Daniel Cook

How to find the best life insurance policy for you and your family

As both an investment vehicle and safeguard against unforeseen tragedy, Life Insurance is an incomparable choice. So it’s no wonder why there are nearly 300 million active life insurance policies in the US right now. However, a recent study by the American Statistical Association found that only 60% of those polled actually had a policy, despite the fact that 90% of respondents believe they should definitely have a life insurance policy. A prime reason for this discrepancy might be the complex nature of life insurance policies and the difficulty associated with determining which policy is best suited to a particular individual’s needs and life circumstances. If you, like millions of Americans today, are looking for Life Insurance, but aren’t sure where to begin, this article can help you understand the different choices available and find the right insurance policy for you and your family.

Already know which type of life insurance policy you are looking for?

TERM OR PERMANENT?

All life insurance policies fall into one of two main categories: Term or Permanent.

The primary difference between the two is that a Term policy will cover you for a predetermined amount of time and will eventually expire unless it is renewed. Meanwhile, a Permanent policy does not expire. Because Permanent policies do not expire, they generally require significantly higher premiums than Term policies. However, many individuals use this to their advantage by using their Permanent life insurance policy as a tax-free savings account. In many cases, money paid into the

Permanent policy can be removed without penalty. Still, many individuals prefer the significantly lower premiums associated with Term policies because they either cannot afford the monthly premiums of a Permanent Policy, or because they would rather invest the extra money in a savings instrument with a higher interest rate. If you are certain you want your family to receive the financial benefit of Life Insurance regardless of when you pass away, and you don’t mind the higher monthly premium, then a Permanent Policy might be right for you. If you are more interested in protecting your family against unforeseen accidents for the majority of your life but do not want to pay a high monthly premium, then a Term policy might be right for you.

TYPES OF APPROVAL PROCESSES

After you have determined whether you are looking for a Term policy or Permanent policy, you can further refine your search by discovering which type of insurance approval process best suits your needs. In general, there are 3 types of approval processes: Guaranteed, Simplified, and Fully Underwritten

  1. Guaranteed issue: You are not required to answer any health questions or undertake a medical exam, you’ll simply be accepted.
  2. Simplified issue: You are required to answer some questions about your health but you don’t need to undertake a medical examination.
  3. Fully underwritten: This process generally involves filling out a lengthy questionnaire and application. It also requires you to undertake a life insurance medical exam.

Guaranteed issue and Simplified issue policies will usually have significantly higher premiums than Fully Underwritten policies. However, health issues that may be revealed during a medical exam are also likely to increase your premium. If you do not have any known significant health issues, a Fully Underwritten policy will likely be your best option. However, if you do have significant health issues, you may want to compare the cost of a Fully Underwritten policy against a Simplified or even guaranteed issue policy to determine which will provide you with the lowest premium for the highest level of coverage.

HOW MUCH INSURANCE TO PURCHASE

Once you know whether you are looking for a Permanent or Term policy, and which type of approval process you would like, the next step is to consider the amount of insurance you’ll need. There are a number of ways to determine the correct amount of coverage and a financial advisor may be able to assist you with a precise number, but to get a starting estimate, you can begin by finding the sum of all your current and future financial obligations, and subtracting your current and future assets (8). The formula would look something like this:

INSURED AMOUNT = (FINANCIAL OBLIGATIONS) - (LIQUID ASSETS)

When considering your financial obligations remember to include your current and future salary, any outstanding debts you may owe, and any future investments you may want to enable your family to make such as the purchase of a new house or college tuition for your children. When considering your assets think about any investments you may have already made to include retirement, pension, home equity, vehicle equity, and any stocks or bonds. After you have completed the calculation, you can see what a minimum life insurance policy might look like for you.

Carefully study the Rider features in the policy

Life insurance riders are like addons over a primary policy, which only come into play in case of a specific event. They offer financial coverage over and above the basic sum assured in a life insurance policy.

There are a variety of riders which might suit your needs. Some of them have been listed below:

  1. Critical illness rider: The policyholder is entitled to receive financial benefits if diagnosed with a critical illness.
  2. Disability rider: The policyholder will receive financial benefits if afflicted with a disability that’s explicitly covered by the rider
  3. Accidental death benefit rider: The policyholder receives benefits on an accident leading to death
  4. Term rider: Offers monthly income to your appointed beneficiary should you (the insured) die
  5. Waiver of premium rider: The policyholder is not required to pay future premiums in the event of an accident or mishap as defined by the rider.

Research on each Insurer’s Reputation and financial strength rating

Your insurance policy is meant to protect your family in case the worst happens, but that is only possible if the Insurance Company who is selling the policy is financially strong, reliable and has a good track record of settling their claims. All the states in US regulate insurance providers and most of the states have some kind of online source or portal for providing transparent information about these insurance companies to the consumers. There are four major service providers that rate insurance companies and provide information about their financial health:

  1. A.M. Best
  2. Moody’s
  3. Standard and Poor’s
  4. Fitch

These companies fairly analyze all the insurance providers based on their overall ability to settle the claims as promised. Be sure that whoever you buy a policy from shows a positive track record and high score from one/any/all of the above. It might be a good idea to compare rankings across a few of the above noted comparison companies.

Compare Quotes from multiple Life Insurance companies

Always remember to compare different Insurance companies for the best cost and Maximum coverage for the same premium amount.

For example, a $1,000,000 policy for a 20-year term could range between $50 and $70 per month for a 34-year-old nonsmoking male in excellent health; it would definitely be less for a female.

Standard provisions might vary but you can take help of many online tools where you can enter your zip code, answer a few questions and get a quick comparison quote.

Resources

1)    https://www.investopedia.com/articles/active-trading/120814/life-insurance-smart-investment.asp
2)    https://www.statista.com/statistics/207651/us-life-insurance-policies-in-force/
3)    https://www.nerdwallet.com/blog/insurance/what-is-the-difference-between-term-whole-life-insurance/
4)    https://termlife2go.com/life-insurance-underwriting-process/
5)    https://www.asecurelife.com/guaranteed-issue-vs-simplified-issue-life-insurance/
6)    https://www.nerdwallet.com/blog/insurance/life-insurance-with-preexisting-condition/
7)    https://www.nerdwallet.com/blog/insurance/how-much-life-insurance-do-i-need/