NEWS & ARTICLES INSURANCE GUIDE

Buying life insurance for the first time can feel daunting.  Not only do you need to think about your mortality, which is highly unpleasant, you also are faced with the task of choosing a complicated insurance product being sold by a lot of companies.  Sometimes, you can talk to three different agents or advisors, and get three different recommendations.  What are you supposed to do? Life Ant is here to help make it simple.

As you get older, life insurance becomes a must for your family’s peace of mind. Even if you don’t anticipate the life insurance coming into play for decades, it is always better to set it up early in case of an accident. A good life insurance policy will cover funeral expenses and other financial challenges that would be incurred by your family if you were to pass away. If you’ve never bought life insurance before, it can seem a bit daunting. However, once you familiarize yourself with the options, it’s fairly easy to choose a good policy. Here’s everything you need to know about buying life insurance for the first time.

Step One: Term Life vs. Permanent Life

The first thing you will need to consider is whether you want term life insurance or permanent life insurance. In most cases, it is more affordable and makes more sense to choose a term life insurance policy. Term life insurance policies work very similarly to your car insurance. You take out a policy for a certain period of time, usually a set number of years, and you have the option to renew or cancel when that period of time is up. As long as you continue to pay your premiums, your coverage will continue. These policies are very affordable, sometimes only a few hundred dollars per year, so they are a great place to start. Yes, you do have to reassess your policy at the end of each term, but once you are set up with your insurance company, this is very easy to do.

Permanent life insurance, which is sometimes called whole or universal life insurance, will cover you for your entire life instead of just an agreed-upon term. This life insurance is more comprehensive, but it is also much more expensive. If you have the money to purchase a permanent life insurance policy, this can give you and your family peace of mind. However, it’s very important to look closely at the financial requirements of a permanent life insurance policy before committing to it, since they can be quite complex.

Within the category of permanent life insurance, there are two main types of policies to look at. Whole life insurance covers you for your entire life, and over time the policy can grow in value at a fixed rate. Universal life insurance contains two components, a death benefit and cash savings. A death benefit is a fixed amount of money that your beneficiaries will receive in the event of your death, but you can also choose to put your own savings into your life insurance policy. These savings can grow over time, depending on market rates.

Step Two: Choose Coverage Amount

The next thing you will need to do is decide how much coverage you need for your life insurance policy. There are a few ways to do this, but keep in mind that the more coverage you buy, the higher your monthly payments are going to be. A quick way to determine the amount of coverage you need is to multiply your annual salary by eight. This will give you a good ballpark place to start.

A more exact way to determine how much coverage you need is to think realistically about the expenses your family and other beneficiaries will incur after your death. To start, add up the monthly expenses you provide for your family, like what is needed to pay a mortgage or rent, utilities, school bills, or healthcare bills. Then, consider other one-time expenses that your family will incur after your death. There are many online calculators that you can use to figure out exactly how much coverage you need. However, keep in mind that these are still estimates and that everyone’s situation is different. If you are struggling to decide how much coverage you need, it may be helpful to speak to a financial adviser who can break down the finances for you.

Life insurance death benefits can also be structured in many different, albeit a little complex, ways.  Life insurance can have options to increase your death benefits at certain points if you choose to, usually called an additional insurance rider.  Whole life insurance has dividends, which can be used to purchase more paid up whole life insurance, which further increases dividends, which buys even more paid up insurance.  Universal life death benefits can increase in order to prevent becoming a modified endowment contract, in a way that is said to be “in corridor”.  Permanent life insurance minimum death benefits which come guaranteed in your contract, can still be reduced through withdrawals or partial surrenders.  Make sure that you understand not only your minimum death benefit, but also what may be done to increase or decrease coverage over time.

Step 3: Choosing A Life Insurance Company

Once you’ve selected the type and amount of coverage you need, the next step is to find an insurance company that you want to purchase a policy from. You should compare premiums among several different providers before making your decision, and make sure you read the fine print to determine exactly what is covered with each policy. You should be looking for a company that provides a good balance of affordability and coverage. They should be a reliable and experienced company that you can trust to continue providing great service for years to come. You can opt for a local insurance company or a larger national one, but the key is to find a provider that you trust.

Life insurance companies all have financial strength ratings that are public. AM Best, is a ratings company that is easy to use.  S&P is another.  Make sure that you buy an insurance policy from a company with strong financial ratings, so that you can be sure your beneficiaries will be paid your death benefit in future years.

It’s also going to be helpful to call each potential insurance company and talk to them on the phone. This will give you an idea of the quality of their customer service – something that’s very important for any insurance company. You will be dealing with them periodically throughout your life, so it’s very important that your experience is a pleasant one. Chatting on the phone with your insurance company can even help you get a better deal in some cases. Insurance companies are always looking to bring in new policy holders, and they may be willing to offer you a promotion to entice you if it seems like you are undecided. It’s always beneficial to shop around when choosing an insurance provider of any kind, so really take your time before making a decision.

Step 4 (Optional): Choosing an Agent

Instead of working with a particular life insurance company, you can also work with an agent who has access to policies from many different companies.  Life insurance agents can be compensated in different ways, but typically earn their money from commissions.  Make sure that the agent you choose has your best interests in mind and not their own commission.  There are some tips to make sure that you get a knowledgeable and trustworthy agent.  We recommend that you:

  • Get a recommendation from a friend.- While this is not always a guaranteed way to get a good advisor because even your friends can fall victim to a bad agent if people have a good experience with an agent it is a good indication that they are trustworthy.
  • Ask how much experience the agent has.- A lot of agents in the business come and go very quickly.  Agents who are struggling in the business are much more likely to sell commission heavy policies with high fees for clients.  If an agent has years of experience they are more likely to thrive from recommendations.  Recommendations come from doing a good job for clients, and not from short-sighted rip off sales.
  • Look at Reviews Online- Any agent who interacts with a lot of people and sells a lot of policies will almost certainly have reviews online.  If they make bad recommendations, people are much more likely to post negative reviews.  If there are no negative reviews it is a good indication that the agent has dealt with clients fairly.

You can also buy life insurance without an agent.  If you have done your research and you are comfortable choosing your own policy, you may save a little money by using this method.  If you planning on buying a permanent form of life insurance, we recommend that you get advice from an advisor.

Buying your first life insurance policy is a big step, and it’s not one you should make lightly. Luckily, consumers today have a huge range of choices when it comes to finding a policy, so you can find life insurance that fits both your current budget and your future needs. It’s never too early to buy a life insurance policy, and now is the perfect time to start thinking about it. You will be surprised by how much peace of mind a good life insurance policy can provide for you and your family.

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