While your inevitable demise might not be something you want to think about, the subject of life insurance deserves your time. Adults with a home, partner, kids, or any financial liabilities need to make sure they provide for the people they care about, should they die unexpectedly.
A study undertaken in 2018 revealed the fact that more than 40% of Americans don’t have any form of life insurance. Why is this percentage so high? Thinking about death can be bleak, but it might also be because life insurance can be complicated.
Fortunately, life insurance doesn’t have to be confusing. With the right information, you’re able to make smart decisions and achieve a suitable outcome for your family.
Let’s look at some of the things you need to know.
What is Life Insurance?
Life insurance provides for your family or partner should you die. The provision takes the form of a lump sum or regular income.
There are three types of life insurance:
- Term or pure life insurance – this type of insurance cover provides for your family for a specified time. Should you die within the policy term, they’ll receive a lump sum or regular income. Term insurance only has value if you die.
- Whole or permanent life insurance – the death benefit for this type of insurance has no expiry date. As long as you keep up with your premium, the policy remains active until you die.
- Convertible term life insurance – there’s an option to exchange a term or pure life insurance policy for permanent life insurance. There’s no underwriting process, and a medical exam isn’t required. However, it’s common for there to be a maximum age limit, often 65.
There are also several variations of whole life insurance: universal life insurance and variable life insurance.
Do You Need Life Insurance?
Not everyone needs life insurance, but there are certain instances when it’s crucial. Is there someone who depends on you financially? If the answer is yes, you’re a prime candidate for life insurance. Here are some more examples of when life insurance is something to consider.
When you’re married
If you’re married, you don’t need to wait until you have children to think about life insurance. Consider what would happen if one of you passed away tomorrow. Would there be sufficient income for the surviving partner to pay off debts, cover the monthly rent or mortgage, and pay utility bills?
When you’re married with children
For the majority of families, two incomes are required to cover all financial obligations. If one partner dies, the remaining family members might not be able to continue their standard of living on one income. If you arrange life insurance, expenses can be covered, and plans for the future remain unchanged.
If you’re a single parent
Being a single parent comes with a heavy burden of responsibility. Not only are you the chauffeur, caregiver, cook, and entertainer, you’re also the only breadwinner. To safeguard your children’s financial future, you should consider life insurance.
If you’re a stay at home parent
You don’t have to earn a salary to make a financial contribution. Stay-at-home parents perform a variety of crucial tasks. The replacement value of these tasks is significant and often underestimated.
When you’re retired
The proceeds of a life insurance plan can be used by your heirs to cover funeral expenses, taxes, and other debts.
If you own a small business
Life insurance can also be used to protect your business. It could be used to fund a buy-sell agreement, for example.
If you’re single
It’s not usual for a single person to require life insurance, but there are some exceptions. You might be providing financial support for your aging parents, or a sibling with special needs. You may have a significant amount of debt that you don’t want to pass on to your surviving family members.
Also Read: Why It’s Important to Have an Estate Plan
Prioritize These Benefits
Now that you appreciate the importance of life insurance let’s consider what you need to look for when purchasing your policy. The options for life insurance companies and policies are extensive. Before you jump in and hand over any cash, perform your due diligence. Look for these six factors:
1. An Affordable Policy
When you reach the stage of asking for permanent or term life insurance quotes, you’ll suddenly become aware of the differences between the various policies and providers. The disparities are enormous, which makes weighing up the pros and cons of each policy crucial. Let’s consider one example. A death benefit for the whole of your life is a great benefit, but is permanent life insurance worth the extra expense?
Aim to choose a life insurance policy that’s affordable. That way, you’re more likely to keep on top of your life insurance premiums, even when times get a little tight.
2. Pay-out Terms
There’s one type of life insurance that appears to be very attractive on the surface. You’ve all seen the TV adverts for quick and easy coverage. While it might be very tempting, consider the waiting period that’s often attached to this type of policy. You might have to wait two or even three years before you get a pay-out.
A policy that pays out 100 percent on the first day is a far better choice.
Various factors are taken into account when an insurance company works out your payments. It’s the underwriters that evaluate risks such as smoking, traveling outside the U.S., diabetes, and your family medical history. It’d be convenient if they all followed the same guidelines, but that’s often not the case.
It’s always best to speak with an independent insurance advisor. Let them look at the various companies and find one that best suits your situation.
4. Automatic Payments as an Option
It’s essential to keep on top of your life insurance payments. Otherwise, your cover may get canceled, and there may be problems reinstating your policy. You might not be allowed to catch up on past payments.
To avoid any missed or forgotten payments, look for an insurance provider that has the option of automatic payments from your checking account.
5. Possibility of Conversion
Nobody can predict what’s going to happen in the future, but it helps if you’ve got some options. The capability to convert your term policy into a permanent one is an excellent feature to have. It generally requires no additional medical exam. If you’ve developed a medical condition since you originally purchased the first-term policy, conversion allows you to keep your coverage.
6. Living Benefits
Life insurance is a continually evolving sector of the insurance market. To meet current consumers’ needs, several insurance providers have introduced a new option. In some cases, it’s possible to receive payments if you become chronically ill or enter a care facility.
Being able to get cash out of your life insurance policy is a beneficial addition, should you get cancer or need end-of-life care, for example. Look for a company that offers this option.
Getting a Quote Online
To get the right insurance deal, it’s always best to compare your options. To find the best rate, you first have to compare life insurance quotes from several different companies. You’ll find that prices vary considerably depending on the coverage you decide on and your personal details, such as gender and health.
A Checklist for Obtaining a Quote
You need to provide specific details when requesting life insurance quotes. Gather the information together before you start, and you’ll get a quote much quicker. Information that you might need includes the following:
- Specific information relating to any medical conditions
- General medical information, such as your weight, average height, cholesterol levels, and blood pressure
- Your income and occupation
- How much debt you have, for example, mortgage, auto loan, credit card, and student loan
Don’t Wait to Start the Process
It’s going to help if you start the application process when you’re still relatively healthy. Life expectancy is one of the things life insurance companies take into account when determining your rate.
The smart thing to do is purchase life insurance cover as early as you can, preferably when you’re still young and healthy. Wait too long, and the quotes you receive will increase, simply because you’re older. Wait long enough for health issues to arise, and the quotes will be higher still.
Moreover, you shouldn’t let a health condition keep you from applying for life insurance. How a life insurance company views an existing condition varies. There are insurance companies that don’t even ask for a medical exam.
15 Factors That Affect Your Premium and Cover
There’s no one size fits all when it comes to life insurance cover. Many factors are taken into account when a company works out the premium you have to pay. Some are within your control, while there are others you can’t do anything about. Your age, health, and smoking habits are three of the most prominent factors, but there are many others.
If all other factors are equal, the younger you are, the lower the rate you can expect to pay. For this reason, it’s often recommended to purchase life insurance as early as possible. When you’re young, the risk of death is much lower. Therefore the rates are lower.
2. Current health and health history
A medical exam is generally required. They look for issues such as high blood pressure and other health concerns that might indicate serious health problems in the future. If you’re currently healthy, you can expect to pay a lower premium.
Conversely, a history of health issues will likely make your rates higher.
Your weight can have a severe impact on your health. It can also put you more at risk for serious health issues. If you’re obese or overweight, it can affect the cost of your coverage.
Certain careers have an inherent risk of injury or untimely death. Take a car or motorcycle racer, for example. Other dangerous occupations include aircraft pilots, roofers, truck drivers, and steelworkers. If you have a risky job, your rates are likely to be increased, and they might deny you coverage altogether.
5. Marital status
Being married doesn’t mean your insurance rates are going to be higher. Rather, it’s included in the list because you can save some costs if you purchase a life insurance policy with your partner.
6. Whether you smoke
Despite the known risk factors that come with it, many people still smoke. Smoking increases the risk of cancer and other fatal diseases. Because life insurance is all about the risk of death, being a smoker automatically increases your coverage rates.
7. Alcohol consumption
Another risky habit to have is drinking alcohol. How much alcohol you consume regularly is factored into your life insurance rates. Drink more, and you’ll pay more.
8. Hobbies and lifestyle
Do you participate in any high-risk hobbies, such as skydiving, motorcycle riding, skiing, snowboarding, or parachuting? If so, you’ll be paying more for your life insurance.
9. Driving record
Do you have any driving violations on your license? You should aim to have as few of these as possible. Not only does it affect your auto insurance, but it’s also considered an indicator that you’re more at risk of accidents on the road. Having a few violations might result in higher insurance costs.
10. Travel preferences
If you like to travel overseas, keep in mind that certain countries are considered a higher risk than others. How often you stay in these countries and for how long, can impact the cost of life insurance coverage.
11. Family history
Insurance companies take into account more than your medical history. Your family’s medical history can also be a factor in determining the cost. Family members with serious, hereditary health issues can make the cost of coverage higher.
It doesn’t seem fair that your gender can affect the price, but unfortunately, it does. Statistics play a large part in determining risk, and statistically, men tend not to live as long as women. Consequently, women pay less than men for life insurance.
13. Purpose of purchasing insurance
Why are you buying life insurance? Is it because you want to provide and protect your family’s future? Is it part of your estate planning? Insurance rates can change according to the reason.
14. Type of policy
The kind of policy you purchase, the term, and the level of cover all contribute to the rate you pay for insurance coverage. The longer the term, the more you’ll likely pay. A term life insurance policy is also cheaper than whole or permanent life insurance policies.
15. Risk classification
When determining the cost of insurance coverage, underwriters generally place you in a specific risk category. Every company is different. Zander Insurance and Birla Sun Life Insurance might look similar on the surface, but the underlying risk classification could be completely different.
Being aware of the overriding factors puts you in a position to do something about some of them. Your age, gender, and family history can’t be changed. However, you can alter many factors, such as your participation in risky activities, driving record, weight, and general health. Make the best decisions for your future, and it can positively affect the cost of life insurance.
There are also a few more ways you can increase your chances of bagging a lower price or better coverage, below.
Suggested Reading: A Quick Guide to Dental Insurance Companies
Tips for Getting the Best Life Insurance Price and Coverage
Life insurance isn’t something you purchase regularly. Unlike travel insurance or mortgage insurance, there aren’t any opportunities to learn tricks along the way. For this reason, we’ve done the research for you! Here are some secrets regarding life insurance.
Increased Coverage Might Mean a Lower Price
Much the same as buying in bulk entitles you to a discount; your insurer might be willing to lower the price if you ask for a higher level of coverage. Insurance companies tend to have thresholds or bands. Price breaks are available at specific levels.
Do-it-Yourself vs. an Independent Agent
You can look for the best life insurance company yourself, and if you’re in good health, there’s no reason why you shouldn’t. However, anyone in a high-risk group might be better off seeking independent advice. An independent agent will shop around for you and be able to find an insurance company that’s more lenient than others.
Add a Chronic Illness Rider
A rider is an extra that you attach to your policy. If you find an insurer that adds a chronic illness rider at no charge, you should choose it. Adding this extra means you’ll be able to access your death benefit earlier, should you be diagnosed with a chronic illness.
Send Payment with Your Application
The life insurance application process is long-winded, and it can take several weeks before your cover is active. Immediate cover is possible if you send in payment for the first month’s cover with your application. When you’re filling out the application form, look for “temporary life insurance receipt.” This will include the terms and conditions for temporary cover, which usually involves making a payment in advance.
Life Insurance Exclusions
A life insurance policy is a contract between you and your life insurers. The devil is in the details, and you should make sure you’re aware of any exclusions. Pre-existing medical conditions are one example. Another is a self-inflicted injury. The beneficiary of your life cover won’t receive anything if these cases apply to the insured person. With regards to life insurance taken out by a small business owner, it can’t be used to reclaim or cover any start-up costs. A sane or insane clause is something else to look out for.
It pays to look out for any additional perks insurers might be offering. There might be extra insurance cover on offer. Zander Insurance and the Zander Identity Theft Insurance is one such example.
Making a Life Insurance Claim
Making a claim is not something you’re going to need to worry about. However, knowing the process means you can help your family understand what they’ll need to do.
The first step is to contact the life insurance company and let them know you want to make a claim. You’ll need to give personal details of the person covered under the policy. Let your loved ones know where you keep your policy and what it covers.
Companies often have clear and specific processes in place to help with a claim. One excellent example is the AFLAC Smartclaim system.
Your beneficiaries will need to provide specific documentation with a claim, including a:
- Death certificate
- Completed claim form
- Policy document
A pay-out doesn’t generally take too long to be processed. Typically, it takes around one month, but sometimes it’s much quicker.
Coverage can be costly, but it’s also possible for you to find an insurance provider willing to provide the necessary cover at an affordable price. At the end of the day, knowing your family is going to be comfortable when you’re gone is priceless.
Have you been looking for a life policy recently? Did you manage to find a deal that suited your needs and bank balance? What was your experience of requesting a quote, and did you feel pressured into making a deal? Please take a few moments to leave us some comments.