What To Do When You Buy
Meet with your life insurance agent or company. Once youve chosen potential parties to work with, you should sit down together and discuss your current situation and your financial goals. Consider multiple solutions to your life insurance needs and avoid anyone who tries to sell you a particular plan and wont suggest alternatives. Decide on the type of life insurance policy you want and then ask them for quotes on that type of policy. Make sure you ask at least three insurance agents or companies to provide quotes and/or policy illustrations to you for the same type of product so you can make true comparisons and select the one that best suits your needs.
Compare different policy quotes. When you receive the quotes, compare them and see which one is more suitable to your life needs and future financial goals. You should compare features such as premiums , renewal increases , investment options , dividends, death benefits, policy loans and tax implications. Ask which features are guaranteed and which are not. Use FSCOs Questions to Ask about Life Insurancechecklist so you make an informed decision. It should be clear why the agent or company is recommending one policy over the other, and what the associated risks are.
How Much Home Insurance Do I Need
To know how much home insurance you will need we must first determine a few things:
- What is the Total Replacement Cost Of Your Home?
- What valuables do you have that might require additional coverage?
- Are you living in an area that has constant natural disasters?
- How much can you afford to spend on a monthly basis for coverage?
- Will you choose replacement cost or actual cash value cost?
Once you have answered those questions, I recommend getting an additional half of the coverage amount just to be on the safe side.
If it will cost a total of $350,000 to replace your home, try to get $500,000 in coverage to combat anything that might change like costs in material or labor.
Each part of the policy is going to cover specific parts of your home so understanding the limits to each part of the policy will be extremely important.
You must also determine what type of replacement you will receive for each area of your policy:
Common Life Insurance Terms
You might come across these terms when youre shopping for life insurance. Heres what they mean.
Beneficiary: The person or people you select to get the life insurance payout when you die.
Carrier: Another name for a life insurance company.
Cash value: Permanent life insurance policies typically have an investment portion that increases in value over time. This is known as the cash value account, and once youve accumulated enough cash value, you may be able to borrow against your policy.
Death benefit: The amount of money the insurer will pay out to your beneficiaries, generally tax-free, when you die.
Dividend: Some insurers are mutual companies, which means theyre partly owned by their policyholders. They may pay out a sum of money to some policyholders each year based on the companys financial performance. These payments are called dividends.
Exclusions: The circumstances in which your life insurance policy wont pay out, such as death from a risky activity like skydiving. Exclusions vary among insurers and are listed in the policy documents.
Face value: The basic death benefit of the policy. For example, if you purchase a $500,000 policy, its face value is $500,000.
Policyholder: The person who owns the life insurance policy.
Premium: The amount of money youll pay to keep your life insurance policy active. With most policies, you have the option to pay monthly, quarterly, semiannually or annually.
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How Much Life Insurance Do I Need
There are several ways to get a life insurance coverage estimate. Our life insurance calculator uses the “Human Life Value” method, which looks at what you’re earning now plus what you expect to earn in the future. Between the ages of 18 and 40, it multiplies current income by about 30 as you get older and have fewer working years left, that multiple decreases.1 Other rules of thumb to estimate how much coverage you need include:
Consider multiplying your income by 10Take your annual salary and add a “0” at the end. So, $50,000 salary equals $500,000 of coverage, $75,000 equals $750,000, and so on.
Consider multiplying your income by 10 and add college for each childHow much should you add? Account for somewhere between $100,000 and $150,000 per child. If you split the difference and have two kids that’s an extra $250,000.
Consider using the DIME formulaDIME stands for Debt, Income, Mortgage, and Education. This method estimates your life insurance need as the sum of your financial obligations and other expenses:
· Debt: Total all your debts other than your mortgage.
· Income: Take your salary and multiply by the number of years you think your family needs protection or at least as long as you have children at home.
· Mortgage: Look at your last statement and get the payoff amount.
· Education: The anticipated cost for sending each of your children to college.
What Questions Should I Ask An Insurance Professional
These questions are a good start but it’s even more important to find an insurance professional who asks you questions. What’s your current situation? What are your plans for your family? Your obligations? Your financial goals? There are a lot of different kinds of life insurance because people have so many different protection needs. If you’re looking for more than just a complimentary quote, then you should talk with a knowledgeable financial professional who will take the time to learn about your needs, answer your questions, and guide you to the right type of coverage or coverages for your needs. If you don’t have someone to discuss insurance with, Guardian can help you find a nearby financial representative who will take the time to learn about your situation and present you with options that fit your specific needs and concerns.
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What You Should Look For Before Buying
There are some key factors every buyer should be familiar with when shopping for life insurance, including:
- Medical exam requirements: In most cases, you will need to undergo a medical exam to qualify for the insurance coverage.
- Fixed or flexible premium: A life insurance policy with a fixed premium means the premium rate you pay will not change throughout the life of the policy, regardless of your age or health.2 A flexible premium policy, on the other hand, gives the policyholder the ability to customize how the policy is being funded, for example, how long the premiums will be paid.
Remember: You Can Upgrade Later
There may be times when your financial situation prevents you from getting the coverage you need. But insurance minimums are generally very affordable. You should always purchase the minimum coverage required by law by your state. Even minimum coverage can keep you from paying out of pocket.
Once you are able, you can upgrade your policy to include a more comprehensive coverage package. It doesnt hurt to give your insurance agent a target premium. This would be an ideal price you would be willing to pay for coverage. For instance, Progressive offers a feature called the name your price tool. This allows you to get the coverage you need at a price you can afford.
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Think Carefully About Expensive Add
Problem: Riders often add unnecessary expenses without the benefits to make it worthwhile.
Adding disability, critical illness, or long-term-care riders is often less cost-effective than buying full standalone policies instead. If you’re choosing between less coverage with more riders and more coverage with fewer riders, the latter is more beneficial.
Solution: Opt for standard term life coverage if you donât have room in your budget for the added monthly expense of riders. Consider getting individual policies instead of tacking on riders to your insurance plan, since itâs usually a better value overall.
Choosing a life insurance policy doesn’t have to be complicated. Think carefully about your needs so that you can buy the coverage that’s right for you and your family.
Consider Permanent Life Insurance If
- You need life insurance for as long as you live. A permanent policy pays a death benefit whether you die tomorrow or live to be over 100.
- You want to accumulate a savings element that will grow on a tax-deferred basis and could be a source of borrowed funds for a variety of purposes. The savings element can be used to pay premiums to keep the life insurance in force if you cant pay them otherwise, or it can be used for any other purpose you choose. You can borrow these funds even if your credit is shaky. The death benefit is collateral for the loan, and if you die before its repaid, the insurance company collects what is due the company before determining whats goes to your beneficiary.
Keep in mind that premiums for permanent policies are generally higher than for term insurance. However, the premium in a permanent policy remains the same no matter how old you are, while term can go up substantially every time you renew it.
There are a number of different types of permanent insurance policies, such as whole life, universal life, variable life, and variable/universal life. For more details, see our articles on the specific types of policies.
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Consider An Agent When Buying Insurance
Insurance agents are associated with a certain provider. They are also known as captive agents. These agents own their business naturally, they are trying to create income while generating business for the provider. Agents are more convenient than dealing with the provider. That’s because there is someone to answer your questions.
Why Younger Is Better
When it comes to timing, the younger you are when you buy life insurance, the better. This is because at a younger age, you’ll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan.
However, younger people faced with mortgages, car payments, and student loan debt tend to put off buying life insurance. While paying off current debt is critical, missing out on buying life insurance at a young age has a significant economic impact, much like delaying saving for retirement. The sooner it is purchased, the better.
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How Much Does Homeowner Insurance Cost
The cost of your home insurance is going to be determined by the levels of coverage that you purchase as well as the value of your home, and the state that you live in.
As we stated above, you need to decide what coverage amounts you want to go with in regards to your:
- Medical payments
- Personal Property
You will also find that the limits of your coverage for the below things are usually a set percentage of your dwelling coverage limit:
- Personal Property
- Other Structures
- Loss of Use or Additional Living Expenses
You will need to choose your home insurance deductible, which is what you will be responsible for before the insurance company starts to contribute.
Deductibles can range from $500 all the way up to $2,500, but keep in mind the lower your deductible, the higher your monthly premium and the higher your deductible, the lower your monthly cost will be.
You also want to be sure to get substantial limits on Liability Coverage as well as Medical coverage.
Your liability coverage will take care of any lawsuits that may come up while the medical part can take care of medical bills of people who have been hurt on your property.
When It Comes To Buying Life Insurance Younger Is Better
The right time to buy life insurance varies from person to person, depending on family and financial circumstances. Generally, you need life insurance if other people depend on your income, or if you have debt that will carry on after your death. After all, you don’t want to leave your loved ones without money to live on… or on the hook for your credit card debt.
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Mistakes To Avoid When Buying Life Insurance
Life insurance is designed to provide some financial security to your loved ones after youre gone. Depending on your situation, the money can help pay off debt, fund your spouses retirement or help your children pay for their education. There are several different types of policies to choose from. If you dont know the facts, it could spell financial disaster for those you leave behind. When shopping for a policy, youll want to watch out for and avoid these major missteps.
A major part of any financial plan is life insurance. Talk to an advisor about your financial plan today.
Life Insurance Shopping For Smokers
Getting a term life insurance policy can be a wise financial decision for your family. You can start by entering your information into our Life Insurance Advisor to see whats best for your situation. You can also check out our Life Insurance Calculator to find how much you need.
As we mentioned earlier, insurers differ on how they classify nonsmokers and smokers. So, its a good idea to shop around, get quotes from multiple insurance companies and find the right policy for you.
No matter what life insurer you choose make sure youre truthful on your application. You dont want to lie about smoking and potentially leave your loved ones without a life insurance benefit.
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How Much Coverage Should I Buy
To figure out how much life insurance you need, think about your financial obligations. Then, aim to take out a policy to match them. Debt and income replacement calculators can help you decide before you get quotes.
Here are some expenses to consider:
Outstanding debts, such as a mortgage, personal loan or credit card balance.
Everyday living expenses, including child care, utility bills, groceries and car insurance.
Future expenses, like funeral costs and college tuition.
Another way to crunch the numbers is to multiply your annual income by 10, and use that as a rough estimate.
Although you may have some life insurance through your job, its generally a good idea to have your own policy in addition to the life insurance provided by your employer. The policy through your workplace likely isnt enough to meet your familys financial needs and can end if you leave the job.
Can You Hide Smoking From Life Insurance Companies
You may think that you wont get caught if you lie about smoking on your life insurance application. However, lying to your insurer may ultimately result in your loved ones being left with nothing.
Life insurance companies ask you about smoking on applications. They want to get a complete picture of your life and health. That includes whether you smoke, chew tobacco or use nicotine products.
Life insurers usually dont differentiate between the type of nicotine. It could be cigarettes, cigars, chewing tobacco or nicotine-suppression products. An insurer may consider you a smoker if you use e-cigarettes. Vaping often contains nicotine. Plus, even if youre vaping to quit smoking, insurance companies usually dont consider that a smoke cessation tool.
Insurers approach tobacco use in various ways. Many policies will allow limited use of cigars, such as a dozen cigars a year, but smoking more cigars could get your considered a smoker.
One might consider you a nonsmoker after no nicotine products for three or five years. Another policy may allow chewing tobacco. Still others could give you nonsmoker rates temporarily if youre trying to kick the habit.
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Insurance Company Ratings And Stability
When selecting an insurance policy, you are also selecting an insurance company and you may wish to know how stable that company is financially. Many firms rate the financial soundness of insurance companies. Some provide the ratings free while others charge a fee, ranging from a small fee for an online rating to a larger amount for quarterly reports. Each firm has a different rating scale and firms may differ in the conclusions they reach about a specific insurance company. Therefore, you may wish to check with more than one firm before selecting an insurance company.
Listed below are some of the firms that rate insurance companies along with their phone numbers and web addresses:
Can You Cash In Term Life Insurance
Whole life insurance is the only type of life insurance that builds cash value. Term life doesnt accumulate cash value so there is no surrender amount if you cancel your policy.
There are a lot of things to consider when deciding between term vs whole life insurance. Talk to your insurance agent about your current lifestyle, your plans for the future, and what you want your policy to cover to help you find the right plan for you.
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What Happens To My Policy If The Insurance Company Is Sold Or Changes Ownership
While there may not be a clear cut answer to this question, since situations may vary greatly, you should ask this question and make sure you are comfortable with the answer you receive.
About the Author
Fran Majidi manages content on SmartFinancial’s website. She’s had nearly a decade’s worth of experience writing about insurance-related topics. Prior, she was an arts and entertainment editor in New York City. She has a B.A. from Barnard College and an M.F.A. in writing from The New School. She writes books under her given name, Afarin Majidi.