Your Essential Primer in How to Buy Life Insurance
Asking “how” to buy life insurance presumes that you’ve moved beyond the “why” which is a big leap forward; however, it’s not quite as easy to answer. Most people only need one or two key reasons why they should buy life insurance. Things get a bit more complicated when determining how to best go about buying it. The primary reason is there are a seemingly endless number of products and companies from which to choose, and the buying process may vary slightly from one to the next.
The easiest path to buying the right life insurance policy is through narrowing down the choices based on some strict criteria developed from your own research. The process should be guided by your specific needs instead of what a life insurance agent wants to sell you. The more you know about your need for life insurance, the types of policies that best fit your needs, the companies with whom you should be working with, and the way that life insurance is issued, the more you will control the process and wind up with the policy you really need and want.
Understand Your Need
You know you need life insurance for its protection, but do you know how much you need? How much income needs to be replaced, and for how long? What debts need to be paid off? What financial obligations, such as college funding, need to be insured? Will the need for your family’s security be temporary or will it continue for some time? These are questions any good life insurance professional should ask, but you’ll be in a better position when you know the answers up front.
Know Your Options
While there are hundreds of life insurance products to choose from, they all boil down to two main categories and then breaks down further into several sub categories or variations.
Term Life: The most basic type of policy is term life. It has the lowest monthly premium cost because it is “pure” life insurance, and it is typically only temporary coverage. This type of coverage is purchased by people who know when their need for life insurance will stop, or who want to buy the most amount of coverage with least amount monthly premium. The variation of term life include yearly renewable term in which your premiums increase each year, and level term in which your premium amount is level for a certain period of time (10,15,20 or 30 years) after which it can be renewed at the then current insurance rate which can be significantly higher than the level premium.
Permanent Life Insurance: These policies combine the death benefit element with a cash value account that has the effect of leveling out your premium for as long as you own the policy. The portion of your premium that is not used to pay insurance costs is left to accumulate. The cash value growth is typically guaranteed, and the insurance company bases the premium amount on the assumption that those values will ultimately decrease their total risk exposure. The cash values, which accumulate tax deferred are generally available for savings needs, but their use will lower the amount of death benefit payable.
There are several variations of permanent life insurance that fit different needs and preferences. Whole life is a fixed product that is suited for people who prefer absolute guarantees; Universal life is preferred by people who want more flexibility in structuring their policy and are willing to assume a bit more risk; and Variable life offers the potential to achieve higher rates of return on your cash value with participation in the stock and bond markets and all of the associated risks. There are several variations of each of these, but understanding the basics of the three primary types of permanent policies is a key first step.
Know Who to Buy From
You’ve probably already surmised that the universe of life insurance products is vast and that is because there are hundreds of life insurance companies offering thousands of different products. You can make your life a lot easier by simply choosing to work with a life insurance professional who has access to the top life insurers as ranked by the independent rating agencies.
The life insurance landscape is highly competitive and you can be assured that the highest quality companies will offer products that can compete with lower quality companies. So, there is very little reason to look at companies that aren’t considered to be of the highest financial strength and credit worthiness. If you choose to work only with companies that have an A+ rating from A.M. Best, you will have 20 good ones from which to choose.
Know the Process
Buying life insurance does require that you jump through a few hoops. Essentially, you will have to qualify medically for the amount and type of coverage you want at the rate you were quoted. Your current health and your medical history are the primary determinants. Depending on the amount you are trying to qualify for, your medical records will need to be provided to the underwriters, and you may need a medical exam which is typically performed by a paramedical professional. The process can take anywhere from two to three months. A good life insurance professional will shepherd you through the complete process and help you clear any obstacles that come up.
With this overview as your guide you can focus in on the key parameters to follow when buying a life insurance policy. At some point in the process, you will most likely need to consult with a life insurance professional. The more knowledgeable you are about the process , your own needs and preferences, and the types of policies that are available, the sooner he or she will be able to put you in a life insurance policy most suited for you.