that before using their retirement assets? What amount would I like to pass to the next generation? Once you've considered these questions, you'll want to do some calculations: "Multiply the monthly income need by 12 months and then by the number of years needed, add to it your debt balance, the goal funding needs and the legacy amount to get to the death benefit (face value) needed at this point in time. We then determine the number of years we need the coverage in place (term)," says Kolbenschlag. Life insurance is an important purchase, so you need to make sure that you're buying the right amount. "Getting this question right is critical and too many agents and buyers don't put enough effort into getting this right. The work is worth it, because this is the biggest driver of both the ultimate cost of your coverage as well as the peace of mind that you are fully protecting your family," says Tamarkin. It may be easier to buy a single policy for the largest amount your family would need. If your family needs less, it's not like they wouldn't appreciate having more. However, doing so can restrict your monthly budget. "For example, imagine you are buying life insurance to support your newborn child until they graduate from college. That's perhaps 22 years of your after-tax income you need covered today. But in 10 years, you will only need 12 years of your income covered. You can save 30–60 percent of your cost by stacking a couple of smaller policies that step down over time, rather than buying one big policy that leaves you overinsured and overpaying down the road," advises Tamarkin. Another advantage of planning this way is that if your financial circumstances change, and you can't afford all of your life insurance policies, it's easier to drop one policy while still maintaining some coverage for your family than it would be if you lost the only life insurance policy you had. However, if your needs increased over time, you'd have to buy an additional policy. Buying life insurance can be a hassle because of the underwriting process, but it's doable. You'll also have more flexibility with your monthly budget if you only have the coverage you need, not more than you'd need. Back to List Term length You'll need to decide how long you want to have a life insurance policy in place. Knowing why you're insuring yourself or someone else can help you determine the length of coverage you need. "Always ask how long you will want or need coverage. Keep in mind that if you need coverage beyond the level term period, (i.e.15, 20, 30-year term) you may have been better off not purchasing term but rather permanent insurance," advises Raquel Murphy, Vice President of Individual Life Insurance with HUB International Northeast. Keep in mind that your needs may change overtime, which can affect how long you need a policy. If you're buying the policy to protect your family, how long will that protection matter? For example, if you just need the additional protection while your partner finishes school because they'll be able to support themselves well afterwards, you may just want a policy that covers those years. Of course, you can always buy a longer term than you think you'd need to play it safe, too. Back to List Policy riders Life insurers often offer riders with their policies. These riders offer additional coverage or help protect your policy. A few common examples include: Disability waiver of premium — If the policyholder becomes disabled, they can maintain the policy without paying more premiums. Accidental death rider — If the insured dies in an accident, the beneficiaries will receive an additional sum as part of the death benefit. Accelerated death benefit — If the insured has a terminal illness or chronic illness that meets the terms of the policy, a portion of the death benefit can be received before the insured passes. An accelerated death benefit is a kind of living benefit that can be added to some insurance policies. Here are a few specific to term insurance: Term conversion — You can convert the term policy into a permanent one without going through a new underwriting process. Watch out for the timing and deadlines for doing so. Return of premium — Once the policy term is over and a claim wasn't needed, the policyholder can be refunded their premiums for the whole policy. Renewable term — You can renew your policy at a new premium rate when your initial policy's term ends. Keep in mind that the premium costs will generally be higher when you renew. Some insurers include these features with their policies, other insurers offer them as options. Adding riders to your policy will affect your monthly premium costs for a policy. However, if these riders are important to you, it can be worth paying an increased premium. If you're buying a term policy because that's what you can afford right now even though you'd prefer to have a permanent life policy, choosing a policy with term conversion can help you maintain your coverage permanently in the future. It's also advantageous in case new health issues arise. "If you're healthy, a new term policy might be less expensive, but converting an existing term should be considered by anyone with health complications. Underwriting for the new policy is based on your original underwriting, not what you would currently qualify for," says Zachary Paschke, insurance agent and Term Life Guidance founder. It's also helpful if you're buying term insurance at an older age: "Before you buy a new term policy, see if you can convert your existing policy into a GUL (Guaranteed Universal Life) policy. These policies work much like a term policy. Instead of selecting a term (number of years) you select the age you want to coverage until. These policies are often available until age 80–121 depending on the company. I've saved clients huge amounts of money converting policies into GUL policies. One client came to me looking for a 20-year term policy in his late fifties He converted an existing policy and got more coverage until age 121 for less money," says Paschke. If your policy has a term conversion feature, make sure you understand what the terms of the conversion are. Checking will help ensure that you don't miss the deadline to convert your policy into more permanent coverage. "Check your conversion terms in your policy well before your policy runs out! Terms vary by carrier. If you're buying a policy now that will expire around your sixties be looking for a policy with top notch conversion terms. This is rarely something people ask agents about, but could save a ton in the future if you need it. It's an insurance policy for your insurance policy," recommends Paschke. Back to List Affordability Of course, the bottom line will be what you can afford to pay in monthly premiums. If you are unable to make premium payments, you'll lose your life insurance policy and will need to buy a new one later in order to have coverage. "What can I afford? In this question, don’t push too hard. You want to be comfortable with the cost," says Hill. The good news is that you'll likely be able to afford more coverage with a term life policy than with a permanent one. Because the coverage is limited to a set amount of time, term policy premiums are often much less expensive than permanent insurance premiums. Back to List Age and health As you consider what you can afford right now, you'll also want to think about how your situation may change over time and affect future life insurance choices. "Every insurance policy is bought based on your assumptions. If you get a 10–20-year term policy, you are assuming you will be able to afford another policy financially and health-wise at the end of the term. Life insurance is based on your age and health to qualify. The older you are, the more a policy will cost," says Hill. If you develop health conditions, you may also see increased premiums or even be denied coverage. If your policy has a renewable term rider, that can be advantageous. However, there are limits that can make this unfeasible. Back to List Underwriting Underwriting is how insurance companies determine whether or not they will insure you and at what cost. Many factors are considered during underwriting. Even when you buy term life insurance, the kind of policy you buy will affect how thorough the underwriting process is. "Fully underwritten insurance is much, much cheaper but may require a medical exam depending on your situation and the carrier's risk appetite. If a provider promises in their marketing material that no medical exam will be required, you can be sure they are charging you more for the incremental risk they are taking, and the extra cost can be huge," says Tamarkin. If you'd rather have a simpler underwriting process or no underwriting at all, you can opt for guaranteed issue policies. Just know that you'll pay for that convenience with higher premiums. "People must understand that if they outlive those 20 years, they're likely to have an annual renewable term rider automatically which means the cost will increase from year 21 on up until they can't afford it anymore. The price at year 21 will equal to whatever age they're at. As an example, a client with one of the companies I write for at 30 years old, non smoker at standard health would pay $22 per month for $250,000 for 20 years. At age 50, the price would jump to $80 per month. Still doable but after another 20 years, if they reapplied and got that price, it would be impossible to get due to the price for a 70 year old," says Justin Ehrhardt, TheBeardedFinancialPro.com. Weigh future health developments, increasing age, and your future financial position as you determine the length of your policy and what riders you'd like to have as you decide what kind of underwriting you prefer. Back to List Purchase method When you're buying term life insurance, you can work directly with an insurer, work with an independent agency, or even apply and buy it online in one sitting. We'll review each option briefly here. For a more detailed analysis with insight from insurance experts, read "What's the Best Way to Buy Life Insurance?: What You Need to Know About Buying from an Insurer, Agency, or Online Retailer." Buying directly from an insurer will help you establish a point of contact there in case you ever need to update your policy if you move or want to change your beneficiaries. You will, however, be limited to the policies and underwriting guidelines offered by that insurer. Generally speaking, underwriting guidelines are very similar across companies. However, some companies will underwrite medical conditions like diabetes more favorably than others. A few of Best Company's top-rated insurers include Northwestern Mutual, Prudential, and National Life Group. Working with an independent agent or agency is advantageous because they represent multiple insurers, which means you can compare your options across companies to find the most favorable policy that meets your needs. While some agencies have a local focus, others offer their services broadly and connect with clients online. A few examples include Quotacy and Policygenius. Keep in mind that agents do not charge their clients because they earn commission from the insurers they represent for the policies they sell. Even though independent agents are less biased than the insurer representatives, make sure you work with an agent that you trust to avoid being pushed into a policy that may not be the best fit for you. It will usually take a little bit of time to be approved and issued a life insurance policy if you work with an agency or insurer, especially if your policy is fully underwritten. If you'd like to have a policy in place quickly and don't have any underlying health concerns, you can view quotes, apply, and buy a term policy online. A few examples of these companies are Bestow and Fabric. The only downside is that you may end up paying higher premiums compared to fully underwritten policies. If you're buying life insurance online, keep in mind that many of these companies are newer and have not stood the test of time compared to other insurers. Find out if another reputable insurer offers the policies or if the insurance policies are insured. You don't want to buy a policy only to have the insurer be unable to pay a claim to your beneficiaries. Back to List Advice from your financial planner Before you buy a term life insurance policy, it's worth sitting down with a financial planner to discuss all of your options and the best way to move forward. Depending on your goals and situation, a permanent life insurance policy may make sense. "Are there better choices for your money? You could get a permanent policy and have your money work for you. The term policy does not have cash value like a whole life policy does," says Hill. Maybe you want to leave an inheritance for your family through a permanent life insurance policy. "Do you prefer to leave a fixed amount or a potentially larger investment? When choosing a policy, it is important to consider which of these options you'd like to leave for your heirs. While a policy that is investing for you will most likely pay off a higher amount, this isn't always the case. If you happen to die earlier than anticipated, a fixed amount is more likely to pay higher. This is a question to ask yourself when you consider your long term health prospects,” says Ty Stewart, Simple Life Insurance CEO and President. Permanent life policies are much bigger commitments than term life policies. Permanent policies usually have much higher premiums and offer lifetime coverage as long as you make your premium payments. You should weigh a decision to buy whole life insurance even more carefully than buying term life insurance. If you're considering a whole life insurance policy, see our article "9 Things to Consider When Buying Whole Life Insurance." However, if you can already tell that a term life insurance policy is what will best meet your needs, start exploring top life insurance companies and read customer reviews on Best Company. Life Insurers and Term Policies Learn more about life insurers and their term policy options by looking at the top-rated companies and their customer reviews. Learn More
You've got a lot of options for buying life insurance. You can buy it by working with an independent agent or agency or directly from the insurer. The internet has also changed the life insurance buying process — now you can buy from popular quote websites, connect with an agent or agency online, and even buy directly from an insurer online. "Armed with more information and price transparency, consumers are in an excellent position to pick their term life insurance 'vendor.' I use the term 'vendor' here because, in 2020, it’s not necessary to meet in person with an agent to get guidance on how much life insurance to buy — online calculators and quote engines abound," says Chris Acker, CLU, ChFC of CB Acker Associates Insurance Services. While buying term life insurance online is more common, some sites also allow you to apply for permanent life policies online. To evaluate the pros and cons of each life insurance shopping method, we'll start with the more traditional methods of buying life insurance and then cover online life insurance shopping. Work directly with the insurer Work with an independent agent or agency Buy life insurance online Work directly with the insurer You can always work directly with a life insurer to buy a policy from them. Many insurers have their own life insurance agents who can help you through the process. Some insurers like Northwestern Mutual also offer financial planning services. If you're already working with one of their financial planners and trust them, it can be convenient to work with your financial adviser to determine how a life policy fits into your broader financial goals and apply for a life insurance policy. While you can't get a better deal by working with the company directly, working with an independent agent, or shopping online, there are still some disadvantages to working directly with an insurer. The company's agent will only give you insurance policy options available through that insurance provider. If you want to compare insurance policies from multiple insurers, you'll be doing all of the legwork yourself and may not receive unbiased advice from each insurer's agent. If you have some health concerns that will affect your premium, it may be in your best interest not to work with insurers directly. "Each insurer has different underwriting guidelines, and rates can vary wildly. To score the lowest rate, compare a bunch of term life insurance quotes," says Katia Iervasi, an insurance writer at Finder.com. Working with an independent agent can help you find an insurer that underwrites your condition more favorably than others — even for permanent life insurance policies. As you compare, be sure to note how the policies from each insurer differ because there may be slight differences that affect the overall value of the policy. However, it can be nice to cut out the middleman to work directly with your insurer if: you don't have health concerns you already know which company you want to work with you are confident in your ability to research, evaluate your options, and make an independent choice Work with an independent agent or agency Instead of working with an insurer directly, you can find an independent agent who works with multiple insurers. If you work with an independent agent or agency, you can be more confident that you're getting help finding the right fit. You can choose a policy from any company, and the agent will still have made a sale. The other nice aspect of working with an independent agent is that it has no cost to you. Independent agents and agencies are paid by the insurers they represent. While there are lots of perks to working with an agency over an insurer, notice any signs that your agent is pushing a specific policy or company on you. Since agents are paid by the insurance companies for the policies they sell, rates can vary by product or insurer. Agents should be able to present quotes, benefits, and drawbacks of each policy and insurer in an objective manner and leave the final decision to you. Buy life insurance online The convenience of the internet makes it a popular tool for life insurance shopping. The internet can help you research insurers and their policies, compare quotes, connect with agencies, and even buy term policies online. With all the advantages of convenience, keep these pitfalls in mind: Seeing unrealistic quotes Sharing contact information Buying from limited online options Seeing unrealistic quotes Often insurance quote websites and even some insurers will show the lowest premium rates available. These quotes may not be the rates that most people qualify for. If you are seeing surprisingly low rates, approach these numbers with some skepticism and anticipate that your actual rate will be higher. If you're using a quote website that asks for some underwriting information (e.g. age, gender, health, and tobacco use) before it shows you quotes, you can have more confidence in these numbers. Two online insurance agencies have a strong commitment to providing potential clients with realistic quotes: Quotacy and Policygenius. This commitment is one reason these companies are worth using as part of your life insurance research and purchase process. Even if the final rate is not the exact quote you received, it will usually be close to the mark. Sharing contact information Before you share your contact information with any website, you should know how the site uses the information you provide. Do they keep it confidential? Do they send your information to many insurance companies? Do they only send the information to the company you asked about? Understanding how sites use your information will protect you from getting a crazy number of phone calls from salespeople trying, as they may say, "to earn your business." Fortunately, whether you are comparing companies or looking for quotes, there are sites that respect your information including Best Company, Quotacy, and Policygenius. Best Company doesn't offer quotes. However, you can read customer reviews and see how companies rank against each other based on industry criteria and customer reviews and ratings. If you choose to use a company by clicking on a Best Company "Visit Site" button, the only company that will receive that information is the company you selected. We save you the frustration of unending sales calls in this way. On Policygenius and Quotacy's platforms, you do not have to provide contact information before you can view quotes. If you decide you want to work with either company, you can share contact information with them after you see quotes. Quotacy agents keep your information anonymous as they work with insurers to find a policy that best fits your particular needs with a favorable underwriting process. This practice offers an additional layer of security as Quotacy shops around to find the best life insurance options for you. Policygenius also only shares your information with the insurer you applied for through its platform. Buying from limited online options If you're mainly using online resources to connect with reputable agencies and view quotes, you're not buying from limited options. However, if you're planning on completing an online application and purchase in the same sitting, you cannot buy a permanent life insurance policy and you're limited to a few kinds of term policies. "When you buy online, you're limited to the simplified issue and guaranteed issue policies, which are quick and easy to buy but don't involve much underwriting. This is usually bought by people who have medical conditions, so they are much more expensive. That means you won't get the best rate because the insurance company will charge you the same as these unhealthy people. Although it will take longer, the best route to go when buying term life insurance is through an insurance agent. You will go through underwriting and get the best rate available," says Brian So, life insurance agent and Brian So Insurance founder. Online policies are also not as customizable as policies bought through more traditional methods. "There are a string of fintech insurers that can issue term life insurance policies online, including Bestow, Ethos, and Haven Life. They offer a quicker buying experience and your coverage might go into effect instantly — but just know you may not be able to add riders to your policy,” says Iervasi. If riders are important to you, then buying life insurance online may not be the best way to go. You should also keep in mind that some of these companies are new, so don't have a lengthy time in business to demonstrate their longevity. Before you buy from these companies, make sure you understand how they protect the policies people buy — Is the company a subsidiary of a trusted insurer? Does the company have insurance on its life insurance policies? "An increasingly popular model is where a life insurance company develops specific policies for the non-medically underwritten marketplace and re-brands the site with all new products. You see this with Haven, for example, which is owned by MassMutual," says Acker. Another similar example is Bestow. Bestow's policies are from North American Company for Life and Health Insurance ®, which has earned high financial strength ratings. These policies are also reinsured by Munich Re. Even though Bestow is a new company, you can buy confidently from it because of the steps it has taken to ensure its ability to meet claims obligations. While these new companies can be trusted, buying life insurance online isn't a great fit for everyone. Raquel Murphy, HUB International Northeast Vice President of Individual Life insurance offers a few examples: "Buying term life insurance online seems easy and convenient unless you have a problem. There will always be an agent behind the machine that you are referred to if you don’t meet the narrow criteria for applying online. If you have a medical condition or have a family history of medical conditions, purchasing on the internet may not be for you. Also, if you are purchasing very large amounts of term insurance, then you should probably speak with an agent." What's the verdict on online life insurance shopping? It can be a great tool for researching policies and connecting with agencies or insurers. However, applying and buying life insurance instantly is not for everyone because the options may be limited, you may not qualify, or you may overpay on premiums. Choose the best method As you consider your options for buying life insurance, you should consider the pros and cons of each and which would make the most sense for your situation. Working with a life insurer cuts out the middleman and establishes a connection to the insurer that you can contact as you need to make changes to your policy beneficiaries or update your address. However, the life insurer will only show you policies that they offer. If you choose an insurer without understanding how they approach underwriting certain conditions, you may pay higher premiums than with another insurer. If you want to explore your options at multiple top insurers, working with an independent agent or life insurance agency is a great choice. Agents represent multiple life insurers and can help you find the one that offers the most favorable underwriting for your situation. This is another advantage of working with an agency, especially if you have medical conditions that would affect underwriting. You can also connect with some agencies online to buy term or permanent life insurance policies. Quotacy and Policygenius are good examples because they allow you to view quotes without providing contact information and, in many cases, start the application process online. Licensed agents are also available to help you as you navigate the application and purchase process. As you consider purchase methods, you don't have to worry about being given a different price for the same policy from the same insurer whether you work with an agent or with the insurer. "Seeing as insurance laws do not allow for premiums to be greater when an agent is involved we recommend utilizing an agent that specializes in planning to ensure the policy fits into your overall strategy," says Todd Burkehalter, Drive Planning CEO. If you want to apply and buy a life insurance policy online in one sitting, you're limited to some kinds of term insurance. Convenience is a huge advantage of these policies, but they're not for everyone. If you're trying to get the lowest premium or have health conditions that affect underwriting, you'll want to choose another purchase method. However, if you're in good health and just want to check life insurance off your to-do list, there are reliable companies to choose from, including Bestow and Haven Life. Whichever way you choose to approach life insurance shopping, be sure to avoid pitfalls and choose an insurer with high financial strength ratings. "Insurance companies are heavily regulated and among the least likely institutions to go under, so I advise clients to not worry as much about which particular carrier they work with so long as they are A-rated by A.M. Best or the other ratings agencies. This information is readily available on a company's website and pretty much all you need to know," says Jake Tamarkin, Everyday Life CEO and cofounder. High ratings indicate an insurer's ability to manage its finances wisely and meet claims obligations. If an insurer has unpublished or low ratings, it's best to choose another company. Buying life insurance will give you peace of mind and help your loved ones be financially prepared for the future. Want to know more about the pros and cons of life insurance agencies and quote comparison websites? Read: "Life Insurance Brokers vs. Quote Comparison Websites."
No one wants their friends and family to inherit financial difficulty. Life insurance can go a long way in alleviating financial stress, from paying for a funeral to replacing a lifetime of income. You want to leave your family financially secure at an affordable price. Premiums and coverage are what you'll look at as you compare policy options from trusted life insurers. First, we'll take a quick look at life insurance rate classes, then move on to cover some of the biggest things that can affect your premium rate, and finish with additional advice from experts. Rate classes Life insurers have 14 to 16 classification levels that determine premium rates. The rate classes with the lowest risk include the following: Preferred Plus or Preferred Best Preferred Standard Plus or Standard Select Standard If you have a higher than standard risk, the rate classes extend into tiered tables that are either numbered or lettered in order. Table 1 is the least amount of additional risk. “Some companies go down to a table 12, while most will decline after table 10. The closer you are to Preferred Best, the lower the premium you will pay. Every table rating increases your premium by 25 percent. For example, a table 1 will be standard + 25 percent, table 2 will be standard + 50 percent, etc.” says Chris Abrams, Abrams Insurance Solutions owner. Your premium rate is determined based on what classification you reach based on underwriting. Through the underwriting process, the insurance company will review your application, health, lifestyle, and a few other factors to determine the risk of insuring you. Once the underwriting is complete, you’ll know whether your application has been approved or declined. If you’ve been approved, you’ll also get the final premium rate. If you think you may have higher than standard risk, don’t worry. You may be able to find an insurer that handles your situation well. “Some companies offer 'table shaving' which means they will reduce the amount of tables if you have other favorable underwriting factors,” says Abrams. Premium rate factors There are many things that affect your premium rate. Before even getting to the underwriting process, the amount of coverage and policy type affect the rates you’ll see and the level of underwriting you can expect. “The death benefit amount you choose and the duration of your policy both materially impact your premium level. The greater your death benefit and the longer your policy period, the higher your premium will be,” says Andrew Chen, Hack Your Wealth founder. Longer policies aren’t just likely to cost more. They’re also likely to have more rigorous underwriting. “Whole or permanent life insurance policies tend to be more expensive and an insurance carrier is going to want to know about more aspects of a person’s life. Short term policies for a lower amount may not require as much information. It really depends upon the carrier and the type of policy,” says Walt Capell, Workers Compensation Shop founder. Another factor that can affect what you spend on premiums that isn’t part of underwriting is the payment schedule. “Most people pay monthly or quarterly premiums for their life insurance. Insurers typically charge a fee for the premium modes. Pay annually and it could reduce your cost by as much as 10 percent,” says Richard Best, Don’tPayFull.com personal finance expert. Some insurers may offer some flexibility on premium payment schedules. If you are a disciplined budgeter, opting for a bi-annual or annual payment schedule can make a lot of sense. Underwriting factors If you’ve done some shopping around, you’ve probably found that you have to provide some information about yourself before you can see a premium quote. “Life insurance rates are initially driven by three factors: age, gender, and tobacco usage,” says Doug Mitchell, CLU, Ogletree Financial Services owner. Once those factors are considered, more health, lifestyle, and criminal record information will be considered. “An applicants age, answers to health and lifestyle questions and their financial well-being are the biggest influencers in the underwriting process and will determine what the premium will be,” says Manny Lirio, Vantis Life Insurance Company, AVP of direct to consumer marketing. Here’s what experts had to say about age gender tobacco and other drugs driving and criminal record health lifestyle For more information on how life insurers find information on you, read Cameron Huddleston's Forbes article "How Life Insurance Companies Get Intel On You." Age Katia Iervasi, Finder.com insurance writer“Younger people almost always pay less for life insurance. The reason isn’t subtle: As you age, your life expectancy goes down, and the likelihood of your insurance company having to pay out your policy goes up.” John Holloway, NoExam.com founder and licensed agent“In 2019, NoExam.com conducted a life insurance pricing study. The study recorded the results of over 100,000 life insurance quotes, and it shows that the price of life insurance increases with age. On average, the price of life insurance is 65 percent more expensive at age 40 than it is at age 30, and it is 96 percent more expensive at age 50 than it is at age 40. The good news is that you usually require a shorter term policy at age 50 than at age 30. The bad news is that you will have a bigger payment to budget for each month.” Life Insurance Premium Price vs. Insured's Age Graph showing results of NoExam.com's study results. Image courtesey of NoExam.com. Back to Underwriting Factors Gender Laraine Sookhoo, OneHourBurialInsurance.com life insurance agent“Life insurance companies underwrite based on gender at birth.” Andrew Chen, Hack Your Wealth Founder“Women generally live longer than men, so they'll have lower premiums on average.” Katia Iervasi“Men are considered to be riskier drivers, so women tend to score lower rates.” Back to Underwriting Factors Tobacco and other drugs Katia Iervasi“To enter the top rate tiers, you’ll typically need to show you have no history of alcohol or drug abuse or treatment within the past 10 years.” Smoking Andrew Chen“If you smoke, you'll pay higher premiums because the risk of death within the policy period increases.” Alex Enabnit, TermLife2Go.com licensed agent and life insurance expert“One of the biggest considerations for your premiums is whether or not you smoke. Insurance companies are typically pretty hard on smokers (and even vaping gets included in this category). It’s not uncommon for a smoker to pay at least double the amount that a nonsmoker in the same health class would pay. The good news is, the longer you go without smoking, the more it can lower your premiums. Most insurance companies consider a person who hasn’t smoked in five years a nonsmoker — even if that person smoked for thirty years before then.” Laraine Sookhoo“Life insurance companies consider a ‘non-smoker’ as someone who has not had tobacco or nicotine products for at least 12 months. This would include nicotine replacement products like patches and gum. Of the ten insurance companies that I represent, none of them are asking specifically about electronic cigarettes, but some phrase the question to cover nicotine products and others do not. A couple of my insurance companies will give cigar smokers the non-tobacco price because they only ask about cigarettes.” Marijuana Emory J. Smith, Principal of EJS Financial Management “Marijuana use is a hot button issue in life insurance. Five years ago, almost no carriers would offer coverage for users of marijuana. Today, many carriers will offer excellent, non smoker rates for admitted marijuana users. In states where medical marijuana is legal, carriers typically underwrite based upon the underlying condition. Why does the proposed insured have the medical marijuana card? Underwriters will ask for copies of the card to prove legitimacy and often extend favorable nonsmoker rates to applicants. Some carriers go so far as to distinguish between smoking, vaporizing and using edibles. The frequency and method of marijuana consumption can change an applicant’s offer. By and large, many life insurance carriers still view marijuana in any form as an illegal drug and decline or highly rate coverage accordingly.” Prescriptions Emory J. Smith“Part of most insurance applications is a prescription drug database search on the proposed insured. Many clients don’t realize such a database exists where all prescriptions, dates and prescribing physician’s information is listed. Whether intentional or unintentional, this search can turn up additional medical information not previously disclosed. I had an applicant disclose back pain issues with ‘occasional’ use pain medication only to find six active prescriptions for the same intense pain medication on the database search. Needless to say, this rose to the level of abuse, and he was justly declined for coverage.” Back to Underwriting Factors Driving and criminal record Katia Iervas“Safe drivers are viewed more favorably by insurers. To score a cheaper rate, your driving record must be free of moving violations, DUIs and reckless driving in the past three to five years.” Richard Best, Don'tPayFull.com personal finance expert“Life insurers take a look at your driving record. Too many tickets or at-fault accidents may get you a higher premium rating.” Jared Weitz, United Capital Source CEO and Founder“If you have a criminal record, especially that of driving under the influence, your insurance policy will be more difficult to qualify for. The level of detail the process covers can be invasive, but is vital to getting adequate life insurance that matches your lifestyle.” Laraine Sookhoo“Lifestyle choices can affect pricing in that they force the buyer into a higher rate classification. Those with substance abuse issues, convicted felons, and those with a DUI in recent years may be denied or else approved at a higher rate. Since insurance fraud is always a concern and because life insurance policies are sometimes used to try to launder money, an insurance company might also deny an applicant if their reports indicate possible character issues that raise flags about these potential problems. They wouldn't affect price, though, just approval.” Back to Underwriting Factors Health Richard Best“The biggest factor in determining how much premium you pay for life insurance is your health condition and history. This factor includes your family's health history. Insurance actuaries determine which health conditions present the biggest risks and apply premium ratings accordingly. Each company applies different standards to assess risk, which is why it’s important to compare rates of different insurers.” Current health Adam Hyers, Hyers and Associates, Inc. owner and insurance agent“The number one factor in determining rates are conditions with higher mortality rates. Any conditions associated with an earlier death will be cause for higher premiums or no offer of insurance at all. Actuaries and underwriters are very careful with chronic conditions that may reduce someone's life expectancy.” Travis Price, licensed income protection agent“Obesity plays a major role in determining your rating class. The higher your BMI, the more likely that you're going to be in a higher rating class or even denied. This is true even if your health is perfect except for your weight.” Laranie Sookhoo“Life insurance companies care about the kinds of illnesses that will lead to an early DEATH. They don't care if you have medical issues that make you uncomfortable or affect your quality of life. So, things like back pain and knee pain are of no concern UNLESS these are issues because you have a disease like Lupus or MS. If your back or knee hurt due to an injury or arthritis, then it won't matter. Rheumatoid arthritis is a concern, however. Diabetes is not usually a problem if it is controlled, but if it is uncontrolled and the applicant has already experienced complications like an amputation or needing kidney dialysis, then that person will need to apply for a guaranteed issue policy.” Personal and family health history Andrew Chen“If you or your family has a history of illness that increases the risk of death during the policy period, you'll pay higher premiums.” Brian So, Brian So Insurance founder“Your medical history plays a huge role in qualifying for life insurance. If you've had major illnesses in the past (e.g. cancer), the underwriter would want to know more about it. He may gather more information from your family physician or specialist. If the underwriter determines that you are at a higher risk for death than the average person in your age range, it will add a rating to your policy or decline your application for coverage.” John Holloway“An applicant's health history is going to have the biggest impact on premiums. Any current or past health conditions can have an effect on the rate. Some things that people are often not aware of that can affect an underwriting decision are: past medications, current medications, driving record, family medical history, and medical history. These factors can cause the applicant to be moved into the next rate class, which will mean a higher rate. In some cases, applicants are declined for a combination of these factors. For example, untreated high blood pressure combined with a family history of heart disease.” Medical Exam Andrew Chen“You'll have to take a health exam as part of the underwriting process. Your health assessment from this exam will impact your premium.” Travis Price“For those cases that are fully underwritten, the medical exam has the most influence over the premiums you pay. In the event that you go to a simplified issues policy, the MIB (Medical Information Bureau) is vitally important. It gives essential information and prescription checks to determine eligibility and rating classes.” Back to Underwriting Factors Lifestyle Jared Weitz“Your health and lifestyle will play a large part of the underwriting process. If you’re an avid bungee jumper or travel to dangerous places often this will place a burden on your rate.” Job Andrew Chen“If your job is a risky or hazardous one (e.g. police, pilot, construction worker vs. office worker), then you'll likely face higher premiums.” Hobbies Brian So“Factors that negatively affect your insurance premium include participating in high-risk avocations like skydiving and heliskiing, use of narcotics, incarceration, and major driving infractions. These will all make the underwriter think twice before offering you insurance coverage.” Andrew Chen“If you have unnecessarily risky hobbies, like freescaling or skydiving, you'll face higher premiums.” Travel Emory J. Smith“Foreign travel to ‘safe’ countries for less than 183 days (six months) per year is generally okay. Foreign travel for longer than 183 days is typically categorized as Foreign Resident status which limits available rates at most carriers. As a rule of thumb, any country where the U.S. State Department has a travel warning is likely not eligible for life insurance through traditional channels. Foreign countries are rated with letters. A-rated countries such as China, Canada, France, United Arab Emirates allow for best possible rates up to 183 days of travel. Lesser rated countries like Iran and Ukraine are still eligible for coverage, just lower rates and shorter durations of travel. It goes without saying, but travel to countries with active conflict generally results in decline of coverage.” Back to Underwriting Factors Life insurance applications Applying for a life insurance policy can be intimidating, but understanding how the process works can make it less daunting to secure financial stability for your loved ones. Before you apply for a policy, make sure that you’ve explored your options and have found the right policy fit. You’ll also want to do your research to know when you’re working with a trustworthy life insurance agent and to choose a reliable insurer. Whether you’re figuring out which kind of policy is best for you or starting the application process, here are some extra tips that experts offered. Choosing the right policy Laraine Sookhoo“A term life policy is a good solution for parents of young children in the home because their goal is income replacement. Buyers of this product certainly hope that the term will expire without them needing to use it. (Just like we buy auto insurance and hope we never need it.) This is very different from someone who buys a final expense policy, who hopes that they still own the policy on the day they die because they want their heirs to have that money to help pay for their funeral and other end-of-life costs. Savvy business people often buy larger whole life policies because they can borrow tax free from the cash value accumulated to help them with their business or real estate goals. Some buy universal life policies in an effort to combine insurance and investing. If you are clear on the life problem you are trying to solve, it will help you determine which policy might work best for you.” Finding the right insurer Chris Abrams“There are hundreds of life insurance companies in the United States. Work with an independent agent who is familiar with how each company underwrites certain health conditions. That agent should be able to match you to the one company that will be most lenient for your particular situation and therefore will offer the best health rating/lowest premium.” Completing underwriting Scott Butler, Klauenberg Retirement Solutions financial planner“People should know that underwriting is usually, at worst, a very mild inconvenience. You may have to do a paramedical exam, but the insurance company will pay for it. Think of it as a free health check-up. The examiners usually have flexible appointment times and will usually come right out to you. When you are being asked questions about your medical history, pay attention to each question, answer truthfully and do not volunteer any extra information that is not asked for. If they want to know if your mother had a medical condition before age 65, there is no obligation or benefit for you to tell them about conditions your mother had after 65 or about conditions of your sibling.” Walt Capell“Each carrier has their own formula for how they determine if they are going to offer coverage and how much to charge for that coverage. For most people, making small changes such as losing weight, quitting smoking or adopting a healthy lifestyle to lower your blood pressure and cholesterol can help lower premium when quoting a life insurance policy.” Earl Rubinoff, The Rubinoff Group president and CEO“A constant annoyance is when an insurance company receives copies of medical records of a person and there are notes in the applicants records that describe a recommendation for the person to go see a specialist or have a specific further medical test performed to rule out any issues and the patient hasn't followed through on this. This is a very simple item that the life insurance applicant can control. People have to realize the more information the insurance company has, the better the rate the person can get.”
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