Life insurance. It’s not a topic that we often discuss or enjoy thinking about that much unless, of course, you’re in the insurance business.
It may be because it’s a little scary to think about, or maybe because it’s something that a person pays for, but doesn’t get direct benefits from while they’re alive.
But it’s one of those matters that becomes more important as we get older and raise our kids. Life insurance can be the difference in a family’s survival after a parent passes away.
On top of the occasional discomfort of thinking about life insurance, there’s the question of how to get it. If the company you work for doesn’t provide life insurance, you have to shop around yourself. How do you find the right solution?
What Kind of Policy Should I Get?
As with any big investment decision, the first step is to decide what plan you need.
Permanent or whole life insurance covers you for the rest of your life. It’s more expensive, but the simplicity may well be worth the added price. Whole life insurance also has cash value in the form of a tax-deferred savings account. Universal insurance is also permanent, but it offers even more investment options.
Term life insurance is a great choice if you have a tight budget. It covers you for a limited time, but it’s usually quite long for 10, 20, 30, or even 40 years. Term life insurance doesn’t have cash value, but it pays your beneficiaries in full if you die during the term. It’s cheaper than whole life insurance.
“Consumers should only buy policies they understand,” says CNBC’s Greg Iacurci. “They should also ask about and be aware of risks, such as potential increases in future premiums and other elements of a life insurance policy that could change.”
Which Company Should I Buy Life Insurance From?
There is no shortage of life insurance companies to choose from. You’ll probably find too many of them! Choosing the one that’s right for your situation can be a time-consuming challenge but it’s important to uncover the right fit for your needs.
There are a few factors to consider about each company as you’re shopping around. They should be able to answer your questions to your satisfaction. If they can’t, that’s your first red flag and look elsewhere. You can also discover a lot of information online.
How Much Does the Policy Cost?
Let’s face it, the first criteria that we all think about is policy price, as it should be. You want to protect your family, but you don’t want to break your budget.
Be aware, though, that discount prices can make bad policies look better than they are. “You’ll want to look beyond the price,” says Forbes’ Amy Danise. “Important features may be included (or missing,) such as living benefits and the ability to later convert the term policy to a permanent policy.”
When you’re ready to get price quotes, ask each insurer to give you more than one. Don’t settle for a company based on their first price quote as it may not reflect what you’ll finally pay. Some companies lowball their premiums but hike them after they’ve evaluated your health history and reassessed your risk. Get quotes for several scenarios.
Is the Company in a Good Financial Position?
Whether it’s permanent or term, life insurance covers a long period. The payout won’t come until you’ve passed away, which may not happen for another few decades, we hope.
That’s why you should pick companies with strong financial fundamentals. They need to have survived and thrived throughout economic crashes and market instability, and they’ll need to still be in existence after you’ve died so that they can pay your beneficiaries. You’ll have to get someone else to stay on top of that one.
Every insurance company is rated for its financial strength. Standard & Poor, Moody’s, and A.M. Best are the best-known entities that issue these ratings. Check out what they have to say about the companies you select.
Most insurance companies post their ratings on their websites and if they don’t, one of their agents should be forthcoming with this information. You’ll want to find a company that has an “A” rating if you can.
Are the Company’s Customers Satisfied?
We live in a review culture. Every service or product we need, including life insurance, has an abundance of customer feedback that is easily accessible. Look for online reviews of the companies you’re considering and find ones that go into as much detail as possible.
Filter out the troll posts that spew a lot of negativity, but don’t get specific. Watch for complaints about poor customer service, bad support, problems in changing coverage, and unexpected pricing changes.
Of course, look for rave reviews, as well. They may not go into as much detail as negative notices. If a company’s customers are happy, they tend to just give them 5 stars and not explain why. But do take note of praise for specific parts of their service.
Is the Company “Stock” or “Mutual”?
Insurance companies classify themselves according to their ownership structure. Some are publicly owned and sell shares on the stock market. These are called “stock” companies. “Mutual” companies, meanwhile, are owned by their policyholders.
Both types of companies offer similar products, and both are heavily regulated. Many people think that mutual companies are better for life insurance because they work for the benefit of their customers. Stock companies work to benefit shareholders.
Although that’s not a cut-and-dried rule, it’s worth knowing what kind of ownership structure your companies follow. If the name of the company contains the word “Mutual”, there’s your answer.
How Will They Determine Your Risk?
Life insurance companies often request new policyholders to undergo a physical exam. Some test for drug and tobacco use and use the results to set rates and determine your risk.
However, the coronavirus pandemic threw a wrench into insurance company medical tests. Examiners are reluctant to give in-person exams at the moment, so instead, they tend to use data to set their rates.
Either way, know the process used by every company you are going to consider.
There’s no doubt life insurance is a major expense. That’s why it’s vital to be attentive and thorough about what you need and what companies can offer. It’s not a process to rush through.
Ask the right questions, talk about your options with your spouse or partner, and even involve your older children. You’ll be better positioned to make the wisest choice if you do.
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