Making a smart and thoughtful decision in choosing your life insurance can help you and your family big time as you continue through life. But when you’re shopping for life insurance, you may be uncertain of where to start and what features to seek.
Consider this guide, a quick overview of how to buy life insurance, and know that our team at McFie Insuranceis also here to help you navigate the process. Now here are 5 easy steps that can help you feel confident you are getting the best life insurance to fit your needs.
Your age, income, family status, and expenses all play a part in defining your financial situation. These are a few of the key metrics to consider when assessing your need for life insurance too.
The reason these metrics are important in accessing your need for life insurance becomes clear when you consider a 25-year-old who makes $45,000 a year, has no children and doesn’t own a home, will likely require much less life insurance coverage than someone who is 40, makes $250,000 a year, has a mortgage on their home, and is married with 2 children who will likely want a college education.
You can see how these factors may impact your decision about how much insurance you need, and perhaps even the type of life insurance that best fits your needs.
From here, you can think about financial obligations and who will be most affected if/when you pass away. You may consider questions like:
If you want help discovering how much life insurance you may need to cover your liabilities and carry on your family goals, you can always speak to one of our team here at McFie Insurance- 702-660-7000.
In addition to providing a death benefit, some life insurance policies can also be a great financial tool during your lifetime providing liquidity for major purchases, and a reserve against volatility in the stock market. Because of these benefits, many people like to use life insurance as part of their financial planning leading up to, and continuing into, retirement.
There are three main types of life insurance. These are whole life, term life, and universal life insurance. For further detail check out our article on the different types of life insurance.
Here’s a brief overview of each type of life insurance:
Whole Life Insurance: Whole life insurance is a type of permanent life insurance. Premiums are fixed and these premiums purchase a guaranteed death benefit and some cash value. Cash value is like equity in your death benefit, building over time. You are not relying on the stock market or an index, and the insurance company keeps all the investment risk.
In most cases, a well-designed whole life policy will build more guaranteed cash value than total premiums paid in the first 15 years. You can take policy loans against this cash value and use the money for major purchases, or other investments, paying the loan(s) back over time.
This can provide flexibility for you to use the policy while you’re alive. Finally, some whole life policies (participating policies) are eligible to receive dividends based on the profits of the insurance company.
Because of the cash value which builds in a good whole life insurance policy, this is usually the least expensive type of life insurance over time.
Term Life Insurance: Term insurance is very common because it is usually the most affordable type of life insurance in the beginning. It is also temporary lasting anywhere from one year at a time, to longer level-term periods which are commonly 10, 15, 20, or even 30 years.
Initially, premiums for term insurance will be lower than a similar amount of coverage in whole life or universal life insurance, but this does not last forever. When the level-term period expires, the premium can rise dramatically and there is no cash value to offset the premiums already paid.
Beneficiaries will only receive a death benefit on a term policy if the insured passes away while the policy is in force. So, for example, if you buy a 15-year level-term policy and live past the level-term period, you will probably choose not to pay the significantly higher premium in year 16. Then the policy will lapse, and no death benefit will ever be paid.
This said term insurance does have an important place – it’s great at providing affordable coverage for young families and may also be convertible to permanent coverage later on during the level-term period. Many people choose a combination of whole life insurance and term insurance to make sure they have some permanent coverage while still carrying enough life insurance coverage overall.
Universal Life Insurance: Universal life insurance is a popular type of life insurance that was first introduced in the 1980s. There are many variations of universal life including variable universal life (VUL) and indexed universal life (IUL). IUL especially has become very popular in the last 20 years.
Universal life insurance is classified as permanent life insurance, so it would seem like it should be guaranteed for your entire life, but this is not usually the case. Universal life insurance and whole life insurance do share some characteristics, but there are a few key differences that set them apart.
Universal life insurance is based on one-year term insurance; so basically, you’re always renting your death benefit. The cost of this insurance will increase dramatically over time, just like term insurance, and because of this the guaranteed cash values usually dwindle to zero at some point in the future. This never happens with whole life insurance where cash values are guaranteed to equal the death benefit at maturity.
Premiums for universal life insurance are also flexible as opposed to fixed premiums for whole life insurance. Flexible premiums may be part of the reason the insurance company is not able to guarantee strong cash values in universal life insurance contracts.
Depending on the type of universal life insurance, non-guaranteed values may be based on projections from an interest rate, potential market performance in VUL, or mirroring the performance of one or more market indices in IUL. The insurance company has the right to change certain fees in all universal life insurance products, and they also have the right to change participation and cap rates in IUL products.
At the end of the day, if something goes wrong in a universal life insurance policy the insurance company can often bill you for an additional premium.
In addition to the three main types of life insurance, you may also want to consider a variety of insurance riders. Riders can be added onto a life insurance policy to receive additional benefits and features. Similar riders may go by different names at different companies, but your selection will often include the following general types:
Paid-Up Additions Rider: This rider helps to build cash value quickly by adding paid-up insurance to a whole life policy. Paid-up insurance buys a relatively low amount of death benefit and requires no future premiums to maintain this portion of the total insurance coverage.
Guaranteed Insurability Rider: This rider is designed to provide you an option to increase your coverage at predetermined intervals without the need for additional underwriting and/or medical examination.
Accidental Death Rider: This rider provides an additional benefit if the insured dies because of an accident.
Waiver of Premium Rider: This rider is designed to cover your premium in the event you are disabled and cannot work.
Accelerated Death Benefit Rider: This rider gives you access to a portion of your death benefit in advance if you are diagnosed with a terminal illness. Some riders also include provision for a smaller portion of the death benefit to be paid in advance if you experience chronic or critical illnesses.
Child Insurance Rider: This rider allows you to add some temporary coverage for your children under your own life insurance policy. The coverage for each child can often be converted to permanent life insurance when your child reaches a specific age.
Trying to shop around comparing multiple life insurance companies and policy illustrations can quickly become overwhelming. If you like to analyze numbers, this may be right up your ally, but most people would rather enjoy their time in other activities.
This is where a knowledgeable agent can save you a lot of time…explaining the features and answering questions so you don’t have to learn everything on your own. A life insurance agent should never rush you to make a decision before you have a good understanding of how the product(s) work and what benefits you can expect.
At McFie Insurancewe know how life insurance works and how to design policies to maximize the value to our clients. We take an educational approach so you can be assured you’re making the best decision based on your own understanding and not under pressure from a salesperson.
Once you decide on the type of life insurance and the size of policy you want, the application process comes next.
This should go without saying, but you always want to be honest as you work with an agent and answer the questions for a life insurance application.
Some people try to hide a portion of their health history, a past bankruptcy or even traffic tickets in an attempt to get a better rating. But underwriting is good at discovering this information through the underwriting process, so trying to hide or misrepresent information just takes up valuable time and can make the underwriting team at the insurance company start wondering what else the applicant might be trying to hide.
It’s important to remember that a good agent will truly want to help you. Receiving accurate information will make the process much easier for you, your agent, and the life insurance company.
Finally, this doesn’t need to be a journey you take alone. At McFie Insurancewe are ready to help you find the perfect policy (or combination of policies) for your life insurance needs. Some people think they need to pay off debt or achieve other financial milestones before thinking about permanent insurance needs.
It is possible to buy too much life insurance, but at McFie Insurancewe understand the concept of a balanced approach to life insurance and other financial goals. We can design policies to be a good fit even as you start your financial journey, because life insurance is always less expensive when you start early. Wait too long and you might miss important benefits that can help during your life and in retirement.
Shopping for life insurance can seem daunting, but it doesn’t need to be, so don’t worry yourself into a state of uncertainty. Choosing your life insurance is an important decision that can directly contribute to your greater financial success. Contact your McFie Insuranceteam and schedule a strategy session today!
We can help you navigate the life insurance shopping and underwriting process so you can find the best life insurance for you and your family in a very short time. And after the sale, we stick around to provide you top-notch customer service.