This is such a great question and one I can relate to since I spent a whole year trying to understand what this industry is all about. There are many things to consider when shopping for Life Insurance. Here is a list of a few:
1. Age of the person buying insurance
2. Type of insurance: term or whole, universal or a combination
3. Cost willing to pay for individual premium as supposed to group (employer sponsored group life insurance).
4. Health condition at the time of getting the policy
5. Amount of coverage (the higher the coverage also the higher the premium)
When I was researching life insurance for me I learned that the least costly and best option was a term insurance for 20 years with a conversion option whenever I want before the 20 years are up. With my selection, after 20 years if I am still alive I will have to either convert at a higher premium. Term policies are very cost effective and make sense for those who are healthy and not willing to pay high premiums. If you are healthy you can obtain high coverage by submitting to a medical exam. Many insurance companies require this before they approve higher coverage greater than $50,000. If you are healthy, it is worth going through it. The company will send a nurse to your house to run blood test and do a physical exam prior to approving the premium or the coverage amount. You can ALWAYS negotiate the premium despite what they want you to believe.
So, your first step is to learn the differences between the types of Life Insurance. Second, determine your networth, most companies will have a way to help you calculate which amound of coverage will be appropriate based on those financial liabilities you would leave behind in the event of your death. Third, is to decide how much you are willing to pay today and for how long I could sustain paying those premiums at the lowest rate possible with the highest coverage possible. Forth, talk to your kids and tell them that if they could help you pay the premium for years to come, they would be financially at an advantage. In my case, once the 20 years are up, my kids will pay for my premium so they can continue my benefit until I die. Since it is a million dollar benefit, it is a high incentive for them to help me out in the event I am not able to pay the premiums anymore.
If you are employed and your employer pays for group life insurance, make sure to consider its portability features upon leaving that job. There are conversion clauses that can determine whether or not it is worth keeping that insurance beyond your current group coverage. We learned the hard way with my husband's case who upon becoming 100% disable he assumed he still had coverage by his employer. It turned out the amount dropped and we are in the middle of fighting it as the employer failed to explain the process clearly.
Below are definitions of the type of Life Insurance programs that you can choose from:
1. Term insurance: is the simplest and most affordable as you commit to buying a policy for a specific price and for a specified period i.e 20 years. If you die during that time, your beneficiary receives the value of the policy. There is no investment component. In other words, the there is no investment value that could yield dividends.
2. Whole life is similar to term, but you purchase the policy to cover your "whole life" not just a set period. Premiums remain level throughout the life of the policy, and the company invests at least a portion of your premiums. Some companies share investment proceeds with policyholders in the form of a dividend.
3. Universal life, in this type of policy, you decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build. With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder. With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account. A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles. This type is risky and I would not recommend it.
4. Variable life -- With a variable policy, there is usually a wider selection of investment products, including stock funds. As with a universal policy, returns on investments can offset the cost of premiums or build in the account. And depending on the type of policy, the beneficiaries will either receive the face value of the policy or the face value plus all or part of the cash account.
I hope this helped some. Your best bet is to get a financial planner that can help you decide which way to go based on your personal needs. Shop around and get quotes from top companies such as John Hancock, MetLife and Prudential. There are many more out there. Best of luck!
Comment Reply
This is such a great question and one I can relate to since I spent a whole year trying to understand what this industry is all about. There are many things to consider when shopping for Life Insurance. Here is a list of a few:
1. Age of the person buying insurance
2. Type of insurance: term or whole, universal or a combination
3. Cost willing to pay for individual premium as supposed to group (employer sponsored group life insurance).
4. Health condition at the time of getting the policy
5. Amount of coverage (the higher the coverage also the higher the premium)
When I was researching life insurance for me I learned that the least costly and best option was a term insurance for 20 years with a conversion option whenever I want before the 20 years are up. With my selection, after 20 years if I am still alive I will have to either convert at a higher premium. Term policies are very cost effective and make sense for those who are healthy and not willing to pay high premiums. If you are healthy you can obtain high coverage by submitting to a medical exam. Many insurance companies require this before they approve higher coverage greater than $50,000. If you are healthy, it is worth going through it. The company will send a nurse to your house to run blood test and do a physical exam prior to approving the premium or the coverage amount. You can ALWAYS negotiate the premium despite what they want you to believe.
So, your first step is to learn the differences between the types of Life Insurance. Second, determine your networth, most companies will have a way to help you calculate which amound of coverage will be appropriate based on those financial liabilities you would leave behind in the event of your death. Third, is to decide how much you are willing to pay today and for how long I could sustain paying those premiums at the lowest rate possible with the highest coverage possible. Forth, talk to your kids and tell them that if they could help you pay the premium for years to come, they would be financially at an advantage. In my case, once the 20 years are up, my kids will pay for my premium so they can continue my benefit until I die. Since it is a million dollar benefit, it is a high incentive for them to help me out in the event I am not able to pay the premiums anymore.
If you are employed and your employer pays for group life insurance, make sure to consider its portability features upon leaving that job. There are conversion clauses that can determine whether or not it is worth keeping that insurance beyond your current group coverage. We learned the hard way with my husband's case who upon becoming 100% disable he assumed he still had coverage by his employer. It turned out the amount dropped and we are in the middle of fighting it as the employer failed to explain the process clearly.
Below are definitions of the type of Life Insurance programs that you can choose from:
1. Term insurance: is the simplest and most affordable as you commit to buying a policy for a specific price and for a specified period i.e 20 years. If you die during that time, your beneficiary receives the value of the policy. There is no investment component. In other words, the there is no investment value that could yield dividends.
2. Whole life is similar to term, but you purchase the policy to cover your "whole life" not just a set period. Premiums remain level throughout the life of the policy, and the company invests at least a portion of your premiums. Some companies share investment proceeds with policyholders in the form of a dividend.
3. Universal life, in this type of policy, you decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build. With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder. With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account. A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles. This type is risky and I would not recommend it.
4. Variable life -- With a variable policy, there is usually a wider selection of investment products, including stock funds. As with a universal policy, returns on investments can offset the cost of premiums or build in the account. And depending on the type of policy, the beneficiaries will either receive the face value of the policy or the face value plus all or part of the cash account.
I hope this helped some. Your best bet is to get a financial planner that can help you decide which way to go based on your personal needs. Shop around and get quotes from top companies such as John Hancock, MetLife and Prudential. There are many more out there. Best of luck!
January 8, 2009 - 9:59pmThis Comment
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