In this webinar, Jennifer Lang explains how to get the best life insurance rates and how to run your own quote and apply without an agent. Follow and share!
Ever wonder why you’re paying the premium you’re paying? It’s not arbitrary.
Read on to take a peek into some factors that can determine the amount you’ll pay. An insurance company acts as source of money to pay benefactors in case an insurance contract is triggered. Insurance companies use statistics and probability projections to determine how much money someone should pay into the pool based on the probability that person will make an insurance claim. There are many factors that play into this premium amount, but typically those who are more likely to make a claim are required to pay more into the pool.
How insurance works
The concept itself is relatively simple: bad things happen sometimes and people want to avoid financial ruin that could arise from those bad things. To maintain peace of mind, or sometimes by law, people and/or companies will obtain insurance to reduce the risk of ruin. People also use insurance to “make themselves whole” again after financial issue, such as a car accident or the loss of income.
All those who want to obtain an insurance policy apply to be part of a pool. The insurance company then calculates how many people are in the pool, how much money they’ll probably need to pay insurance claims, then calculate each individual’s risk to the company.
For example, let’s take 500 people who want car insurance, and they drive similar cars in similar driving styles. Out of these 500 people, the company analyzes historical data from the pool and then anticipates that three people per month will make claims.
Additionally, the company calculates the claim amounts based on past data and the characteristics of pool members, like driving style, location, and type of vehicle. Then the insurer adds up those claims, divides the amount by the number of members (500 here), and tells each member to pay 1/500th of the claim amount. The result is that no single person is devastated by a single catastrophic event, all 500 people have a way to cover themselves if that event happens to them, and each person only pays 1/500th of a claim each month.
Which factors affect premiums
Which factors affect premiums on an insurance policy vary widely across insurance types. Driving style and vehicle value are obvious determining factors in car insurance. But so are other factors you may not be able to change, like location: those who commute to work spend more time in their cars and thus increase the probability of having an accident, simply for being in the car longer.
Health and life insurance focus on healthy lifestyles. If you’re more likely to live longer and require less medical attention, the lower your premiums. Renters and homeowners insurance consider the value of the property and the contents therein. Insurance policies will also vary based on the amount of coverage they offer. If your fire insurance only covers $2,000 worth of possessions, all things being equal, you’re probably going to pay a lower premium than someone who wants $20,000 of coverage.
Reducing your premiums
To avoid frequently making lower-risk members pay for the claims of higher-risk members, not everyone is thrown together in the same pool. If you can adjust your personal factors so that you’re entered into a different pool, you might see substantial reductions in your insurance premium. Your insurance company or agent should be able to help you identify which factors you score high for in riskiness so you can try to reduce your costs.
For example, if you smoke, quitting may greatly reduce your premiums (although you may have a waiting period like 12 months after you quit in order to qualify as a non-smoker). If you have several speeding tickets, ask how much a driving school certificate might help reduce your premiums.
The takeaway here is that your riskiness is based on a quantification of factors and the probability that any one of those factors will trigger a claim. The expected cost of covering the claim is then multiplied by the probability the claim will occur. Similarly risky people will be grouped together, then asked to pay their portion into the pool of expected claim payouts. Changes you can make in your lifestyle may add up to significant savings with your premiums.
Man is Mortal.
That makes life insurance a little unique and interesting, doesn't it?
We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different because it's a widely accepted fact that, sooner or later, each one of us will die.
So many choices.
When it comes to life insurance, there are many options. You may have heard terms like "whole life insurance," "term insurance," or "variable insurance," but what do they all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.
Whole life insurance.
This type of insurance covers your entire life (not just a portion or a "term" of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be, potentially, lower than if you invested on your own. Whole life policies also tend to cost more than "term" policies. This is both because they grow what is known as "cash value," and, after a certain period of time, you will be able to borrow against or withdraw from your whole life benefits.
Rather than covering your whole life, "term" insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally, you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified "term."
Variable life insurance.
Variable life insurance is a permanent insurance. Unlike whole life insurance, however, variable insurance allows you to invest the cash value of your policy into "subaccounts" (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. That means there could be significant risk involved, though, since the performance of your subaccounts cannot be guaranteed.
Universal life insurance.
With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values, which, over time, build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as your needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium goes toward insurance, and how much is used within the policy's investment element.
So, which is right for you?
Many factors come into play when deciding what type of life insurance will best suit your needs. The best thing to do is speak with a trusted and qualified financial professional who can assist you in looking at all the factors and help you to choose the policy that will work best for you.
To learn more, we recommend >> How To Get The Best Life Insurance Rate
However much we research the options available when buying life insurance, and discuss them with friends and family, there are some things we might just never know.
Following are suggestions from insiders – those who are involved in life-insurance matters on a daily basis.
Include payment with your application.
What would happen if you were to die after applying for a life-insurance policy, but before the application is processed? You wouldn’t have a policy, unless you take one important step: if you include a check for the first payment when you submit an application, your coverage will be retroactively binding to that day.
Don’t name a minor as a beneficiary.
One reason we buy life insurance is to provide for our children. But minors can’t receive life-insurance proceeds, at least not directly. If you name a child as a beneficiary, he or she may have a hard time getting the money before turning eighteen. And, at that point, the child receives the money with no controls over how it’s used. A better option may be to create a life-insurance trust that receives the money and specifies its use. For example, the trust can disburse the funds over time on milestones you define, such as when your child turns twenty-one, thirty, etc.
Don’t use group life insurance to satisfy a divorce agreement.
If a divorce agreement provides you with alimony or child support, it also likely requires your ex-spouse to have a life insurance policy naming you as a beneficiary. However, if your ex-spouse suggests using a work policy to satisfy this requirement, you may need to ask him or her to reconsider: if your ex-spouse changes jobs, the agreed-upon coverage may be lost.
Carrie, 35, and Sarah, 36, co-own a floral shop in Charlotte, North Carolina. After a few years of running the business from Carrie’s home, they’re excited about their new brick and mortar location. Both are married with kids.
Carrie and Sarah took out a $150,000 business loan to open their new storefront. As equal investors, they each play an important role in the success of their business.
If something happens to either of them, they want to make sure their dream business would be able to continue.
Carrie and Sarah knew life insurance was important and each purchased a $250,000 / 30-year
Term Life Insurance policy.
The accelerated underwriting process was simple, without the hassle of any medical exams. Should either pass away, the payout would cover the business loan and allow the remaining partner to buy out the business.
We also recommended they add on the optional Critical Illness Benefit Rider. If Carrie or Sarah were to face a critical illness like cancer, heart attack, or stroke, a $100,000 lump-sum payment could be used (any way they wish) to help keep the business going.
How many times have you heard the myth that it’s better to save than have life insurance?
The truth is, life insurance can be as vital to your financial strategy as your savings, because life insurance can protect your family and the wealth you’ve built. For example, if you were to pass away unexpectedly, it can help:
The main types of life insurance are:
Term life insuranceTerm life insurance policies provide coverage for a set time – or term – but build no cash value. Term policies are less expensive than permanent life insurance policies with the same face value.
Permanent life insurancePermanent life insurance policies remain in effect until the policy holder's death, provided premiums are paid. Most permanent life insurance policies also include a component that can build cash value over time.
If you’re an empty nester exploring a different financial strategy, here are some things to consider:
Chris, age 40, and his wife Amy, age 38, are a healthy married couple with two children who have lived in their home for 10 years. Amy’s dad passed away recently after a long battle with cancer, which got the couple thinking about if something happened to them.
Because of the couple’s good health, they answered just a few questions on the application and received instant approvals.
Amy’s experience with her dad was a first-hand reminder of the cost of dealing with an illness. At our suggestion, the couple purchased a Critical Illness Benefit Rider with a $30,000 benefit amount, which would cover the monthly mortgage payment for 2 years if a covered illness struck.
You can still protect your family. People with elevated blood pressure, diabetes or other chronic health conditions can often find a life insurance provider who will provide coverage. Even cancer survivors, especially those who have had five years since successful treatment, can purchase life insurance.
Here are just some of the ways they obtain life insurance coverage:
An employer who offers group life insurance: Many employers provide free or low-cost life insurance to their employees.
Membership in an association: Many alumni and professional associations give their members access to affordable group life insurance that does not require a medical exam.
A life insurance agent who offers the power of choice: Some life insurance agents, such as WFGInsuranceQuotes.com agents, represent many product providers and can help people with chronic health conditions find a suitable policy.
Premiums may be higher
When not participating in group health insurance, people with serious health conditions usually pay higher life insurance premiums than their healthier counterparts. Depending on the policy, as they start to manage their condition and become healthier (for example, get their blood pressure under control), they can get their policy re-rated so that they can pay lower premiums.
People buy life insurance policies, tuck them away in a drawer and forget about them. They don’t realize that these documents should be reviewed often because life insurance needs change as personal or financial circumstances change.
Get a Life Insurance Check-Up
Once a year and whenever a big life event happens – such as a new job, marriage or baby – make sure to meet with your financial professional to discuss the following four things about your coverage:
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