Life
Insurance Guide
Life Insurance Buyer's Checklist
- Make sure you carefully review your financial circumstances
and goals and choose a policy that fits your specific
situation.
- Discuss your circumstances and needs with at least
2 insurance professionals. Using the expertise of more
than one agent allows you to gain insightful information
that will help you make the best decision.
- Carefully review policy options. Make sure the policy
you are considering makes practical and economic sense.
Does the policy meet your goals? Ask yourself if you
can afford the policy premiums if circumstances change
slightly.
- Use realistic expectations. Realize that many types
of policies are illustrated on a projected basis. The
actual policy results will vary over time and may be
considerably lower than projected. It is better to be
more conservative than aggressive when projecting values
into the future.
- Know your insurance policy and how it works. Don’t
just trust an agent and buy a policy without understanding
why a particular policy works for you. Ask questions.
Is the coverage guaranteed? Will my rates increase?
- Answer all application questions truthfully and honestly
and scrutinize the application for accuracy before signing
any paperwork.
- Be committed to your life insurance program.
- Do not discontinue or cancel an existing policy without
careful review by at least two insurance professionals.
Additionally, call your existing insurance company and
ask questions to clarify any concerns. If you do decide
to replace an existing policy, make sure that the new
policy is better. Also make sure that the new policy
is paid and in effect before canceling any previous policy.
- Read your entire policy. Contact your agent or insurance
provider with any questions.
- Periodically review your life insurance plan as your
life cycle changes take place. As your income grows and
needs change, you may need to increase insurance coverage
or diversify your life insurance.
Important
things to consider when Purchasing Life Insurance
When
buying life insurance, you must first make sure that the policy
you choose matches your overall goals and objectives and solves
your need based on your specific circumstances. Each person’s
goals are a bit different so a careful review of what is important
to you is necessary in selecting the appropriate policy. When
considering life insurance, a good question to ask yourself
is: Why am I buying the insurance?
Clearly defining why you are buying life
insurance in the first place will help you calculate the amount
of insurance you truly need.
Once the insurance amount is determined,
you can then focus on how long you will need to maintain coverage.
The length of time coverage is required will help you identify
what type of policy best suits your situation. For example,
if you are trying to protect a mortgage loan with a 15-year
payment period, a 15-year level term policy will be sufficient.
On the other hand, if a policy is needed to provide long term
income for a child with a special need, a more permanent universal
life or whole life policy would be a better fit. Finally, after
determining the actual insurance need and the length of time
the policy will be required, you can determine an affordable
solution. The best plan may be an individual policy or a combination
of different policies that achieve the desired objective.
An important consideration when buying life
insurance is the selection of a professional agent. As mentioned
in the checklist above, it is a good idea to have at least
two professional agents working with you to help determine
appropriate strategies. By using the services of two agents,
you are likely to receive more objective information and more
straightforward analysis. Also, having two “irons in
the fire”, assures you of the “checks and balances” that
are sometimes necessary to get the best life insurance plan
in place.
Determining how
much Life Insurance you need
Determining the amount of life insurance
you need depends on your purpose for buying the coverage (for
a quick estimation of your insurance need see our, “Life
Insurance Needs Calculator”). Each
individual's circumstances differ. Therefore, personal objectives
will dictate the amount
of insurance needed. Many insurance agents will suggest a multiple
of 7 -10 times income as a general guideline for determining
a life insurance amount. In reality, the best method for determining
the amount of insurance required to meet your objectives is
based on the needs of the individual, family or business entity.
“The Needs Based Approach” to
buying Life Insurance
The "needs based" approach for determining an amount of life insurance
focuses on two specific needs: Cash Needs and Income
Replacement Needs.
Cash Needs
Cash needs are immediate
needs at death and include final expenses, debt elimination,
emergency fund, mortgage payoff, child care costs,
college funds, and any other special needs. Most individuals
will want to make sure that the necessary cash is available
to meet these immediate needs. However, cash needs
are subjective and will vary depending on personal
goals and objectives.
Income Replacement Needs
After the immediate "cash
needs" are met, most survivors will require a
replacement income to offset the income loss of the
insured. Assuming that all debts are paid, the next
step is to determine the percentage of income needed
to maintain the family's standard of living. Usually,
60% of income will keep a family at the same standard
of living. Therefore, one will need to determine how
many dollars, at a given interest rate, will generate
an after tax income that equals 60% of original income.
For example, a family needing $25,000 replacement income
annually, will need roughly $400,000 of insurance invested
at 7.5% to generate the necessary after tax income
need.
Other Factors Determining
Life Insurance Needs
Other factors to consider
when determining the amount of life insurance needed
include current life insurance, savings and investments,
and social security. All of these factors should offset
the total amount of insurance required to maintain
a family's standard of living. Careful consideration
and thought should be given to all factors when determining
your specific insurance need.
If you have any questions regarding
the amount of life insurance you might need, please
call our offices toll free at
1(877) 583-3955 an insurance professional will review
your specific needs and make recommendations based
on your circumstances. Click here to use our, “Life
Insurance Needs Calculator”.
Should
I maintain my existing life insurance policy or replace
it with a new policy?
When deciding on whether to keep
an existing policy or to replace it, there are several
important considerations to review.
First,
you should revisit why you purchased the policy and
evaluate its performance based on your initial objectives.
Does the policy still fit your needs?
Second,
you should compare the policy’s competitiveness
in today’s marketplace and determine how the
policy fits in with your current and future goals.
Is there a policy now available that offers a lower
rate with better features and benefits that may offer
a better value? Additionally, you should determine
if there are any negative consequences of dropping
the insurance. Will you incur surrender charges? Could
you incur income taxation if your policy is discontinued?
Finally,
you must have a better policy in effect before any
policy is cancelled. Under no circumstances should
an existing policy be dropped while applying for new
coverage. Always make sure the new policy is effective
and then cancel the older policy.
Be aware that when a new policy
is purchased, there is an initial two year period when
the insurance company has the right to investigate
all death claims. The contestability
period is designed to protect the insurance
company from suicide, fraud and misrepresentation during
the first two policy years. During the contestability
period, every life insurance company with investigate
each death claim they are presented. The important
point is that new policies will have this two year
contestability period whereas existing policies that
are more than two years old have already passed the
contestability period and claims are generally paid
without investigation.
In all cases when you are considering
replacing and existing policy, always get current information
on your policy from your existing insurance company
and seek the council of an independent professional
agent. Having good representation and objective information
will help you make the right decision.
What
type of life insurance coverage should I purchase?
There are several different types
of life insurance policies and each policy can protect
a variety of coverage needs. The type of policy that
you buy will be determined by your reasons for purchasing
the insurance. If your need can be measured in a specific
time frame and the need is temporary, term life insurance
is likely the best solution.
If the insurance is needed for long
term death benefits with the ability to accumulate
cash, whole life or universal life may be the best
alternatives.
If guaranteed life insurance at a low cost is desired,
a guaranteed universal life policy would be the
best choice. Or if retirement planning and cash
accumulation
are primary objectives, the variable life insurance or equity indexed universal
life insurance might best achieve your objectives.
Contact Information
No matter what the circumstances,
the type of life insurance policy you choose should
fit your reasons for buying the insurance. Consulting
with an independent insurance professional to determine
the exact policy need is likely the best strategy to
assure that you select the appropriate policy. To contact
one of our independent agents, please
call toll free at 1(877) 583-3955.
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