Despite their simple purpose and straightforward financial structure, life insurance policies may come with an exceedingly complex collection of caveats, riders and coverage exemptions. Life insurance shoppers frustrated by the time-consuming process of vetting individual policies and choosing proper levels of coverage may fail to perform adequate due diligence. In a worst-case scenario, policyholders who fail to catch a key loophole or restriction in their policy may render their beneficiaries unable to collect benefits.
First, prospective policyholders must choose a policy type that reflects their family's needs. Since it offers guaranteed payouts, whole or permanent life insurance is far more expensive than term life insurance. Depending upon the prospective policyholder's age and health, and the time of purchase, a whole life policy may cost six to eight times as much as a term life policy with a comparable face value.
Each type of policy has different advantages and disadvantages that you’ll need to consider. If you want the most affordable life insurance, term is going to be the best option. On the other hand, if you don’t want to worry about having to reapply for life insurance in the future, then a whole life insurance plan is going to be a better choice. Every family and applicant is different, there is no one-size-fits-all policy that you can buy.
Likewise, a policy's size plays a major role in determining its cost. Once their mortgage has been paid off and their children are no longer in school, most people have little need for an expensive, high-payout policy. As such, shoppers should have a candid conversation with their insurance agent or use an online life insurance calculator to right-size their policy.
The primary goal of your life insurance is to give your loved ones the money that they need to pay off any debts or final expenses that they would be responsible for if something tragic were to happen to you. Every year, you should take the time to calculate how much insurance protection that you should have .
The first number that you should add into account is your mortgage. Your mortgage is probably the biggest expense that you have. If something were to happen to you, your family is going to have to make those payments. Make sure that your policy is large enough for your family to pay off those bills without having to drain their bank account or find a way to quickly sell the house.
Another factor that you should add into the equation is any funeral debts or burial fees that they would have to pay for if you passed away. The average funeral can cost $10,000 which can be a steep bill for your grieving family, but that’s where your life insurance policy comes in.
The last factor that you should add in the policy is your annual income. One of the main purposes of your life insurance coverage is to replace your paycheck if something were to happen to you. If you’re the main source of income in your household, your loved ones wouldn’t be able to support themselves if they no longer had that paycheck coming in. Your life insurance plan needs to be large enough to replace your annual income and give your family the money that they need to pay for basic expenses.
Term life policyholders who initiate coverage early in life may need to renew their policies more than once. Before signing up for a policy, insured parties should confirm that it provides for unbroken coverage during the entire length of its term, preferably at a guaranteed rate. This is known as "level term" life insurance. Likewise, the best term life policies offer policyholders the option to convert their policies into permanent plans that offer guaranteed death benefits without term limits. While this can be costly, most insurers prorate the rolled-over policies to reflect policyholders' prior premium payments.
Prospective policyholders should ask their future underwriters whether they require an official medical exam from their customers. Most insurers waive the medical exam requirement for term policies issued to customers under age 40 and valued at less than $100,000. Likewise, prospective policyholders should determine how their beneficiaries may elect to receive payouts. Underwriters who don't offer a lump-sum payment option and pressure beneficiaries to receive death benefits in the form of exotic long-term annuities may be hiding something.
One of the most important things that you should look at every year is if you could be saving money on your life insurance. Every year, there are new companies or products on the market. You might be paying too much for your life insurance plan. Take the time to do some comparison shopping to see if you can save money on your life insurance policy.
The best way to find the lowest rates is to work with an independent insurance agent. There are over 800 insurance companies on the market, and all of them are going to offer you different rates. That means that you could spend days calling different companies. Instead of wasting your time on the phone, let an independent insurance agent (like ours) do all of that tedious work for you. We work with dozens and dozens of highly rated companies across the nation and we can bring a personalized set of quotes directly to you.
Another way that you can save money is to improve your health or quit smoking and then reapply for your life insurance. If you were a smoker when you originally purchased your plan, then you’re paying a lot more for the plan that you would if you’ve quit. In fact, if you’ve cut out tobacco, then you can save thousands of dollars every year on your life insurance policy.
Most people buy their life insurance plan and then they forget it. That could be a terrible mistake. Your plan could be too small or it could be too expensive. Instead of putting your policy in a draw and leaving it there, take it out every year to ensure that it’s still the best choice for you and your loved ones.
Not having enough life insurance is one of the worst mistakes that you could make for your loved ones. If you have any questions about life insurance or your plan, please contact one of our agents today. We would love to answer those questions and ensure that you’ve got the perfect plan to meet your needs.