Life insurance coverage can be a bit hard to navigate when you are first looking for coverage.
With so many options between policies, companies, rates, riders, agents, and more, it can quickly feel as if you are falling down the rabbit hole even when all you are doing is looking for quick life insurance coverage.
We created this guide to help both newcomers and people looking to find supplemental life insurance coverage or replace an old life insurance policy.
In this article, we will cover 7 Questions you should always ask before considering life insurance that will help you figure out which coverage is best for you and help you get the most out of your life insurance.
We also discuss 5 Tips that can help you save on life insurance. These tips can be applied to any life insurance policy, and really help people to get the most out of their life insurance coverage in terms of value and protection.
7 Questions to Ask That Can Help You Get the Most Out of Your Life Insurance Policy
1) How Long Do You Need Life Insurance Coverage For?
The first thing you want to understand is the length of their coverage. Life insurance is divisible into two main categories, permanent life insurance, and term life insurance.
Permanent Life Insurance
As the name suggests, permanent life insurance is one which includes your whole life. It is meant to give you lifelong financial protection for the length of time that your policy is in force. You never have to worry about it again.
Term Life Insurance
By comparison, term insurance is one set up for a specific length of time. You can set up term life insurance for ten years at a time, fifteen years, twenty years, twenty-five years, or thirty years at a time.
With term life insurance policies, you can renew the policy each time the term is up, or convert it to permanent life insurance.
2) How Much Does Life Insurance Coverage Cost?
Each different type of life insurance policy has different monthly premium costs based on the coverage you are receiving and the personal factors that affect life insurance rates such as:
Depending on how these factors that affect life insurance rates line up for you, you will likely have a myriad of coverage options available to you. From there, you will want to consider the remaining questions on our list in order to get the most out of your life insurance coverage.
3) Is Cash Value Accumulation Something I Want in a Life Policy?
Permanent life insurance coverage comes with one major difference when compared to term life coverage – cash value accumulation.
The premiums you pay into your policy build cash value over time in a number of different investment vehicles. There are many types of permanent life insurance policies, each of which accumulates cash value in a different way. This cash value can be borrowed against tax-free and is also added to your death benefit when you pass.
However, this cash value accumulation comes at a price. A big one.
Permanent life insurance is far more expensive than term coverage, usually more than 10x more expensive. Unless you are someone who plans on creating an estate or trust, or really has the funds necessary to afford permanent life insurance coverage, term life insurance is the best way to get the most out of your life insurance policy.
Alternatively, guaranteed universal policies offer a nice blend of permanent coverage without the cash build up, and therefore more reasonable premium pricing.
4) Will You Need Life Insurance Coverage After Your Term Has Expired?
If you opt for a term policy you can purchase a policy rider that allows the ability to convert it to a permanent life insurance policy later. However, once you get the permanent policy, there is no going back.
Term life insurance is much more affordable, but the obvious downside is that you do not have coverage for your whole life. When purchasing a life insurance policy, you want to be sure that you keep in mind how your coverage needs will evolve over time.
Layering Term Life Insurance
One nifty technique you can use to get the most out of your term life insurance is to layer coverage. This is a process in which you purchase multiple term life insurance policies that are issued at once. Each policy has its own expiration date years apart, and its own death benefit.
This allows you to dynamically have life insurance coverage which changes with your needs over time.
Example: I take out a 10-year term life insurance policy, a 20-year, and a 30-year at the same time. The 10-year has the smallest amount of coverage because now I live in a condo with my girlfriend and only have a small amount of debt.
We plan on starting a family and moving into a house in the next 10 years, so the 20-year policy has more coverage, which is designed to cover this.
The 30-year plan accounts for our kids one day growing up and needing college payments, etc… This policy has even more coverage which will overlap so that we can ensure we have enough coverage for all of the various stages in our life together.
You can also layer life insurance differently than this, this is just one example of how it works and how it helps you to get the most out of your life insurance coverage.
Remember Your Health Can Change
One very important thing to consider to ensure that you get the most out of your life insurance policy and pay the lowest life insurance rates possible is to remember how health affects life insurance rates.
While right now, it may not make sense to take out more life insurance coverage than you may need, you can get extremely low life insurance rates when you are young and healthy that may not be available to you in the future as health changes.
5) How Much Life Insurance Coverage Do I Need?
When considering how much life insurance coverage you need, you want to take into account all of the finances that you are responsible for, and can potentially be responsible for in the near future. This can be difficult at times, so here is a list of how to calculate how much life insurance coverage you need:
- Add mortgage, car, credit card, and other debt
- Consider your financial dependents
- How much do they depend on your income?
- If you were gone, could they pay for themselves without your income?
- How long will they need your income before they can become financially independent?
- Consider funeral, burial and medical expenses in the event of your unexpected death
These are the main factors that have the largest impact on how much life insurance coverage you need. Keep in mind, over 40% of people overestimate how much life insurance coverage they need.
While it is best to have more than you need, in order to get the most out of your life insurance policy, you want to make sure that you carefully calculate how much coverage you will need.
6) Which Life Insurance Policy Riders Should I Consider?
One of the most overlooked parts of a life insurance policy during the application and purchasing process is the policy riders. These are policy add-ons that give additional coverage to a life policy.
These riders differ based on the company, policy, and your personal information. Policy riders are a great way to get the most out of your life insurance policy.
Some common policy riders that can help maximize your life insurance coverage are:
Long-Term Care Rider
This policy rider is more common on permanent life insurance policies because it allows you to purchase additional coverage which will cover the costs of you living in an assisted living facility or hospice home if you need long-term care as you get older.
This is a great way to get the most out of your life insurance policy because long-term care is quickly becoming more and more important as people are living longer, and also is continuing to increase in cost as well.
Disability Income Rider
This policy rider allows policy owners who are permanently disabled in a way that it prevents them from working to receive a portion of their death benefit as monthly income.
Waiver of Premium Rider
Waiver of Premium allows for the premiums of the life insurance policy to be waived in the event that the insured can no longer work or is disabled.
Children’s Life Insurance Rider
This is a rider that allows policyholders to take out life insurance policies on their children, which can mature as they do, and eventually be turned over to them once they are adults.
Many other policy riders exist, this example is just to show you the power of how they can help you maximize your life insurance coverage to really get the most out of your life insurance coverage. Most policy riders cost additional fees which are added on to the monthly rate.
7) Should I Supplement My Existing Life Insurance Through My Work?
This is a great question.
Often times, life insurance through employers is very limited and actually opens the doors to a lot of risky situations for policyholders.
If your job or health changes, you may be out of luck when you really have a need for your life insurance. In order to get the most out of your life insurance policy, you want to make sure that you understand your life policy offered through work.
If you have not yet explored it, you want to immediately consider getting supplemental life insurance coverage from what is offered through your work. Your family may be at risk, and the last thing you want is for your life insurance coverage to fail when your family needs it most.
To maximize your life insurance policy, we recommend speaking with a professional who can help assess your gaps in coverage, how much more you need, and what your policy and rate options are in order to help you find the best life insurance policy for your family.
5 Tips for Getting the Most Out of Your Life Insurance Policy
1) Pay For Your Life Insurance Annually and Not Monthly
If you can afford it, pay your life insurance annually.
Some insurers will charge you a fee if you pay monthly. The fewer payments you can get away with over a year, the less you will pay. This is a simple and overlooked way to get the most out of your life insurance policy.
Even if you cannot afford to pay for your policy annually, if you can do a fractional premium every few months rather than every month, that can save you a bit each time. On a related note, some insurers will charge less if they are able to transfer premiums directly from your bank account.
2) Get Life Insurance Before You Need It
You can start paying into life insurance long before you need it. If you set up a lower price point when you are healthier, you set yourself up for long-term savings.
Think of it as forming a relationship with a bank. When you are a long-term customer who then stumbles upon some late fines or overdraft fees, they are going to be less intense compared to people who are brand new customers.
Life insurance will give you lower premiums if you buy at an early age compared to buying at a late age. Many policies give you the option to renew coverage once a term expires without needing another exam too.
While it seems counterintuitive to purchase life insurance when you do not need it, the lower rates you receive when you are young and healthy may be much lower than ones you can secure later.
Over time, you may actually save money and have more coverage available to you if your health changes by buying life insurance young. This is a sneaky and easy way to get the most out of your life insurance coverage.
3) If Your Health Has Improved or You Have Quit Smoking, Get Re-Evaluated
One of the most important things you can do to get the most out of your life insurance coverage is to improve and maintain your health. You have to submit to a physical exam in order to apply for most traditional life insurance policies.
In so doing, you might uncover health issues like high cholesterol or blood pressure that are taken into account when setting up your premiums.
If your health improves after you have set up your life insurance policy, you can go back and ask to be re-evaluated. Something, like removing a serious ailment or reducing high blood pressure, might result in a permanent reduction for your premiums, which means more money in your pocket.
Smokers typically pay 2-5 times higher premiums for life insurance coverage than non-smokers. Those who are smokers when they apply, but quit after they have gotten coverage are eligible to apply for health re-evaluation after a certain time period (usually 1-2 years).
This can result in a huge reduction in life insurance rates to levels that are only 10% higher than non-smoker rates in some cases. This is an easy way for smokers to get the most out of their life insurance.
4) Find Low Load Policies
The concept of “no-load” or “low load” life insurance policies means there are fewer expenses like fees or commissions. A higher percentage of the premium is working for you and not for the life insurance company.
Not all companies offer these, so we suggest working with a professional to find low load policies in order to get the most out of your life insurance policy.
5) Avoid Guaranteed Issue Policies When Healthy
When you are healthy you want to avoid a guaranteed issue life insurance policy unless you need immediate life insurance coverage.
This is because they are life insurance policies that have no exam needed to obtain coverage. While this seems like a great option for people who do not want to take a medical exam for personal reasons, there are typically higher premiums for no exam and guaranteed issue policies than for traditional life insurance coverage.
For people who have health conditions that may prevent them from securing traditional life insurance coverage at affordable rates, or altogether, no exam and guaranteed issue life insurance is a great option.
However, if you are in good health and do not have an immediate need for life insurance and are willing to go through the full underwriting process, you want to avoid guaranteed issue policies in order to get the most out of your life insurance coverage.