[Tips!] Life Insurance Buyer’s Guide – Top 3 Questions

This ‘Buyer’s Guide’ is for You, if… you are in the market for Life Insurance AND you already know the BASICS (i.e. how life insurance works), BUT you are not quite sure how to choose the right:

• TYPE OF LIFE INSURANCE,
• COVERAGE (FACE) AMOUNT, or
• LIFE INSURANCE COMPANY

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In this guide, we’ll help you answer these 3 questions:

1. Which Type of Life Insurance is Best for Me?
2. How Much Coverage (“Face” Amount) Do I Need?
3. What’s The Best Company, for Me; Based on My Specific Situation?

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QUESTION NUMBER ONE

Which Type of Life Insurance is Best For Me?

Hint:  Term Life Insurance Is (Almost) Always the Best Choice.

If you’re looking for financial security for your family at a great price, term life insurance is your choice.

You’ve probably heard a radio commercial that says:

“Joe, who is a 40-year-old non smoker in good health, got a $500,000 policy for just $23 per month”

That’s an ad for TERM!

You can tell because Joe can get a lot of coverage for a really low rate!

You’ve got another option when it comes to types of life insurance called permanent life insurance (whole or universal life insurance).  It costs more, but may provide lifetime coverage.

Here’s a quick comparison:

• Term life insurance –
  lowest cost option, provides coverage for 10 to 30 years, premiums stay level during the “term”, has no cash value
• Whole or Universal life insurance –
  costs up to 20x more, has an investment component, designed for lifetime coverage

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Ideal Term Life Insurance Buyer:

Natalia is 35 years old, married, and has two children, ages 10 and 12.  She and her husband both work full-time.  They don’t have much in savings so if anything happened to Natalia, her husband would stuggle to pay the bills by himself and manage to care for the kids.  

Why Term for This Situation?

Natalia doesn’t need life insurance forever, but should have some coverage in place for at least 10 to 15 years so her husband could get some help paying the bills and raising the kids if she passed. 

Other term features:

• Conversion –
  some plans allow you to convert to a permanent policy before the term ends without proof of good health
• Reduce coverage –
  some plans allow you to reduce your coverage as your needs change.  As you get older and save up more money, for example, you may not need as much coverage
• “Living Benefits” – Most plans allow you to access a portion of the death benefit while you are still living if you are diagnosed with a chronic or terminal illness

What is the right term length?

Most companies offer 10, 15, 20, and 30 year term lengths, during which time, your premium cannot increase.  

It’s important to choose the right term length, because your rates will typically skyrocket at the end of the term OR when the policy simply expires.

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Key factors to help you decide the right length:

• Cost:  
  Shorter terms cost less than longer terms, so 10 year typically costs the least while 30 year costs the most.  If you’re on a tight budget, a shorter term might be the way to go.
• Career plans:  
  You might choose a term that coincides with your approximate age of retirement.  If you are a prudent financial planner, you should have plenty in savings and investments by then that you will no longer need coverage.
• Obligations: 
  You might also line up your term expiration with the date when you will pay off your mortgage or some other loan or obligation.
• Financial planning: 
  Do you consistently invest in savings and retirement?  You might look 10 to 15 years down the road and see a future where you’ve paid down (or paid off) your debts, have plenty in the bank, and no longer need coverage.

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Try not to get too hung up on the term length.  Analysis can lead to paralysis and the important thing is that you get your family the protection they need.  

If you want a sizeable amount of coverage —at affordable rates— and need coverage for 10 to 30 years, a Term Life policy is probably the best choice for you.

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The Case for Permanent Insurance

Permanent plans like whole life and universal life insurance can be an attractive alternative for people who want coverage to age 90, 95, 100 or 120, or for people interested in the cash value or “investment” component of life insurance.

The 2 Main Types of Permanent Life Insurance:

• Whole life insurance –
  Does not expire.  Offers guaranteed premiums, cash values, and death benefits. Lasts until age 100 at which point it “endows” and pays your beneficiary even if insured is still alive.  It is the most expensive form of life insurance and offers the most guarantees.  
  Read our full guide→
• Universal Life Insurance –
  Another form of permanent coverage.  Unlike whole life, universal life has flexible premiums, cash value and death benefit.  It can be customized in many different ways.  It is cheaper than whole life but more expensive than term insurance.  
  Read our full guide→

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Here’s the permanent plan we recommend most:

We talked about the flexibility of universal life above.

Well… Some universal life insurance policies are specially designed to mimic the pricing of term life insurance.

It’s called “guaranteed universal life” and —in a nutshell— it can allow you to buy affordable coverage for your entire life, essentially by stripping out most or all of the cash value growth of a typical universal life policy.

Since it acts like term and is affordable, we highly recommend it to people who want to lock in their rates to age 90 or later.

You can request a quote for guaranteed universal life insurance, below.

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You may also need permanent coverage if you:

• have special needs children
• need life insurance for estate planning
• need business life insurance
• over 50 years old – longer terms typically have max age limits starting at age 50
• have a serious medical condition like cancer or HIV and can’t qualify for term
• want to use life insurance for supplemental retirement income

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QUESTION NUMBER TWO

How Much Coverage (“Face” Amount) Do I Need?

There are two approaches you can take to calculate how much life insurance you need.  

If you want a quick estimate, you can use a proven rule of thumb.  If you prefer to be more precise, however; we’ll give the ‘calculated approach’ as well.

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#1 – Proven Rule of Thumb

Dave Ramsey says to get coverage that’s equal to 10-12 times your annual income.

But that only applies to income protection.  The calculation changes based on the situation.

Here are some other popular rules of thumb depending on your life insurance need:

• Income Protection for Breadwinner:  10 – 20 times annual income
• Non-Working Spouse:  Half the coverage of working spouse
• Final Expenses:  $50,000 for funeral, burial, and debts
• Leave an Inheritance:  Total of mortgage and other debts plus inheritance 
• Key Employee:  1 – 3 times annual revenue for which the employee is responsible

Obviously, a rule of thumb is just a starting point. You can —and should!— make adjustments for your own situation.

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#2 – Calculate Your Needs

The easiest way to calculate your life insurance need is to estimate how much your spouse (or other beneficiary) would need per year if you were gone and multiply that number by the number of years they would need it.

For example:

My family spends about $100,000 per year, but if I was gone, my wife would probably only need about $80,000 per year.  I estimate she’d need that for about 20 years.

Result: $1.6 million dollars needed ($80k X 20 years)

You can modify the calculation above by adding in additional expenses such as:

• money to fund college 
• pay off debts
• final expenses (funeral and burial)

If your spouse/beneficiary has other forms of income or assets (for example: if he/she works), that will reduce the amount of life insurance needed.

In addition, if you have existing life insurance, cash, investments, or other assets, you might subtract the total of those assets from the amount your beneficiary will need.

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You can see now why we say (keep saying) Life Insurance is NOT a “one-size-fits-all” product. It truly is IMPORTANT to know your options, based on your own specific circumstances. Speaking with an experienced independent broker, is always advised. Call anytime: 888 681-4952

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Three Factors That May “Cap” How Much Life Insurance You Can Buy

Please also consider these factors when deciding on an amount.

1. You Must “Financially Qualify” for the Amount You Request –
   You can typically qualify for 20 to 40 times your annual income depending on your age.  Life insurance is about replacing the financial loss caused by the insured person’s death, not designed to make your family rich.
2. Make Sure It’s Affordable! –
   None of the calculations you make below will mean a hill of beans if you buy more coverage than you can afford and end up dropping your policy.
3. Quoted Rate May Be Different Than Final Rate –
   Sometimes a site or agent quotes you an amount, but it’s really just an estimate.  Actual premiums will depend on what the insurance company learns about your health and lifestyle during the approval process.  If you are not as healthy as your quote expected, you could move into a higher risk class which would raise your premium.  The nice thing here is you can usually request for a decrease in death benefit or term length to fit your budget.

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QUESTION NUMBER THREE

What’s The Best Company, for Me; Based on My Specific Situation?

Once you know the type of insurance you want and the amount, you’re 90% there. Here are a few tips to keep in mind before selecting a company.

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How To Find the Perfect Company for You:

The “right company” depends entirely on your specific needs and situation. Please never hesitate to call: 888 681-4952 to discuss your goals, your individual circumstances, and your budget.

While it’s best to get personalized advice, below we offer some ‘guidance / tips’ based on your: AGE, HEALTH, and WILLINGNESS TO TAKE A MEDICAL EXAM.

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How Old (or Young!) Are You?

18 to 24 years old

You can choose an exam or no exam option, at this age range; so long as your are in good health.  

25 – 39 years old

You can choose an exam or no exam option, at this age range; so long as your are in good health.     

40 – 60 years old

You can still choose an exam or no exam option, at this age; so long as your are in good health, although the no medical exam options become more limited.

Over 60

Life insurance options become much more limited when you are over age 60. Our recommendation is to speak with an experienced Independent Life Insurance Broker. You can call us at: 888-681-4952.

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Do You Have Any Medical Conditions?

Most companies reject anyone with medical concerns, but we specialize in helping you get approved! We have learned which companies are more lenient when it comes to certain health issues (as well as hobbies and lifestyle choices).  Call anytime with questions: 888-681-4952

*Mild medical conditions such as high blood pressure or high cholesterol (if controlled), asthma, or mildly overweight, should not impact life insurance approval.

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Are You Willing to Take a Medical Exam?

Medical Exam Option: 

Requires a free abbreviated medical exam (height/weight, blood pressure, blood & urine sample). 

You’ll typically save at least 5-10%, but it may take 4-6 weeks to be approved (you can buy temporary coverage, while you wait).  

This is generally the way to go if you want the absolute lowest price, have any health conditions, and/or you are over 60.

No Exam Option: 

Non medical policies require no physical exam. You could be approved in as little as a few hours or a few days.  

Note: qualifying requires that you are under 60 years old and very healthy

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Hands down, the best way to get low rates on life insurance is to agree to take a medical exam.

This just lets the Life Insurance Company get a good ‘current snapshot’ of your health— reducing their risk, therefore; reducing your price!

Taking a medical exam is NOT a big deal.  It takes about 30 minutes, it’s free; and it is done in the convenience of your own home.

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You Should Not Shop for a “No Medical Exam” Life Insurance Policy, If:

• You smoke (tobacco or marijuana)
• You have any health condition (from high blood pressure to asthma to diabetes or heart disease)
• History of cancer or heart disease in your family
• You travel outside the US
• You participate in hazardous activities (parachuting, hang gliding, rock climbing, auto racing, etc)
• Over 60 years old
• Or if you’re overweight

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Health Conditions?  Special Circumstances?  We’re Here To Help!

You see, every company treats all of the issues above differently.  

Some companies might charge you 50% more if your mother had cancer. Other companies may not penalize you at all. Some companies will make you pay smoker rates, if you smoke cigars or marijuana.  Some companies will let you pay non-smoker rates.

What’s the trick to knowing… which Companies are which?

Independent Life Insurance Brokers and Agents can shop from multiple companies for the best price for you.  So, if you have a special circumstance —like you’re 50 lbs overweight or you travel to Israel twice a year— companies will vary widely on how much they’ll charge you.

Long story short, it is always a wise to consult with an experienced licensed agent who has access to multiple companies to match you with the best fit. There is absolutely no cost! Our advice is FREE and so are OUR QUOTES!

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