Perhaps the handiest bit of information about life insurance is that most insurance rates are filed with the state. This means that it won’t cost you a penny more to seek advice from a licensed professional insurance agent, and if you ever have questions or problems, that agent is there to go to bat for you against the company. If you did not use an agent, you will find yourself dealing directly with a company representative, who has the company’s best interest in mind.
When determining the type of life insurance that is right for you, it is important to know what it is that you’re insuring against. Term life insurance generally insures against you dying young, and is sold in high dollar amounts to help your family pay for things like housing and college tuition. Whole life insurance is generally sold in smaller amounts to be in place when you die of old age, so your family does not feel 100% of the burden of your burial expenses. There are many types of life insurance, so let’s keep it simple and look at the few most common types of policies.
Whole life insurance is purchased to cover burial and other final expenses upon death. Traditionally, this type of insurance is kept long after other policies have expired. Term life insurance purchased in far greater dollar amounts, and is intended to insure against the loss of life in an untimely manner.
To figure what you will need in terms of insurance, it is important to know your earnings potential between now and your projected retirement, and any assets your family will need to pay off in the event of your death. For instance, if you are 40 years old, making $50,000 annually, and you intend to retire at age 65, your earnings potential over 25 years is $1.25 MM. If you have a $250,000 mortgage, add that to the policy unless you have a mortgage life insurance policy. If you have a $30,000 loan on a boat or other luxury item, you may want to add the cost of that item onto your policy. Also, it may help to add in enough to help put your children through college, retraining for your spouse if he or she would need to go back to work, and enough to pay off any other outstanding debts you may leave behind.
The bottom line when it comes to insurance is to buy as much as you can afford today, and add to it as you go. The younger you are, the less expensive it will be, and inflation is always a factor. No matter how much you’re saving for college educations, the cost will always increase exponentially. The same is true for burial expenses.
Another very important factor is to make certain that you purchase insurance while you’re young and healthy. Pre-existing health conditions will drive up your rates, and in many cases can prevent you from purchasing insurance at all. Do not put it off! For example, if you purchase a 5-year policy at age 35, and at age 38 are diagnosed with internal cancer, you are now considered to be “uninsurable”, and will be forced to pay a much higher amount when your policy expires at age 40 than when you purchased it at age 35. However, if at age 35 you purchased a 30-year policy, you would pay the same rate until age 65, regardless of any changes in your health.
One other thing to look for is whether the policies you’re looking at are guaranteed or non-guaranteed rates. A non-guaranteed policy may increase premiums after so many years in force, while a guaranteed policy will remain at the same premium until the policy expires. The smart choice is a guaranteed rate that you can afford.
Also, you need to know what “riders” you want on your policy, and how they will affect your premium. “Return of Premium”, “Accidental Death”, and “Waiver of Premium” are just a few of the available riders on most policies. Ask your agent how these riders work and how they affect your premiums.
The best thing you can do is to consult at least one licensed insurance professional, and if they ask you lots of questions, chances are they’re a good agent. If they think they have the “perfect” policy for you and your familty within 30 seconds of your arrival, chances are they’re selling whatever has the biggest commission in it for them. Get a second opinion in that case. Keep in mind that independent agents have several different companies to pick from, and captive agents generally sell only one company no matter what you’re looking for. Ask your agent if he or she is captive or independent.
Know what your insurance company’s rating is. “AAA”, “AA”, and “A” are some of the best ratings. AM Best and S&P (Standard & Poors) are two of the top companies that rate insurance carriers for financial stability. You can always visit www.stroiafinancial.com for more information regarding life insurance and a number of different other types of products.