Life Insurance Consumer Reports: What You Need To Know

A consumer report for life insurance is a document that contains information about an applicant's credit history, medical conditions, driving record, criminal activity, and participation in hazardous sports. It is used by insurers to underwrite insurance policies and screen high-risk applicants. The report can be used to make decisions about insurance, such as whether to deny coverage, increase rates, or terminate a policy. In the United States, insurers must comply with the Fair Credit Reporting Act (FCRA) when using consumer reports. This legislation is designed to protect the privacy and accuracy of consumer report information.

What is included in a consumer report?

A consumer report is a document that contains information about an individual's credit history, medical conditions, driving record, criminal activity, and participation in dangerous sports. It is used by insurers to underwrite insurance policies and screen high-risk applicants. When using consumer reports, insurers must comply with the Fair Credit Reporting Act (FCRA), which is designed to protect the privacy of consumer report information and guarantee the accuracy of the data supplied by consumer reporting agencies (CRAs).

• Credit History: This includes information on an individual's creditworthiness, such as their credit score, credit card usage, loan payments, and any bankruptcies or delinquencies.
• Medical Conditions: Consumer reports may include details about an individual's health status, pre-existing conditions, and medical history. Insurers often require the applicant's permission to access their medical information.
• Driving Record: Information about an individual's driving history, including traffic violations, accidents, and license status, can be included in a consumer report. This is particularly relevant for car insurance assessments.
• Criminal Activity: Any criminal records or history of illegal activities may be listed in the consumer report. This information can impact an individual's insurance eligibility or rates.
• Participation in Dangerous Sports: Activities such as skydiving, rock climbing, or extreme sports that are considered risky may be included in the report. Insurers may view these activities as increasing the likelihood of potential claims.

It is important to note that consumer reports are not just used for life insurance but can also be used for other types of insurance, such as car insurance and homeowners insurance. The information included in the report will vary depending on the type of insurance being considered and the specific requirements of the insurer.

How do you choose the right amount of life insurance?

The right amount of life insurance depends on your financial goals and needs. If you have loved ones who depend on your income, life insurance can help cover funeral and burial expenses, pay off remaining debts, and make managing day-to-day living expenses less burdensome for those you leave behind.

• Financial and family situation: Your financial and family situation will determine whether you need life insurance and how much coverage you should have. If you have young children or elderly parents who depend on your income, you will need enough coverage to replace your income and provide for their needs.
• Debts and expenses: Calculate your outstanding debts, including mortgage, credit card debt, and student loans. Your life insurance policy should be large enough to cover these debts, plus any interest or additional charges.
• Income replacement: A common rule of thumb is to have enough life insurance to replace at least 10 years of your salary. This will provide your dependents with financial support and help maintain their standard of living.
• Future expenses: Consider any future expenses that your dependents may incur, such as college tuition or medical costs. You may want to increase your coverage amount to account for future inflation and salary increases.
• Spouse's coverage: If you are married, consider whether your spouse also needs life insurance coverage, even if they are not the primary breadwinner. Their contribution to the household, such as childcare or other services, would need to be replaced in the event of their death.
• Type of policy: The type of life insurance policy you choose will impact the amount of coverage you need. Term life insurance provides temporary coverage for a fixed period, while permanent life insurance offers lifelong coverage and often includes a savings or investment component.
• Riders and policy features: Life insurance riders can provide additional benefits, such as access to a portion of the death benefit while you are still alive or the ability to stop premium payments if you become disabled. Consider which riders are important to you and compare the cost and availability across different companies.
• Budget: Evaluate your budget and determine how much you can afford to spend on life insurance each month. You may need to make adjustments to other areas of your budget or consider a combination of permanent and term policies to get the coverage you need at a price you can afford.

It is important to consult with a financial advisor or a fee-only financial planner to help you calculate your coverage needs and choose the right policy for your specific situation. They can provide personalized advice and ensure that you have adequate coverage to protect your loved ones.

What is the cheapest way to buy a life insurance policy?

The cheapest way to buy a life insurance policy is to opt for term life insurance. Term life insurance is the simplest and most affordable option, where you pay a yearly premium in exchange for a fixed death benefit that goes to your beneficiary if you pass away while the policy is active. With a term policy, you get the most benefit per premium dollar, freeing up your cash flow for other expenses.

Term life insurance is typically much cheaper than whole life insurance, which combines a death benefit with an investment account. For example, a healthy 35-year-old man might pay an annual premium of $252 for a $500,000, 20-year term policy, compared to $4,488 per year for a whole life policy with the same death benefit.

When looking for the cheapest life insurance, it's important to compare rates from multiple carriers, as rates can vary significantly between companies. Some of the cheapest life insurance companies include Corebridge Financial (formerly AIG Life), Pacific Life, Penn Mutual, Protective, and Banner Life/Legal & General America.

To get the lowest rates, it's advisable to purchase a policy when you're young and healthy, as rates tend to increase with age and health risks. Additionally, avoiding risky activities, maintaining a healthy lifestyle, and quitting smoking can help lower your premiums.

What is cash-value insurance?

Cash-value insurance is a type of permanent life insurance that includes a cash value feature. It is a form of life insurance that lasts for the lifetime of the holder and features a cash value savings component. The policyholder can use the cash value for various purposes, such as borrowing or withdrawing cash, or using it to pay policy premiums. This type of insurance is more expensive than term life insurance due to the cash value element. Unlike term life insurance, cash-value insurance policies do not expire after a specific number of years.

Cash-value insurance policies, such as whole life and universal life, can accumulate cash value over time. A portion of each premium payment is allocated to the cost of insurance, while the remainder is deposited into a cash value account. The cash value of life insurance earns interest, and taxes are deferred on the accumulated earnings. As the cash value increases, the insurance company's risk decreases as the accumulated cash value offsets part of the insurer's liability.

Policyholders can access the cash value of their insurance in several ways. Partial withdrawals are usually permissible but may reduce the death benefit. Some policies allow unlimited withdrawals, while others restrict the number of withdrawals or the amounts that can be withdrawn. If the withdrawal amount exceeds the sum paid into the cash value, the excess will be taxed as ordinary income.

Most cash-value life insurance policies also allow policyholders to take out loans against the cash value. Interest is charged on the outstanding principal, and the loan amount reduces the death benefit if the policyholder dies before fully repaying the loan. Additionally, cash value can be used to pay policy premiums if there are sufficient funds.

Cash-value insurance can be beneficial for those looking to build a nest egg over several decades. It can serve as a savings option alongside retirement plans. However, it is important to note that cash values may take several years to start accruing, and there may be a waiting period or a penalty for early withdrawals.

How do you insure a young family without breaking the bank?

Insuring a young family can be a daunting task, but it is possible to do so without breaking the bank. Here are some tips to help you get started:

Life Insurance:

It is important to have life insurance if you have a family, especially if you have young children and/or a spouse who depends on your income. When considering life insurance, there are two main types to choose from: term life insurance and permanent life insurance. Term life insurance provides coverage for a set number of years and is generally more affordable. Permanent life insurance, on the other hand, combines a death benefit with an investment account and is more costly. For young families on a budget, term life insurance is often the best option as it provides the most coverage for the lowest price. When deciding on the amount of coverage, it is recommended to work with a fee-only financial planner to determine your family's specific needs. Additionally, be sure to shop around and compare rates from different insurers to get the best deal.

Disability Insurance:

Disability insurance is another important type of coverage for families, as it provides income replacement if you become unable to work due to an illness or injury. It is especially crucial for younger workers with dependents and those who rely on a single income. When considering disability insurance, you can choose between employer-provided, private individual, and government-sponsored policies. Private individual policies may offer more comprehensive coverage but are generally more expensive. It is important to evaluate your family's needs and budget when deciding on the type and amount of disability insurance coverage.

Car Insurance:

If you have teenage drivers in your family, adding them to your car insurance policy can significantly increase your premiums. To keep costs down, consider the following strategies:

• Delay getting a driver's license: If your teen does not need to drive immediately, consider waiting a few years until their premiums go down.
• Take advantage of discounts: Many insurance companies offer discounts for good grades, driver training courses, and safe driving records.
• Choose the right car: Larger, easier-to-drive cars with high safety ratings tend to be cheaper to insure.
• Shop around: Compare rates from multiple insurers and consider using an independent agent who can check rates from a range of carriers.
• Set the deductible right: Opting for a higher deductible can lower your premium, but make sure you can afford the out-of-pocket expense if you need to make a claim.

Homeowners Insurance:

Homeowners insurance is important to protect your family financially in the event of theft, damage to your home, or injuries to visitors. To save money on homeowners insurance:

• Shop around: Compare rates from different insurers and consider purchasing both homeowners and auto insurance from the same company to get a discount.
• Choose a higher deductible: Opting for a higher deductible can lower your premium, but make sure you have enough savings to cover the deductible if needed.
• Review your coverage: Ensure you have adequate liability protection and consider purchasing an umbrella policy if you have significant assets.

By following these tips and comparing rates from multiple insurers, you can insure your young family without breaking the bank. It is important to prioritize your family's needs and budget when making insurance decisions.

Frequently asked questions