Buying Life Insurance? All You Need to Know

Written by Rob Pinner

Thinking about buying life insurance?

Life insurance is a fantastic way to protect your loved ones, yet it is often put to the side and seen as irrelevant. It is a difficult discussion to talk about your passing, yet it is very important to do.

Life insurance is easy to get started, and with the right guidance you can make an informed decision and find an affordable policy that will fit your needs.

What You Need to Know About Life Insurance

If you don’t want to dive head first into a six-figure policy, then you are not alone. Everyone normally takes a hesitant approach to life insurance, thinking that they won’t need it.

People with this tendency tend to buy life insurance later based on false ideas such as:

“I’m in my prime years and I’m healthy, I don’t need life insurance yet”

“I’m single with no kids, no one relies on it”

“Life insurance is just too expensive for me”

Even though these things may be true at the time, there these factors will surely change as you get older and get more expensive.

A common myth is that life insurance is expensive, which in some instances it can be, but if planned properly and not put on the bottom of the to do list, it’s a fact you can secure life insurance at an affordable rate.

Let’s look at some reasons to purchase life insurance:

  1. You are a Business Qwner
  2. You have Debt
  3. Family Members that Depend on You
  4. You Want to Leave a Legacy
  5. Price Locking/Locking in the premium
  6. Home Owner/Mortgage
  7. Funeral Costs
  8. Special Needs Child

Business owner

If you own a business, you can use life insurance to ensure its financial security for when you pass. If you choose personal, shared, or even key man life insurance you can insure that the people you love are safe. Life insurance for business owners can ensure there is a smooth transfer of ownership for your loved ones.

Debt

Are you still paying your student loans?

Do you have an auto loan?

If you have transferable debt that you don’t pay off before you die, then your family and even your friends could be left with the job of paying it off.

You’re the Income Source for Others

Do you have anybody relying on you financially? If so, life insurance is the way you can provide for them after your passing. If you are a spouse, grandparent, parent, or even a caregiver for relatives, then you need to make sure you have a stable life insurance policy, so you can protect them.

Think how much money it will take to replace your income and help secure the well beings of the cared ones when looking for a policy. Check out our life insurance calculator and needs analysis here.

You Are Leaving Behind A Legacy

Trying to provide for your heirs? Investment accounts are an excellent way to ensure you will, but life insurance policies are even better! Life insurance policies skips probate and is almost always a tax free disbursement.

“Do you want to fund something important? Like future grand-kids college funds?”

“Or do you want to leave an inheritance?”

There are many different life insurance policies on the table that will help you leave a legacy for your loved ones tax free!

Insurance Can Get Pricey with Age and Health

The longer you wait on getting yourself a policy, the higher the prices will be for your premiums. Each and every year that you get older the premium increases because of an age change. If your health declines, you risk the prices going up on your premiums as well.

Locking in the price at a young age could save you a substantially amount of money, and sometimes secure you life insurance that you may not qualify or afford when you really need it.

Own a Home

This could have very easily fallen under any outstanding debt, but we feel that a home is more than just a debt. A home is an investment, and probably the biggest for most of us, so it’s very important to have this protected. Life insurance can take the guesswork out of where you loved ones will live in the event of a tragedy.

Funeral Costs

With funerals averaging around $8,000-$12,000, it is very important to have life insurance in place.

Special Needs Child/Children

If you have a special needs child then life insurance can be use to make sure your child receives the care they deserve long after you are gone. Life insurance is commonly used to fund special needs trusts.

Now that we know why you need life insurance, let’s look at some key terms to understand life insurance.

Key Terms

  • Beneficiary– The people or organization that will receive the money from your policy after you pass.
  • Cash Value– The amount of the money that grows in a permanent or whole life policy.
  • Death Benefit– The total amount of money the beneficiary will receive after your passing.
  • Dividend– Whole life policy benefit that will pay a percentage of the policyholder’s total amount on a timed basis.
  • Insured– The person covered by a policy.
  • Policy– The document that describes the insurance plan and honors their terms.
  • Policyholder– The life insurance policy owner, normally the insured person.
  • Premium– The money a policyholder pays to the insurance company to keep the policy the same.
  • Rider– Conditions added to the policy that can extend or limit the coverage on your policy.
  • Risk Classification- The way of assessing the risk of taking on insurance based on health, lifestyle, profession, and other factors that can impact your premiums and rates.
  • Underwriter– The professional that will assess the rates of a policyholder using the risk classification.

Different Types of Life Insurance

Now with your new knowledge of life insurance, let’s look at the different types of policies available.

There are some policies more popular than others, but we need to find the option best that will fit for you.

Accidental Death and Dismemberment Insurance

With this policy, you will get death benefits only when the policyholder dies in an accident.

This policy will also cover if you lose a limb or a sense.

These policies do not cover death from illness or surgery, suicide, overdose, or high risk activities (rock climbing, bungee jumping, or racing).

This policy is good to have for frequent travelers, young adults, and anyone accident prone.

Overall

This coverage is affordable but is not the best for your money.

A lot of companies offer it for their employees, so in that case it is smart.

But it shouldn’t be your main insurance plan or disability insurance.

Credit Life Insurance

If you take out loans, such as a car loan, personal loan, or mortgage loan, you can get an insurance policy that will help paying off the loans in the wake of your death.

With this life insurance, as your loan balance decreases so does your cash value for that loan. The goal is for both to reach $0.

When taking a loan with the bank, they may offer you this policy as it will protect the bank if something is to happen.

Instead of benefiting your loved ones, this will settle your debt, so your loved ones won’t end up paying it back from their pockets.

The cost, however, is a huge downside.

If you are healthy then you can get a term life insurance policy for far less money. It won’t lose benefit over time and is directly paid to your beneficiaries.

Final Expense Insurance

This insurance has a specific purpose to pay for burial costs.

Instead of replacing the income0, this policy pays your final expenses and some debt.

If you planned a funeral, the cost is very high for the burial, memorial and headstones.

The costs average around $8,000-$12,000, this life insurance plan will help with the costs, especially in this difficult time.

This life insurance policy can also help pay any unpaid medical bills.

These plans, while limited, can be a good option for an older person looking to protect their loved ones from funeral costs.

Survivorship Insurance-Second-To-Die

This insurance policy is also known as Second-To-Die policies. These are joint policies that pay the beneficiaries when both policyholders pass.

With this policy you have many plans to choose from such as whole life, universal and variable plans.

These types of polices do build cash value, which can be used later to offset premium costs.

This policy can be helpful for couples who have estate problems or want to leave a legacy behind.

Term Life Insurance

This is one of the most popular choices for that fact that it can offer lots of coverage with a very affordable cost.

It also is very simple, because the premium and length of policy are set at time of issue.

Term life insurance does expire.

Since it is not for your entire life, it is a lot cheaper than permanent life insurance and fits in most peoples budget.

Universal Life Insurance

A universal life insurance policy is a type of permanent policy.

The premiums are based on your age and the amount of insurance.

These types of policies are designed to have increasing premium costs which are offset by cash value accumulation over the duration of the policy.

Be weary that if the cash value doesn’t accumulate as projected, this could lead to a premium increase down the road.

Universal life policies do come with a guaranteed premium option that is highly recommended when looking to purchase a policy.

Variable Life is a type of universal life insurance, allows you to put the investment component of your policy into sub account which are similar to mutual funds, instead of keeping you in an established interest rate.

Your policy account will also be managed by professionals.

Indexed universal life insurance is another type of universal life insurance, the insurance companies base the growth of your cash value on the returns of various indexes. .

Indexed universal life’s cash value component has a minimum interest rate that is guaranteed on all products.

Whole Life Insurance

This is the most secure and easily obtained policies that you can get.

There are no term limit set, meaning it won’t run out, and your rates will not change over time. There is also a cash value accumulation feature.

You know what you’re getting when you purchase this policy.

If you were to get an illness out of the blue, your premiums will not be affected.

All you need to do is keep up with your payments!

You could end up paying 5 or even 10 times more on a whole life plan than a term life policy.

With steep premiums most can’t afford to get the life insurance they need if something affects their income.

But if you are a high-income individual then whole life might be great for you.

If not, please go along with caution, and keep in mind your other options.

How Much Life Insurance Do You Need?

With our new-found knowledge of the different policies, how do you know how much is right for you?

You need to know your specific situation and this is how you will determine this.

You can tally your expenses to determine how much to get and subtract your savings, investments, and other assets.

First, though, you need to ask why you are purchasing life insurance.

  • If you want to replace your income in the wake of your death, then you want to buy a large enough policy that will do that. Most say to multiply your income by 10 to figure that out.
  • Ensuring your child’s success in college along with replacing income, you will want to find the costs of college for four years for each child and multiply it by 10.
  • You have debt to pay off?
  • Want to just leave a legacy? This is dependent on your own plans.

Factors for Life Insurance Rates

In any life insurance policy, there are many factors that will affect your premiums.

Let’s look at the key factors…

  • When you are in good health your premiums will be lower than if you were in not so good health. I Even if you smoke that may very well increase your premiums.
  • The younger you are when purchasing life insurance, the better. As you age your premiums will increase and by the age of 50 your premiums can be 10% higher than premiums in your 30’s.
  • Family History is a factor when determining premium costs.. If diseases or even cancer run in your family then your premiums might be higher.
  • Women tend to outlive men statistically, so if you are female your premiums might be much cheaper than mens.
  • Are you a risk taker? Like to cliff jump? Skydive? Then you may be at risk for your premiums going up instead of a stay at home parent.

Tips in Purchasing Life Insurance

It can be stressful when buying life insurance, so here are some tips!

Lower Your Risk Factors

Normally you will notice that with a low risk lifestyle and perfect health you will see a preferred plus or premium plus.

People with a normal health who are overweight might fall into a standard category, even if someone related to this person passed before 60.

Then there are the smokers.

Someone who has recently quit or meet the criteria of a standard non smoker. If you have quit for 5 years or more you may qualify for a better rate.

Standard smokers, however, are the ones who meet standard health even though they smoke.

You can’t change your family’s health history, you can get lower rates with these steps…

  • Get and maintain a healthy weight.
  • Lower your cholesterol and blood pressure.
  • Stop smoking!
  • Try and play it safe, cut back on life risking activities.
  • Start today and don’t wait on tomorrow!

Know What You Need

Talk with your loved ones and figure out what is best for everyone.

For most term life is the answer, it’s affordable and safe.

Keep in mind though that it is different and unique to everyone, so do your research.

Look at It All

Don’t dive in blindly, you and your financial plans are unique to you. So always look for what is best for you.

Talk to different agents who want what’s best for you.

Common Mistakes to Watch Out For

Mistakes happen all the time, so we are here to help prevent that.

Minor Beneficiaries Without Safety Nets

If you are a single parent or divorced, you probably have your kids in mind as your beneficiaries. If you don’t have safeguards in place, then they may be at risk.

Some cases, the beneficiaries, who are underage, may not get the money for burial services in time for a funeral.

This can be avoided using Uniform Transfers to Minor Act. With a UTMA, a custodian (chosen by the parent) will be able to control the assets for the minor. Just be careful of who you choose.

No Backup Beneficiaries-Contingent Beneficiaries

What if your loved ones are there with you when something happens, like an accident?

If something happened to you, your spouse, and your kids, wouldn’t you want your parents or grandparents to receive your benefits?

Therefore, you need a backup beneficiary or contingent beneficiary, so you know it’ll go to someone you love.

Waiting to Buy

Rates go up with age. You can be the healthiest and think you don’t need life insurance. But life is random, things happen.

You can be in a car accident. Or an accident at work can happen.

You can have surgery and happen to pass, if you have young children then they won’t receive any help without life insurance for costs of their own and for your funeral.

Not Enough Life Insurance

Most believe you only need to pay for monthly bills and funeral costs.

This is a good way to start but you should also think about extra costs for your family such as college tuition or income replacement.

Overall

Life is random, but with life insurance you will always know you will leave your loved ones protected in the wake of an tragedy.

Be sure to protect yourself and your loved ones.  If you have any questions or comment please don’t hesitate to contact us. We are here to help.

Rob Pinner
Rob Pinner

At Easy Quotes 4 You we aim to make your life insurance buying process a smooth and stress free transaction.  We are independent life insurance agents servicing all 50 states. I have over 15 years of experience and have focused solely on life insurance for the past 5 years. If you have any questions or comments please don’t hesitate to give us a call.

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