People often avoid shopping for life insurance because it seems like a costly and complicated process. Yet, life insurance can be an important investment, especially for single-income families. The best way to learn about available options is to talk to an insurance agent about your specific needs, but it helps to understand a few basics before starting (or updating) your life insurance policy.
1. There are different kinds of policies
Life insurance generally falls into two types: whole or term policies.
Whole life insurance (also known as permanent or universal) doubles as a way to invest or build savings for the future. Premiums are expensive, but you have the option to cash out or borrow against the policy.
Term life insurance works more like car or home insurance. You pay a monthly premium for a specific term (e.g., 10, 15 or 20 years). The policy does not have cash value, but the premiums are much lower.
2. Shopping around can lead to a better deal
If you haven’t purchased life insurance yet, talk to several companies before selecting a policy. Premiums can be very different from one company to the next. You might get a discount if you use one agent for all of your insurance needs (life, auto, home, etc.), but that is not always the case.
3. Employer-based policies will not transfer if you change jobs
Many employers offer life insurance as part of their benefits package. This can be a good deal, however, the policy is not portable. This means that your life insurance policy will end as soon as you change jobs.
4. Healthy people get lower premiums
When it comes to life insurance, the time to qualify for a low premium is when you are young and healthy. Older people, or those with pre-existing medical conditions, can qualify for life insurance, but the monthly premiums will be more expensive.
5. Lying on your application could cause you to lose coverage
Companies will often require a medical exam when you start a new policy, but they also ask you to provide your medical history. It’s important that you always tell an insurance agent the truth about your health. Hiding a pre-existing condition or family history could lead to your policy being dropped or future claims being denied.
6. Too much, or too little, insurance can be a problem
Your monthly life insurance premiums are based on the amount of coverage you choose. You want enough coverage to support your family, but too much coverage can lead to high monthly payments, which affect your ability to make other investments. Plan your coverage carefully.
7. Policies can be updated to meet changing needs
Life insurance policies should be reviewed and updated periodically, especially after major life changes like getting married or having a baby. You may want to increase your coverage if you have a new dependent, or scale back your coverage after your grown children graduate and begin supporting themselves.
Having an honest discussion with your insurance agent will help you understand your life insurance policy options. Just don’t be afraid to ask questions and shop around to find the best coverage for your family.