This post is written by Chris Huntley, who is a licensed life insurance agent in 48 states. He is director of marketing at JRC Insurance Group and blogs about life insurance at www.InsuranceBlogByChris.com.
Life insurance is without a doubt the most important financial safety net that every American household should buy.
The sudden loss of the main income earner could leave such a devastating financial hole that many households may not be able to cope.
Jeff Rose from Good Financial Cents points out that a staggering “35 million households don’t have any life insurance” AND, that “58 million households don’t have enough.”
If you fall into either of these vulnerable categories, and don’t know anything or very little about life insurance I’m going to give you a brief life insurance primer so you can financially protect your family.
Types of Life Insurance
There are two types of life insurance that you can buy:
- Term Insurance
- Permanent Insurance
Let’s look at each of these life insurance formats in more detail.
Term Insurance
Term insurance is the most common type of life insurance purchased today in the U.S. and is the most basic type of life insurance available. It is also the most affordable form of life insurance.
Although term insurance covers you for life, you buy it in periods of time such as 10, 15 or 30 years. Some companies sell policies which are age specific such as age 65, for example.
Term insurance pays out death benefits only. You select the amount of death benefits you need such as $500,000. You then choose the length of the term or period of time that you want the insurance to cover.
Most people don’t know that there are three types of term insurance available:
Level Term – The most common type of policy that you see advertised. You pay a specific premium for a specific period of time and amount of coverage (death benefits).
Decreasing Term – This simply means that your premiums remain the same but the amount of coverage will diminish at various time increments throughout the term of the policy. This is an ideal policy to buy to cover your mortgage.
Increasing Term — With this type of policy, both your death benefits and your premium will increase at certain time increments during the life of the term. This can be a good policy for young families starting out and who are on a budget.
Permanent Insurance
This form insurance is more complicated and more expensive to buy. These types of policies cover you for your entire lifespan. They provide not only death benefits like term insurance, but also provide a cash value accumulation feature which grows through the life of the policy.
The types of permanent policies available include:
- Universal Life
- Indexed Universal Life
- Whole Life
- Variable Life
These polices should only be discussed in more detail with an experienced independent insurance agent and can be ideal for those with complex estates, tax issues or are earning higher incomes.
How Much Does Life Insurance Cost?
First, let me point out that life insurance becomes increasingly more expensive to buy as you age. Along with advanced age you may also incur health issues that can also affect the cost of what you pay.
Here’s a few sample quotes for a 30 Year Term Life Insurance Policy — “Preferred — Non-Smoker” – $500,000 Death Benefits.
Age 25 – $40.18 / Month
Age 35 – $39.25 / Month
Age 45 – $107.50 / Month
Age 55 – $301.20 / Month
Tips on Buying Life Insurance
Here are a few handy money saving tips to keep in mind when buying life insurance.
Tip 1 – Always Use an Independent Agent
Although you can buy direct from a life insurance company or a company agent, your best bet to get the best coverage at the most affordable rates is through an independent life insurance agent.
Why?
The reason is because independent agents have access to dozens of life insurers so they can not only perform the comparison shopping for you, they also know which companies are more lenient when it comes to certain health issues.
Tip 2 – Don’t Buy Life Insurance through your Employer
If you are healthy, you are better off buying through an independent agent because you will get a better rate. Also, keep in mind that when you leave your employ, your life insurance coverage is terminated.
If you have health issues, group insurance through an employer can be a good route to go as you will almost certainly be approved for coverage.
Tip 3 – Avoid No Exam Policies if you are Healthy
You see these advertisements everywhere. They are convenient but one thing the advertisers fail to mention is that these policies are considerably more expensive than those which do require a medical exam.
These policies are more commonly known as “Guaranteed Issue.” They can be useful if you hate needles, have health issues, or need a policy fast such as if you need life insurance to cover a business loan.
Whatever you decide, start the life insurance process today and don’t leave you family vulnerable.
