Shopping For Life Insurance? Compare Policies To Save

When shopping for life insurance, the best strategy is to first understand your objective in buying it and then focus on the products best suited to meet that goal. It's important to define your need and your focus. Most people looking to buy life insurance seek death benefit protection to cover lost income for loved ones should they pass away while still having financial obligations. Therefore, it's crucial to calculate how much life insurance coverage you need and for how long. This will help you determine the type of life insurance that best meets your financial needs. You should also consider your loved ones' future finances and individual needs, as the death benefit can provide financial protection and pay off debts. Shopping around for the best coverage is also recommended, as quotes can vary significantly between companies.

Understand your objective and focus on products that meet your goals

When shopping for life insurance, the first step is to understand your objective in buying it and then focus on the products that will help you meet that goal.

Most people looking to buy life insurance seek death benefit protection. This means they want to cover the loss of income their loved ones would face if they were to pass away while still working or while still carrying significant financial obligations.

To define your objective, you need to calculate how much life insurance coverage you need. Take a snapshot of your finances and ask yourself the following:

• What financial resources will be available to your survivors or heirs after your death?
• When will these resources become available?
• What will your survivors' financial needs be after your death?

Subtract your survivors' financial resources from their financial needs to determine how much coverage you need to buy. Many people are underinsured because they skip this step or take a shortcut, such as simply buying a multiple of their annual income.

Once you have defined your objective, you can match it to the kind of life insurance that aligns with it. There are various categories of life insurance, including term life, whole life, and universal life. Each of these comes with fundamental distinctions. Term life policies offer payment of a specified death benefit for a specific term, such as five, ten, fifteen, or twenty years. Whole life insurance involves a fixed premium and promises a minimum rate of return on the dollars invested, which builds the policy's cash value. Universal life insurance may offer the potential to increase the death benefit or adjust premium payments.

If you are certain that you only need life insurance for a few decades or less, then term life insurance is the best option. However, if you need life insurance for longer, you will need permanent life insurance, which can provide a death benefit for your entire lifetime.

Define your need for life insurance

When shopping for life insurance, the best strategy is to define your need for it. Life insurance is a financial safety net for your loved ones in case of your death. It is a legally binding contract between you and the insurance company, where the insurer guarantees to pay a sum of money to your chosen beneficiaries when you die. Deciding whether you need life insurance depends on your circumstances, including the financial impact your death may have on your dependents.

Replacing Income

Over half of households rely on dual incomes to maintain their lifestyle. Many would struggle financially within a few months of losing an income. Life insurance can replace lost income and help dependents maintain their standard of living.

Paying for End-of-Life Costs

Funeral and burial costs can be high, averaging $7,848 for funeral and burial, and $6,971 for funeral and cremation. A life insurance payout can cover these expenses, ensuring your dependents aren't burdened with additional financial stress during a difficult time.

Providing an Inheritance or Charitable Gift

Life insurance can be used to leave a financial legacy for your loved ones or a favourite charity. The death benefit from a life insurance policy can be used by beneficiaries as they wish, providing financial security and opportunities.

Protecting Your Business

If you own a business, life insurance can help cover payroll, operational expenses, business debts, and fees related to transferring the business in the event of your death. It ensures business continuity and provides financial support for your business partners.

Diversifying Your Investments

Permanent life insurance policies offer a tax-free cash value component, allowing you to invest in stocks, bonds, and other financial vehicles. This provides a conservative return and diversifies your investment portfolio.

Covering Estate Taxes

If you plan to leave substantial assets to your heirs, they may face a large estate tax burden. Life insurance benefits are usually tax-free, so beneficiaries can use the payout to pay any estate taxes, preserving the full value of the estate.

In addition, consider the following factors to define your need for life insurance:

• Dependents: If you have dependent children or adults who rely on your financial support, life insurance can ensure their needs are met, including childcare, education, and living expenses.
• Mortgage and Debts: Life insurance can help dependents or loved ones cover mortgage payments and other debts, such as credit card bills, medical bills, or car loans.
• Income Replacement: If you are the primary earner, life insurance can provide financial support to your family, giving them time to adjust without immediate financial worries.
• Final Expenses: Life insurance can cover funeral and burial costs, ensuring your assets remain intact for your heirs.

Life insurance is not necessary for everyone. You may not need it if you have substantial savings to cover end-of-life expenses or if your loved ones can easily support themselves without your income. However, if your death would create a financial burden for those you leave behind, life insurance is worth considering. It provides peace of mind and financial security for your loved ones.

Consider your loved ones' individual needs and future finances

When shopping for life insurance, it's essential to consider the individual needs and future finances of your loved ones. This involves evaluating your financial situation, future goals, and the specific needs of your dependents. Here are some detailed guidelines to help you navigate this process:

Assess Your Financial Situation and Goals:

Start by considering your current financial obligations and future aspirations. Do you have dependents, such as a spouse, children, or elderly parents who rely on your financial support? Calculate your income, expenses, debts, and assets to understand your financial standing better. Think about any future goals, such as funding your children's education or leaving an inheritance for your loved ones.

Determine the Financial Needs of Your Dependents:

Consider the financial needs of those who depend on you. If you have young children, calculate the costs of raising them, including daily living expenses, education, and any special needs they may have. If you have a non-working spouse, evaluate the costs they would incur if they were to manage the household alone. Consider any joint debts or mortgages that your partner would need to shoulder alone.

Choose the Right Type of Life Insurance:

Select a life insurance policy that aligns with your goals and needs. Term life insurance is typically more affordable and suitable for young adults, offering coverage for a specific term. On the other hand, permanent life insurance provides lifelong coverage and can accumulate cash value over time, making it a good choice for long-term financial planning. Consult a financial advisor to help you tailor a plan that fits your unique circumstances.

Calculate the Required Coverage Amount:

Determining the appropriate coverage amount is crucial. While a common guideline suggests 10 to 20 times your annual income, this may not account for all your future responsibilities and goals. Consider factors such as funeral expenses, debt repayment, mortgage payoff, potential medical bills, emergency funds, and ongoing income needs of your dependents. Ensure that the coverage amount aligns with your financial goals, such as funding your children's education or leaving an inheritance.

Regularly Review and Adjust Your Policy:

Life insurance needs can change over time, so it's important to review and adjust your policy as necessary. Significant life events, such as the birth of a child, marriage, divorce, or the purchase of a new home, may require updating your coverage amount or beneficiaries. Regularly evaluating your life insurance ensures that your loved ones remain financially secure as your life circumstances evolve.

By carefully considering the individual needs and future finances of your loved ones, you can make informed decisions about your life insurance choices. This will help ensure that your dependents are protected and provided for, even in your absence.

Evaluate permanent life insurance

When shopping for life insurance, the best strategy is to first understand your objective in buying life insurance and then focus on the products best suited to meet that goal.

Evaluating Permanent Life Insurance

Permanent life insurance is a broad term that encompasses life insurance products like whole life insurance and universal life insurance. The key feature is that these life insurance products can provide a death benefit for your entire lifetime. You can also think of permanent life insurance as a backup plan for when things don't go as planned.

• Understand your needs: Evaluate your financial situation, including your income, expenses, debts, and future goals. Consider if you have dependents, such as children or elderly parents, who rely on your financial support. This will help you determine the amount of coverage you need and the duration of the policy.
• Compare different types of permanent life insurance: The two primary types of permanent life insurance are whole life and universal life. Whole life insurance offers fixed premiums, a guaranteed rate of return, and a consistent death benefit. Universal life insurance provides more flexibility, allowing adjustments to premiums and death benefits. It also offers different types, such as guaranteed, indexed, and variable universal life insurance, each with varying levels of risk and potential returns.
• Consider the savings component: Permanent life insurance policies often have a cash value component that grows over time. This savings aspect can be used to take out loans or make withdrawals. Evaluate the interest rates, investment options, and potential returns associated with the cash value component.
• Evaluate the financial stability of the insurance company: It is crucial to assess the financial rating and stability of the insurance company offering the permanent life insurance policy. Ensure they have a strong track record and the financial capacity to remain in business for the long term.
• Understand the costs and fees: Permanent life insurance policies typically have higher premiums than term life insurance. Carefully review the costs, including premiums, fees, and potential charges associated with the policy. Understand the impact of withdrawing or borrowing from the cash value component on the overall policy and future death benefit.
• Seek guidance from an independent broker: Working with an independent broker can be beneficial when evaluating permanent life insurance policies. They can offer guidance on underwriting, provide projections from different insurers, and help you navigate the complexities of the different policy options.

Compare quotes from different providers

Comparing quotes from different providers is an essential step in shopping for life insurance. Here are some reasons why:

Finding the Best Price

By obtaining quotes from multiple insurers, you can identify the most affordable option for the coverage you need. Life insurance rates can vary significantly between companies, so shopping around allows you to find the best price without compromising on your desired level of coverage. This is especially true if you have unique circumstances, such as pre-existing health conditions or high-risk hobbies, which may affect your premium.

Understanding Different Policy Options

Different insurers offer various types of policies with distinct features. By comparing quotes, you can gain a comprehensive understanding of the options available, including term life and permanent life insurance, and their respective advantages. For example, term life insurance provides coverage for a specific period and is often the most affordable option. On the other hand, permanent life insurance offers lifelong coverage and includes a cash value component, although it tends to be more expensive. Comparing quotes will help you evaluate these differences and make an informed decision about which policy type aligns best with your financial goals and needs.

Customizing Your Policy

Life insurance policies can often be customized with optional add-ons called riders, which provide additional benefits or coverage. When comparing quotes, pay attention to the features and riders offered by each insurer. This will enable you to tailor your policy to your specific needs. For instance, you may want to include a waiver of premium rider, which relieves you from making premium payments if you become disabled and unable to work, or an accelerated death benefit rider, which allows you to collect a portion of the death benefit if you are diagnosed with a terminal illness.

Assessing Customer Satisfaction and Company Stability

When comparing quotes, it's not just about finding the lowest price; it's also about evaluating the quality and stability of the insurer. Research customer satisfaction ratings and financial strength ratings from independent agencies like J.D. Power and AM Best. This will give you insight into how the insurer treats its clients and their ability to pay out claims in the future. Opting for a company with high customer satisfaction and strong financial stability ratings can provide peace of mind and ensure a positive overall experience.

Working with a Broker

If the process of comparing quotes from different providers feels overwhelming, consider enlisting the help of a licensed agent or broker. They can shop around on your behalf, simplify the process, and provide expert guidance tailored to your specific circumstances. Brokers have access to a range of insurers and can help you navigate the complexities of different policy options. They will work with you to understand your financial goals, health history, and lifestyle choices to determine which insurer and policy type align best with your needs.

In conclusion, comparing quotes from different providers is a crucial step in purchasing life insurance. It empowers you to make a well-informed decision, ensuring you get the best value for your money and a policy that meets your unique needs.

Frequently asked questions