Get The Best Life Insurance Rates Today!
Are you one of millions seeking the best life insurance rates? Many consumers have either been offered life insurance through their local car or home insurance agent, but few end up purchasing an insurance policy for a wide number of reasons. Some do not fully understand the impact a life insurance policy can make for their family or business, and others see it as too complicated or a hassle to buy.
Many times, it's simply price.
At the most basic level, the purpose of life insurance is to replace something of monetary value when someone dies. It's a promise from an insurance company to pay a stated death benefit when a claim is made, so long as the payer of the policy has maintained their premiums.
What you're replacing are things like income to your spouse or dependents, protecting a mortgage for those you leave behind, paying off personal or business debts you owe, final expenses like burial and medical costs, or even just resources for your beneficiaries to use at their discretion.
Life insurance proceeds are a tax free lump sum paid to the beneficiary, someone who is named by the insured on the contract. A beneficiary can be a person, an estate, or even a trust. For most consumers, a beneficiary is a spouse, a child, or a close family member who would be trusted to use the benefits as they were intended.
Why Might You Need Coverage?
Simply put, you may need coverage because someone is dependent on you financially in some way.
If you were to pass away, what financial burdens would you be leaving behind? If someone depends on your income, the income would need to be replaced so your dependents could continue to live as though you were still providing that income. If you had a mortgage, policy benefits could help with the monthly payments or even pay off the house to stop the worry of losing ones home. If you carry debts, from credit cards to student loans to business debts, these could all be made clear with the benefits of a life insurance policy.
Not everyone has dependents or is still working. Retirees and the elderly may be one of these groups, where they no longer have children living with them, debts are minimal, and their stream of income is coming from assets they own. In this case, a smaller life insurance policy may be necessary just to hedge against the costs of final medical bills, funeral costs, and other final expenses which might be incurred. In some instances, life insurance is used to offset a decrease in pension or social security benefits, and even to pay estate taxes if the person is substantially wealthy.
Other reasons may be for acquiring capital, like SBA loans for small businesses, which require life insurance be in place with the lender as the recipient of the proceeds. This allows the lender to recoup their money should an untimely death occur where the business owner would no longer be able to make their payments.
What is the right amount of coverage?
There is no single correct amount of coverage, as each person has different needs than the next. While this is the case, there are several things you can consider when coming up with your own number to ensure you're covering all your bases. Remember to ask yourself for each item if someone would take on any hardship financially if you were no longer able to provide for them. Here are a few items to consider:
- Personal Debts
- Business Liabilities
- Burial Costs
- Charitable Gifts
- Estate Taxes
- Legacy Plans
The key is not only to figure out if you have any of these larger categories, but also discovering the appropriate amount to allocate to each one. If you have a debt, it may be straightforward as you would simply need to have an amount established which matches your outstanding balance. But for things like income, it's a little more difficult.
There are a few rules of thumb, which are industry wide, like replacing 7-10 years worth of your income to your spouse or dependents. While this is a good starting point, younger families should consider a larger number since they have more working years remaining (and therefore a larger human capital to replace), and older folks may need less as they near retirement or have assets they accumulated already. Again, each person may have a different number in mind. One last point, insurance companies to have a maximum amount of annual income they will consider coverage for. For young adults, it may be as much as 30x income, and as little as 5x income for those in the older age brackets.
If you have already accumulated assets, you can subtract the amount of those assets from your total death benefit need, assuming they are somewhat liquid and wouldn't require a large amount of effort or loss in order to gain access to cash. Remember, the instant access to cash is one of the great benefits of life insurance; it allows the beneficiaries to immediately adjust to no longer having you around. It would cause undue stress and hardship if a dependent not only lost you, but had to expend great effort and sacrifice to liquidate what you had in order to get by.
Which policy is right for me?
There are many types of policies to choose from, and each has a special benefit it can provide.
Term life insurance is the most popular type of life insurance because of it's many effective uses and it hosts some of the best life insurance rates possible. Premiums for term life are the lowest cost per thousand of any type of life insurance, and the rates can be locked in for as long as 30 years. Term life insurance is usually purchased to match the obligation or need, both in coverage amount and duration. Options are available for both fully underwritten policies which require a medical exam, as well as no exam life insurance policies which require just medical questions be answered.
Universal life insurance is an increasingly popular option for coverage because it has many of the same benefits as term life insurance with added security of many guarantees, where applicable. Think of universal life as 'permanent term' where the monthly premiums are level, but availability goes beyond 30 years. In fact, some guaranteed universal life insurance policies go to age 121. While there is build up of cash value inside of the policy, similar to whole life, it decreases as the policy ages to offset the additional premium costs.
Whole life insurance is another form of permanent insurance, like universal, but has a higher level of guarantees and cash growth within the contract. Whole life insurance is mostly sold through mutual insurance companies, although other carriers have it as well in different capacities. Whole life should only be used where most appropriate because it will be the highest cost per thousand for death benefit. If you're using the policy to grow cash in a tax deferred manner, you'll want to use a trained agent to build a custom policy for you to ensure you're gains are not eaten entirely with policy fees, as well as to avoid a modified endowment contract (MEC) if you're over funding.
Survivorship Life Insurance
A survivorship life insurance policy is one which where the death benefit is spread across more than one life; it is also called second-to-die life insurance because it does not pay out until after both insureds have passed. These types of policies are most common for estate planning purposes where after both insureds pass, immediate cash is needed to settle an estate or mitigate larger tax bills due to estate tax laws. We recommend you involve your estate lawyer or accountant when purchasing this type of plan to be positive it is set up legally and properly, especially when held in a trust. Survivorship life comes in two forms, both universal and whole.
Variable Life Insurance
Variable life insurance is a universal life insurance policy which has securities tied to the policy. In other words, owners of this type of life insurance are having a portion of their premiums go towards things like mutual funds in an effort to maximize their gains in a tax deferred manner. These are the most volatile type of life insurance offered, but may also be the most profitable and cost effective in the long run if set up correctly and assuming strong performance. You will need to work with a registered representative, not a normal life insurance agent, in order to purchase this type.
Advantages of Life Insurance
There are a multitude of advantages to using each type of policy, some of which are more in-depth and detailed than others.
The tax free status of a life insurance death benefit is one of the top advantages. Because your life insurance premiums are paid with after tax dollars, the death benefit is able to be paid out in lump sum without any state or federal taxes being withheld. Be aware that in some instances, it will result in estate taxes, but all proceeds are paid directly to the beneficiary as listed on the policy and those can be settled afterwards (unless the estate is the beneficiary).
Another is the tax deferred growth of cash within permanent policies, where applicable. Again, because premiums are paid using after tax dollars, the cash growth, including interest and dividends, grows tax deferred just like a 401(k) or IRA. But unlike the 401(k) and IRA where the distributions are taxed, cash value accessed via loan from a life insurance policy is not subject to taxation. Keep in mind that surrendering a policy entirely may result in taxation.
Riders on life policies are also an extraordinary asset to consider having in your financial planing arsenal. Riders like the Waiver of Premium Rider offered by many carriers will allow your premiums to be waived entirely, for a fee, should you become disabled long term. When/If you come off of disability, you can resume your normally scheduled payments. This allows you to continue your coverage even if you've lost a significant income due to your inability to work.
Disadvantages to Life Insurance
There are a few disadvantages to each type, as well. Evaluating your own situation and choosing the right policy type for you and your family is a key ingredient to a durable life insurance plan. The big disadvantage for term life is the element of termination. After the term duration has expired, you'll be forced to pay extraordinarily high premiums, convert to a permanent policy at the age you apply, or simply let go of the coverage. For permanent policies, the higher monthly premiums can become burdensome over time, especially if you were to have a drop income.
Another disadvantage of life insurance is for those who can't qualify for the best life insurance rates, meaning their health or health history, occupation or other cause raises premiums significantly higher than expected and they're forced to utilize a high risk life insurance plan. Because life insurance is based primarily on age, health, and your ability to qualify, the process of applying can not only be daunting but potentially disappointing if you're not approved.
Choosing The Best Carrier
Looking for the best life insurance companies is not always easy, especially with the number of carriers who offer life insurance of all different kinds across the country. For example, specialties exist at the carrier level, so you'll have niche traits for no exam life insurance companies who are vastly different than, say, burial insurance companies (here is our list of life insurance company reviews if you want to see what brands you already know specialize in). Your state can be a limiting factor from the carriers you have to choose from, as well as your age or the amount you're looking for. Using an independent agent is the single best way to hunt through the different companies who will best provide you with what you need. Here are some factors to think about before choosing.
The financial rating given by the major rating agencies, A.M. Best, Fitch, Moody's and Standard & Poor's, are a good starting point in researching a company once you have a few to choose from. Try to work with carriers who are rated at least an "A" from one or more of the agencies. While this is no guarantee you'll be working with the best carrier a decade from now, it's a good indication you're applying with a carrier who is financially sound now. All claims paying abilities are subject to the carrier who underwrites the policy, so keep that in mind when you buy.
Many insurance companies have a name you might recognized, but some do not. Don't shy away from an insurance company you haven't heard of, as each has their own specialties and differences which make them most suitable for certain types of insurance or specific products. Some of the more long standing and trusted companies do not advertise heavily, and operate by marketing through independent agents only, not television, radio or other ads. When in doubt, call the company and ask questions.
The lowest cost doesn't always coincide with the best service, so it's something to think about. Would you be comfortable dealing with a company who has no internet presence and little way of contact other than a call center? Or would you prefer to pay a little extra for a company who has a local agent you can stop to ask questions or make policy changes when needed? Each person is looking for something different from their purchase, and cost is not always the bottom line in picking the top carrier.
What Is Required to apply?
The application process for life insurance is a little unlike any type of process you may have gone through before, especially if you opt for a fully underwritten policy as opposed to the no exam option.
Expect to have to answer a comprehensive set of health questions, tobacco use, hand over your driver's license number so the carrier can see your motor vehicle record, and even give details of your job or finances. It's also common to supply the insurance company with information to contact your doctor or any health specialists to verify any past health concerns. Your personal MIB database will be accessed, which is your medical information bureau database, allowing access to any previous dings against your health.
The medical exam entails a 15-20 minute appointment with a medical examiner who will take your blood pressure, take a blood and urine sample, and verify your height and weight. It could be more lengthy if you're purchase requires an EKG or other type of exam component. The exam is usually free to you, and you'll also be entitled to the full report or analysis after the underwriting process. Ask your agent for more details.
The complete process, from application to underwriting, to approval and issue, can take as little as a few business days to several weeks depending on your particular scenario.
For those who opt for a no exam policy, you may still be required to allow the carrier to view medical records, although it is less common. You'll still be required to let them view your driver's record, medical history, prescriptions, and other easily obtainable data to verify you are as low risk as possible. Your process time will be greatly shortened, ranging from instant approval to approval in just days.
We know this won't be an exciting purchase, but we can assure you the feeling of security once you're done. Like many other types of coverage, hopefully you'll never even have to file a claim; but it will still be there, just in case.