Guide to Buying Life Insurance

Reasons for buying Life Insurance

Traditionally, the need for financial security has been triggered by major life events; when providing for your loved ones becomes more critical. Typical life events that increase the need for protection include:

  • Marriage
  • Birth of child
  • Covering existing mortgage
  • Income protection for spouse
  • Purchase of a new home
  • Planning for a child’s education
  • Blended Families (Children and spouses from previous marriage)
  • “Boomerang” Kids returning home
  • Retirees and Pre-retirees
  • Aging family members
  • Depleted retirement savings and/or reduced assets

When you buy life insurance, you want coverage that fits your needs and doesn’t cost too much.

1.)        Decide how much you need- and for how long – and what you can afford to pay.

2.)        Find out what kinds of policies are available to meet your needs and pick the one that best suits you.

3.)        Then, find out what different companies charge for that kind of policy for the amount of insurance you want. You can find important cost differences between life insurance policies by using cost comparison indexes.

4.)         Select a life insurance agent who can review your insurance needs and in giving you information about the kinds of policies that are available.

What about your present policy?

Think twice before dropping a life insurance policy you already have in place.

  • It can be costly, because much of what you paid in the early years of the policy you have in place was used for the company’s expense of selling and issuing the policy. This expense will be incurred again for a new policy.
  • If you are older or your health has changed, premiums for the new policy will be higher.
  • You may have valuable rights and benefits in your present policy that are not in the new one. You might be able to change your present policy or even add it to get the coverage or benefits you want.

In any case, don’t give up your present policy until you are covered by a new one.

How much do you need?

In figuring your assets, count your present insurance, including any group insurance where you work, social security or veteran’s insurance. Add other assets you have; savings, investments, real estate and personal property.

In figuring what you need, think of income for your dependents – for family living expenses, educational expenses of a final illness and paying for taxes, mortgage or other debts.

Please use the life insurance calculator in the attachments.

What is the right kind of life insurance ?

All life insurance policies agree to pay an amount of money when you die. But all policies are not the same. Some provide permanent coverage and others temporary coverage. Some policies build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Your choice should be based on your needs and what you can afford.

Type of Life Insurance

  • Term Insurance

Term Insurance covers you for a term most commonly for a period of 10, 20 or 30 years. It pays a death benefit only if you die in that term. Term insurance generally provides the largest immediate death protection for your premium dollar.

Most term policies are renewable for one or more additional terms even if your health changed. Each time you renew the policy for a new term, premiums will be higher. Check the premiums at older ages and how long the policy can be continued.

Many term insurance policies can be traded before the end of the conversion period for a whole life policy- even if you are not in good health. Premiums will be considerably higher than you have been paying for the term insurance.

  • Whole Life Insurance

Whole Life Insurance covers you for as long as you live. The common type is called straight life or ordinary whole life insurance – you pay the same premium as long as you live. These premiums can be several times ( 8-10 times ) higher than you would pay for the same amount for the term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period.

Whole Life policies develop cash values. If you stop paying premiums, you can take the cash – or you can use the cash value to buy continuing insurance protection for a limited time to reduced amount.

You may borrow against the cash values by taking a policy loan. Any loan and interest on the loan that you do not pay back will be deducted from the benefits if you die, or from the cash value if you stop paying premiums.

Combinations and Variations: You can combine different kinds of insurance. For example, you can buy whole life insurance for life time and add term insurance for the period of the greatest insurance need. Usually the term insurance is on your life , but it can also be bought for your business partner, spouse or children.

Endowment Insurance: These policies pay a sum or income to you if you live to a certain age. If you die before then, the death benefit is paid to the person you named as beneficiary.

Other policies are may have special features which allow flexibility as to premiums and coverage. Some let you choose the death benefit you want and the premium amount you can pay.

One kind of flexible premium policy, often called Universal Life Insurance, lets you vary your payments every year, and even skip a payment if you wish. The premiums you pay (less expense charges) go into a policy account that earns interest and charges for the insurance are deducted from the account. Here, insurance continues as long as there is enough money in the account to pay insurance charges.

Whole Life Insurance and Universal Life Insurance include a savings element that grows tax deferred.  A portion of the premium is invested by the insurance company in very conservative vehicles for example interest only payments. In the most recent years Fixed Index Universal Life Insurance are quite popular, which offer to invest in the S& P index, European indexes and Asian indexes. If the stock market does go down you will not loose any value of your policy, but will also not gain in the year of loss, but if the stock market goes up you will enjoy the gain up to a specific cap. Most caps are at 10-12 % gain per year, depending on the policy.

Other types are variable life insurance – they are a special kind of insurance where the death benefits and cash values depend upon investment performance of one of more separate accounts. You should know that if the investment loses value, your life and death benefit will also lose value.  Therefore, you should study the prospectus provided by the carrier diligently.

Finding a low cost policy!

After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money.  A simple comparison of the premiums is not enough. Here are other things to consider:

  • Do premiums or benefits vary from year to year?
  • How much cash value will be build up under the policy?
  • What part of the premiums or benefits is not guaranteed?

If you would like to have more information or need a quote for life insurance, please do not hesitate to contact us at info@solidhealthinsurance or call 310-909-6135.