While you can receive a life insurance quote online in just a few minutes, it may be difficult to immediately determine whether the lowest-priced option is the best fit. That’s because life insurance comes in a myriad of forms and at a multitude of prices. To narrow down the options and find what’s right for you and your family, ask these questions as you carry out a policy search.
How Much Income Would Need to Be Replaced?
Your living situation and age play significant roles in determining how much coverage you need from a policy. “Life insurance is a great tool for protecting heirs that depend on an income stream from a family breadwinner, or to replace the economic value of a stay-at-home parent,” Joe Taylor, owner and founder of Oak Street Advisors in Myrtle Beach, South Carolina, told The Epoch Times. As such, you’ll want to determine how much income would be needed in your absence to support any loved ones who depend on you financially.
“For a young couple with children, we will often add the cost of funding any higher education and a mortgage pay-off amount to take any worry about expenses off the table,” Taylor said. “We would subtract any investment or retirement savings from this amount, as those assets can be used to provide some income loss offsets.” If your children are grown and self-supportive, you might need a different level of income to provide for a spouse or leave for other family members.
What Types of Policies are Available?
“Term insurance is geared towards young families,” Lisamarie Monaco, a national independent life insurance agent, told The Epoch Times. If you have a growing family, a home mortgage, and other debts, you might opt for this type of policy. It will last for a chosen time length, such as 10, 15, 20, or 30 years. You’ll usually need to undergo a medical exam for the policy, which will then determine factors like the cost of the premiums. When the policy ends, you will either need to purchase a new policy or renew the one you have.
Another option is known as whole life, or permanent, insurance. This policy will last for your lifetime, as long as you continue to pay premiums. It also includes a cash value, in which part of your premiums are placed into investments. The earnings may grow over time, and you won’t pay taxes on the gains. You might be able to borrow from this cash value or use it to pay your premiums; you eventually could take it out as cash as well.
You may also come across a type called final expense or burial insurance. “The age frame for this type of policy is 50 to 89 years of age,” Monaco said. It might be purchased to cover the cost of funeral expenses, pay off some debt, or leave an amount behind for children or grandchildren. This type of policy doesn’t require a medical exam but will include health questions on the application.
How Much Will the Insurance Cost?
Different types of policies carry distinct prices based on factors such as the amount of coverage, length of policy, and your health status. If you purchase a term life insurance policy, you will generally find two kinds available: guaranteed level term life insurance and renewable annual policies. With guaranteed level term life insurance, the premiums remain the same for the length of the policy. A renewable annual policy will need to be renewed, and at each renewal the premium is raised.
With a whole life insurance policy, the premiums remain the same throughout the length of the policy. Since the policy lasts for your lifetime, the premiums tend to be much higher than those for term life insurance.
Does the Policy have First-Day Coverage?
Some policies include a length of time that must pass before the entire death benefit is available. If you opt for a life insurance policy with a two-year waiting period, your beneficiary would not receive the full death benefit if you pass away during the first two years. “You would instead only get a ‘return of your premium’ plus a small interest payment, which is typically 10 percent,” Randy VanderVaate, president and owner of Funeral Funds of America, told The Epoch Times.
If the policy states it has first-day coverage, there isn’t a waiting period involved until the benefits are effective. “First-day coverage plans will pay to your beneficiary 100 percent of the death benefit from the first day,” VanderVaate said.
Are There Discounts Available?
If you are in poor health or smoke you can generally expect to pay more for coverage. On the other hand, if you are in good health and don’t smoke, you might be eligible for certain price reductions. “Ask your agent if there are any discounts for not smoking, having a healthy height to weight ratio, being healthy over the last 24 months, or discounts for not being on certain medications,” VanderVaate said. “These discounts can save you big money over the life of your policy.”