When looking at what type of life insurance to buy, it is important to marry affordable life insurance with the product that makes sense for your situation. For example, if you have a child that is 1 years old and you decide you need coverage for 20 years, don’t buy a 10 year term. The temptation to do that might be there, to save cost, but in the end it may hurt you. If you go and apply for a new 10 year term at the end of the first 10 year term, you may not be insurable and certainly the premium will be a lot higher.
The first thing we want to look at is how long will you want and need the coverage. You may want to have permanent insurance, but your budget will not allow for that. Maybe you can do a combination of term and permanent to meet your budget and your permanent need and want. It is important to buy the right amount of death benefit above all else. One case recently, the client wanted to buy 100,000 dollars of whole life, when the need for death benefit was closer to 500,000. We suggested supplementing the whole life with a 400,000 term rider to cover the additional exposure and the client agreed to that strategy. Very often we will see a client with a plan that is not budget friendly and the plan type makes no sense. As an independent brokerage we can shop all the carriers and all the different products. If a consumer is dealing with a captive agent, they may get stuck with one of the products in the agents limited repertoire.
Buying term life insurance is like renting your life insurance. It is very similar to getting a lease that you pay a flat rate for a period of time. You could have a 1 year lease or a 5 year lease. Life insurance companies have created different length level terms. The most popular are 10 year term, 15 year term, 20 year term, and 30 year term.
This is the most cost effective way to get coverage for a period of time. At the end of the level term period, the rate goes up very aggressively, similar to rent. Most term policyholders will drop their term when the rate goes up on the policy. Often times we will recommend some type of blend of term and permanent life insurance. When the level term period is over and the policy is dropped, then the client still has the permanent part of their insurance still in place. This approach can be a very good one as the term can cover much of the exposure during prime working years and the permanent can function as a smaller amount that will be in force after the term disappears. Many clients say, “I won’t need insurance at that point when the term ends”, but few know how they will feel at that point. Having some form of permanent at least gives you that option. If for some reason you truly don’t want the permanent plan at the end of the term, you can just cash in the cash value and walk away with that money. Often times, that can be as much or more than you put into the policy. If you want to get life insurance, there are a lot of companies competing for your business right now, so its a great time to apply.
When buying term life insurance there are several things to consider. For example, what length level term do you want to buy. They offer 1 year annual renewable term, 5 year term, 10 year term, 15 year term, 20 year term, and even 30 year term. On top of that, many of the company’s offer a return of premium option. This option will return all of your premiums to you, if you outlive the term. I recommend to our clients that they have the term run at least through the years of highest need for their families. In other words, until there kids are at least 18 and preferably through college.
The term length is important, because at the end of the term the insurance cost will probably go through the ceiling and be cost prohibitive. Another thing to keep your eye on with insurance is your insurance age. Most life insurance companies, recognize you as one year older when you get within six months of your birthday. For example, if you are turning 43 on July 11th, you want the policy to be dated no later than January 10th to be considered 42. The other option to save your age is backdating the policy. This can be a good option, but you must catch up on the back premiums. Talk to your agent about this.
Make sure to put your policy in a safe place. It is a shame, but many life insurance policies go unclaimed. Either the policyholder lost the policy or never let his/her family know that he had a policy. Of course the insurance company is ok if the beneficiary doesn’t come forward. That simply means that they don’t have to pay out the benefit. They will not seek you out. This is a good reason to have an agent that services your account and advises you on your insurance needs.
When looking for a policy look at the financial ratings of the companies. Make sure the company you buy from has at least an A rating. It is easy to get caught up on just the rate and ignore the strength of the company. With today’s financial insecurity, make sure you consider this in your decision.
