Flipping Life Insurance: Strategies For Success In 10 Easy Steps

Life insurance is a legally binding contract between an insurance company and a policyholder, where the insurer guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies. The policyholder must pay a single premium upfront or regular premiums over time for the policy to remain in force. The two main types of life insurance are term life insurance and permanent life insurance. Term life insurance is generally cheaper and provides coverage over a specific term, usually between 10 and 30 years. Permanent life insurance, on the other hand, is more expensive and offers lifetime protection as long as the premiums are paid. It also has a cash value component that functions like a savings account, allowing policyholders to take out loans or pay premiums. When buying life insurance, it is essential to consider factors such as age, health, lifestyle, and financial goals to ensure adequate coverage that meets your needs.

Understanding the different types of life insurance

There are two main types of life insurance plans: term or permanent. However, there are several subtypes of life insurance, each with its own unique features. Here is a detailed overview of the different types of life insurance:

Term Life Insurance

Term life insurance provides coverage for a specified period, which could be as short as a year or for a specific number of years, such as 5, 10, or 20 years. It is designed for those who need coverage for a certain number of years. Term life insurance is generally more affordable than permanent life insurance, as it does not accumulate cash value. The longer the coverage period, the higher the initial premium. If the insured person dies during the term, the insurance company pays the death benefit to the beneficiary. However, if the insured person outlives the term, no benefit is payable. Term life insurance policies can be renewable or convertible to permanent insurance.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for the insured's entire lifetime, as long as premiums are paid. It is designed for those who need straightforward, lifelong coverage. Whole life insurance includes a savings component, allowing the policyholder to build cash value over time. This cash value can be used for various purposes, such as taking out loans or paying policy premiums. The cash value does not affect the death benefit, and the policy remains active until the insured person dies, stops paying premiums, or surrenders the policy. Whole life insurance policies typically have fixed premiums and death benefits.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that offers more flexibility than whole life insurance. It allows the policyholder to adjust the death benefit and premiums within certain limits. Universal life insurance has a savings component that grows based on market interest rates, and the interest rate is not fixed. The cash value can eventually grow to a point where it covers the cost of premiums.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance. It consists of a fixed death benefit and a variable cash value that rises and falls based on the performance of selected investments. The policyholder can choose from various investment options, such as bonds and mutual funds. Variable life insurance offers the potential for considerable gains but also carries higher risk and fees than other types of life insurance.

Final Expense Life Insurance

Also known as burial or funeral insurance, final expense life insurance is a type of whole life insurance with a smaller death benefit designed to cover end-of-life expenses. It is easier for older or less healthy individuals to qualify for this type of insurance, as it typically does not require a medical exam. The death benefit usually ranges from $5,000 to $25,000, and there may be a waiting period before the full death benefit is payable.

Other Types of Life Insurance

In addition to the main types of life insurance, there are several other variations, including:

• Group life insurance: Offered by employers as part of their benefits package.
• Mortgage life insurance: Covers the current balance of a mortgage and pays out to the lender if the insured person dies.
• Credit life insurance: Pays off a specific loan, such as a home equity loan, in the event of the insured person's death.
• Accidental death and dismemberment insurance (AD&D insurance): Covers death or serious injuries, such as loss of limbs, resulting from an accident.
• Joint life insurance: Insures two lives under one policy, with the death benefit payable after the first or second policyholder dies.

How to buy life insurance

Decide if You Need Life Insurance

Before buying life insurance, it's important to assess whether you need it. Most people can benefit from life insurance, especially if their family or beneficiaries would face financial difficulties in their absence. Other reasons to consider purchasing life insurance include wanting to cover end-of-life expenses, such as funeral and burial costs, or wishing to provide for a dependent's tuition, daycare, or retirement costs. Additionally, if you have life insurance through your employer, it is recommended to evaluate whether the coverage provided is sufficient for your needs, as it may not provide adequate protection and is usually not portable when changing jobs.

Determine How Much Life Insurance You Need

The amount of life insurance required depends on various factors, including personal and household income, the needs of dependents or beneficiaries, and financial goals. It is advisable to consult a trusted financial advisor to help identify a suitable policy that aligns with your financial strategy.

Choose the Type of Life Insurance

There are two primary types of life insurance: term life and permanent life. Term life insurance provides coverage for a specific period, typically between ten and thirty years, and is more affordable. On the other hand, permanent life insurance covers the insured for their entire life and often includes a cash value component.

Identify Reputable Life Insurance Companies

When selecting a life insurance company, it is essential to consider their customer service, agent trustworthiness, consumer reviews, and financial stability. It is recommended to review ratings from independent agencies, such as A.M. Best and Fitch Ratings, to assess the financial security of the insurer.

Decide How to Buy Life Insurance

There are typically three options for purchasing life insurance: through an independent local insurance agent, an independent online broker, or directly from an insurance company. Each option offers different advantages, such as personalized assistance, a wide range of options, or expertise in specific policy offerings.

Figure Out the Policy Type, Coverage Length, and Amount

When choosing a life insurance policy, consider the type (term or permanent), the desired coverage length, and the required death benefit amount. The death benefit should take into account funeral and estate costs, as well as any other financial obligations or charitable contributions you wish to make.

Fill Out and Submit the Application

The application process for life insurance typically requires providing basic contact information, social security number, driver's license number, financial details, and health-related information, including medical conditions, family medical history, and lifestyle choices. It is crucial to be honest during this process to avoid issues with your application or future claims. Additionally, you will need to designate a beneficiary or beneficiaries to receive the policy's death benefit.

Prepare for a Medical Exam (if required)

Traditional life insurance policies often require a medical exam, which may include recording vital signs, bloodwork, and urine samples. No-exam life insurance policies are also available, but they tend to be more expensive and provide less coverage.

Review and Finalize the Policy

Once the application and medical exam (if applicable) are complete, the insurance company will review your information and provide policy details, including the premium rate. If you are satisfied with the terms, you can approve and sign the policy documents. Most policies offer a free look period, typically lasting between 10 and 30 days, during which you can cancel the policy and receive a full refund if it does not meet your requirements.

Life insurance for disabled adults

There is no separate life insurance for disabled adults. However, having a disability does not automatically disqualify you from obtaining life insurance. In fact, denying someone a life insurance policy solely because they have a disability may violate the Americans with Disabilities Act.

The life insurance application process is the same for people with and without disabilities. The insurance company will review your application and either approve or deny it based on multiple factors, including your age, overall medical history, sex, lifestyle factors, occupation, and life insurance medical exam results.

If your disability affects your overall health and/or life expectancy, it can change your risk and, therefore, your life insurance premium. For example, if your disability is the result of a chronic illness or other health issue that is expected to shorten your lifespan, your premium may be higher. On the other hand, if you have a disability but are in good health and have a normal life expectancy for your age and gender, your premium may not be affected.

It is important to be completely honest during your life insurance application, medical exam, and health questionnaire. Failing to disclose your condition can be considered life insurance fraud and may result in the termination of your policy or refusal to pay out the death benefit to your beneficiaries.

If you have difficulty qualifying for traditional life insurance due to your disability, you may want to consider a simplified issue or guaranteed issue policy, which do not require a medical exam. Simplified issue policies typically have some health-related questions in the application, while guaranteed issue policies do not ask any health-related questions. However, these policies tend to be more expensive and provide less coverage.

There are also several life insurance riders that can provide additional support for adults with disabilities, such as the accelerated death benefit rider, term conversion rider, guaranteed insurability rider, and long-term care rider.

When shopping for life insurance as a disabled adult, it is important to compare coverage options and prices from multiple insurance companies, as eligibility and rates can vary.

Types of Life Insurance Policies

There are two main types of life insurance policies: term life insurance and whole life insurance. Term life insurance lasts for a set number of years, while whole life insurance is a type of permanent life insurance that provides coverage for the rest of your life. Whole life insurance also includes a cash value component that can be used as an investment vehicle.

Term life insurance is often more affordable than whole life insurance and can be cancelled if your financial obligations change. However, it may be more difficult to qualify for if you have a disability, especially if it is related to a health condition that may affect your life expectancy.

Whole life insurance offers guaranteed death benefits and level premiums, making it a good choice for those with disabilities that are likely to worsen over time or for those with dependents who will require lifelong financial support.

Factors Affecting Life Insurance Premiums

Several factors are considered when determining life insurance premiums, including age, gender, smoking status, health, lifestyle, family medical history, and driving record. The younger and healthier you are, the lower your insurance premiums are likely to be. Additionally, women tend to pay lower rates than men of the same age, as they statistically live longer.

Life Insurance Riders

Life insurance riders are add-ons to a life insurance policy that provide additional coverage or benefits. Common types of riders include the accidental death benefit rider, waiver of premium rider, disability income rider, accelerated death benefit rider, long-term care rider, and guaranteed insurability rider.

Life Insurance for Dependents with Disabilities

If you have an adult dependent with a disability who requires lifelong financial support, you can purchase a life insurance policy that names them as the beneficiary. This will provide financial security for your dependent if you pass away. If your dependent is unable to manage their own finances, you can name a supplemental needs trust or special needs trust as the beneficiary to ensure they receive the funds without disqualifying them from receiving governmental benefits.

Life Insurance for Children with Disabilities

If you have a child with a disability, purchasing a life insurance policy for yourself and naming your partner or a trust as the beneficiaries can help secure your child's financial future. Additionally, buying life insurance for your child while they are young and in better health can increase their chances of being approved for an affordable rate.

Using life insurance as a financial asset

Life insurance can be a financial asset during your life, just like an IRA or mutual fund. Permanent life insurance policies, such as whole life insurance and universal life insurance, can be used as an asset. These policies allow the owner to build cash value over time and provide access to cash value. In some cases, you can take a withdrawal, and in others, you can borrow against your policy.

• Take a loan from your policy: You can borrow against the cash value of your permanent life insurance policy. However, read the fine print if you choose to do this. The interest rate can be fixed or variable, and it is set by the insurer. Also, if you don't pay off the loan before your death, any outstanding balance will be subtracted from what your beneficiaries will inherit.
• Use your policy as collateral for a loan: You can use your life insurance policy as collateral for a loan, which can make it easier for you to get approved or get a better rate. However, if you die before paying it back, whatever you still owe will be deducted from your beneficiaries' benefit.
• Withdraw funds: You can make withdrawals from your policy's cash value, which are yours to keep and don't need to be repaid. However, if your withdrawal dips into your investment gains, you'll need to pay taxes. Also, the amount you withdraw will decrease the value of the policy, reducing the death benefit available to your beneficiaries.
• Option for "accelerated" benefits: Some policies enable you to receive benefits during your lifetime if you experience an unexpected or extreme medical emergency, such as cancer, a heart attack, or kidney failure. Most policies allow you to withdraw 25%-100% of your policy's value.
• Surrender the policy (cash out): Surrendering your policy means cancelling your coverage and cashing out the accumulated value. This can be useful if your financial needs have changed, but it will end your life insurance coverage, leaving your beneficiaries without protection.

It's important to remember that not all life insurance policies are created equal. If you want to use your policy as an asset, choose a permanent insurance policy that offers the ability to grow money in an account that you can access.

Common mistakes when buying life insurance

There are several common mistakes that people make when buying life insurance. Here are some key ones to avoid:

Delaying the purchase

Waiting too long to get a life insurance policy is a mistake. As you age, life insurance gets more expensive and conditions associated with aging can raise your premiums or make it harder to qualify for coverage. It's best to get a policy when you're young and relatively healthy to lock in lower premiums.

Not understanding the policy

Life insurance policies can be complex, written in legalese, and difficult to understand. It's important to take the time to review the terms and conditions thoroughly, ask questions, and ensure you fully comprehend what the policy covers, the benefits, and how it pays out. There is usually a "free look period" where you can cancel and get a refund if needed.

Relying solely on employer-provided coverage

Supplemental group life insurance provided by employers may not be adequate. The death benefit might not be sufficient to cover your loved ones' financial needs, and these policies are typically not portable, meaning you lose the coverage if you leave your job. It's advisable to have your own separate policy.

Not shopping around for the best rate and policy

Life insurance costs vary significantly by company, so it's important to compare rates and policies from multiple providers. Getting quotes from at least three companies and considering different coverage levels can help you find the best rate and fit for your needs.

Hiding information from the insurance company

When applying for life insurance, it's crucial to be transparent and honest. Provide complete and accurate information about your health, family medical history, driving record, occupation, and any other relevant details. Withholding information or providing false details may result in claim rejection or denial of coverage.

Not reviewing and updating the policy

Life insurance policies should be periodically reviewed and updated to ensure they remain relevant to your evolving financial needs and life circumstances. Significant life events such as marriage, having children, or career changes may require adjustments to your coverage or beneficiaries. Regular reviews help maintain the right level of protection for you and your loved ones.

Frequently asked questions