Many of the clients that we speak with don’t know the exact amount of life insurance coverage that they want. In many cases the amount of coverage they want is dictated about the cost of policy. To determine the cost on the policy it requires them to go through the process of underwriting. At the end of underwriting they will get an insurance rating, such as preferred elite, preferred, standard, etc. and that will actually determine the rate. With the rate established, we will truly be able to tell them the cost of the various face amounts. If they are up in the air then we will suggest that they underwrite and get approved for the maximum amount of coverage that they might want. During the underwriting process, which takes about 6 weeks, they can think about what they truly want for face amount.
It makes sense to underwrite for the max, as it is easy to go to the carrier to cut down the face amount to a lower number. The only thing that they can’t do is go up. In other words, if you try and go up in coverage amount it may require new underwriting. If you have to re-underwrite that can present a hassle for the client and really makes little sense to do it that way. When you apply with a carrier for coverage, you have no obligation to the face amount or even to accept the policy, so why not just underwrite for the most you might actually want in coverage.
There are a million reasons not to buy life insurance today or next week or even this year. Typically, it is not something that you are going to be excited to purchase. While I completely understand this rationale, it is important to consider why you may want to buy sooner rather than later.
First of all, you will never be healthier than you are today. It is possible that you could be sick or unhealthy now, and in the future your health will improve. That is a possible scenario, but it is true in only rare circumstances. The longer you live the more apt you are to have additional health problems or take additional medications. If your health gets worse in the future, it is a matter of time before you may not qualify for a policy at all. If you need coverage and you can qualify, you should go ahead and secure the coverage.
You will never be younger than you are today. This is always true and your premiums will only go up from here. The earlier you lock into a rate and the mortality, will benefit you in the pocket book.
Another reason people wait is that they are shopping carriers and plans. The answer to this is simple, let us shop the rates for you and we will have the best rate on the market for you in 5 minutes. The process to get applied, complete the underwriting, and get you approved takes about 4-8 weeks. This process doesn’t obligate you in anyway, but it gets a formal offer from the carrier if you are insurable.
Life insurance has a ladder of rates depending upon your underwriting rating. The best underwriting score or rating will produce the lowest premium, while the worst underwriting score will produce the highest premium. If you are very healthy, have good height and weight, and you are a non-smoker, then you have an opportunity to get the best rating. You can get knocked down the insurance ladder for health issues, dangerous avocations, bad BMI, family history, etc.
We will take a look at a hypothetical case of a 40 year old male who is applying for 250,000 of 20 year term life. His best possible rating would be preferred best. If he receives this underwriting rating, the best premium on the market will be $19.79. If he gets knocked down to a standard n0n-smoker because of being too heavy, he will pay a premium of $39.06 monthly for the same policy. If he has multiple health risks and gets the bottom rung on the life insurance ladder, he will pay $122.50. While everyone would like to get the preferred best rate, it is unusual for someone to qualify for that rate. You must have zero negative underwriting points in order to get the preferred best. If you get the worst rating on the underwriting rung, I would suggest you accept the policy or have us shop the case to other carriers. If you are on the bottom rung, it means you are one step from being uninsurable. Even if it is more than you wanted to pay, it is still an offer for life insurance.
Similar to applying for a mortgage, you must be evaluated by the company, before an offer is made. We look at all the carriers on the market depending on where we estimate you will fall on the ladder. It is important to work with a good agent who can help guestimate the rating from their field underwriting with you.
What is the best term life insurance? That is an interesting question and how do I determine what that means?
I generally think this can be answered through a basic analysis when selecting the carrier you want to work with. Which carrier will underwrite me the most favorably based upon my specific underwriting situation? If you have sleep apnea and take medication for a couple of different purposes, then it might be one carrier. If you have type 2 diabetes it may be a totally different carrier. Based upon which carrier will underwrite your situation the best, that will determine your underwriting rating and your ultimate premium. See what offers a Florida life insurance consultant can help with you.
Another aspect of determining the best term life insurance for you is what is the company’s financial strength. Generally you want to select a company that has an A rating or better. This is something you will want to be comfortable as you select the carrier you work with.
When determining the best term you want to look at your short and long term goals and needs with the insurance. For example, will you only want the term for the term period? Will you possibly want to convert all or a piece of the term to permanent insurance? If you will want this as an option then you want to look at what the term carriers offer as conversion options. Do they have a good whole life option? Universal Life? How long do you have to convert it with no proof of insurability?
These questions might help you if you are trying to figure out what the best term life insurance is. It is going to be specific to your situation and varies per person.
When you are looking at purchasing life insurance you should look for various items with the different carriers. You should look at their proposed rates, financial ratings, conversion options, and specific underwriting guidelines.
The proposed rates are important as that is the amount that you will pay if you qualify for that rate. It is important to understand that a quote is just a guestimated rate. You could come back with a better rating and a better rate or a worse rating. Make sure you understand the underwriting rating that has been assigned to you for the quote. For example, did you get quoted preferred even though you have diabetes.
The financial ratings and strength of the company that will underwrite your business is important. You want to make sure they have good strength and will be able to pay the claims. It is great to get the best premium rate, but if they won’t be able to pay the death benefit, who cares.
Do the insurance companies that you are looking at have good conversion options. When I say conversion options, I mean good permanent insurance options. Conversion allows you to convert from term to either whole life or universal life with no proof of insurability. This can be a very valuable option and make sure to consider this.
The last thing to consider when you are looking at multiple carriers is how each company underwrites for different underwriting issues. For example, is there a carrier that underwrites better for smokers or high blood pressure
A basic life insurance quote has a few components to it. The length of the the policy, the face amount, the company, and the underwriting estimate.
The length of the policy must be determined before you get your life insurance quote. You can either have a level term policy that goes for a period of time or a permanent plan. Level term plans are either annual renewable term, 5 year level term, 10 year level term, 15 year level term, 20 year level term, and 30 year level term. The 10 year, 20 year, and 30 year can be return of premium plans as well. A return of premium plan returns the full premium paid if you make it through the term alive. The other type of plan that you can get a quote for is a permanent plan life whole life or universal life.
Obviously determining the face amount of the policy is necessary to get a quote. Ask your agent to take you through the life insurance calculator if you don’t know how much you should buy. The companies that offer the plan that you are seeking will be included in the life quote. The final piece of the quote you will receive is the underwriting estimate. This estimate will take into account whether you are a smoker or non-smoker, health, etc. Based on these factors an insurance rating is guestimated and thus you will get an estimated rate quote (price). The quotes can include riders also if you decide to select them.
One of the important things to consider is whether the company you are buying from is underwriting conservatively and collecting the appropriate amount of premium. As a customer you want to work with a company that collects enough premium and doesn’t accept to many risky applicants. The basis of a life insurance company is the ability to pay out a benefit to you and your family. If they are not collecting enough premium now, will they have enough money down the road to pay the benefit.
We try and work with our clients to not only determine the length of the policy, but also the strength of the company and the companies evaluation process. Also, certain companies will underwrite for certain conditions more favorably and establish a niche with those types of candidates. For example, if you are a smoker than often times Prudential will be the best company for you to go with as they seem to underwrite favorably for that.
Make sure to consider if the company you are going to apply for is asking for enough premium. Typically they are, but don’t always assume the lowest price is the best way to go. Make sure you are looking at companies with at least an A rating.
Had a funny discussion with a client who just wanted a realistic sense of what their new life insurance policy would cost. They had the unfortunate experience of getting a very optimistic quote from an agent and applied and the policy ended up costing twice as much. This is why it is important to make sure the quote is realistic and has all factors considered. A lot of quotes given will not factor in underwriting factors such as health, medication, dangerous avocations, other risks, etc.
We try to make sure we understand all of the circumstances in play before we give any pricing information. On top of that, we shop many life insurance companies for our clients and some underwrite more favorably for different circumstances. With that being said, it is impossible to know 100 percent what the actual premium will be until underwriting is done. Many clients have not realized they had a certain medical condition and then found they had it once they did the medical exam.
All term life insurance and permanent insurance quotes are all pending underwriting. Make sure when you get the quote that everything is factored in, or you might get a big and disappointing surprise.
When you buy life insurance or are evaluating what you have, it is important to check on the conversion options. Most company’s offer a least one option to convert their term products to permanent life insurance. What is great about the ability to convert is that it requires no additional underwriting or approval from the insurance company. Life circumstances change and people’s needs change, so it is a door that you want to leave open. Many of the clients want to buy term and feel that is all they ever want. That may be the case now, but you never know where you will be in 15 years.
The main options that you can convert to typically are universal life insurance, variable universal life insurance, and whole life insurance. Each one has benefits, but not all policy’s are created equal.
Option 1- Universal life- is a type of permanent insurance that has the most flexibility. There is flexible range that can be premium amount that can be paid into the policy. If there is enough cash value to cover the cost of insurance in the policy than premiums can be drawn from the cash value. Payments into the policy above the premium are credited to the cash value and the cash value will be credited with interest (usually using an interest rate index). The interest rate varies based upon the insurance company.
Option 2-Variable universal life- is similar to regular universal life with its flexibility. The difference is that the amount above the premium is put into a separate account that is invested in the stock market. This has more upside and downside risk for the cash value with the money being invested in the stock market.
Option 3-Whole life insurance is the most traditional form of permanent life insurance. It has a set premium that will never increase but it isn’t flexible and will last forever s long as the premium is paid. Whole life has a guaranteed cash value and the policy’s can actually do better than the guarantee. If the company declares a dividend than that is credited to the cash value as well, but dividends are not usually guaranteed.
It is important make sure your policy has at least one of the conversion options above.